Factor Comparison Method

Factor Comparison Method: Essential Guide for Modern HR Managers

Did you know the factor comparison method was first developed by Thomas E. Hitten in the early 20th century? This systematic approach has revolutionized how organizations evaluate diverse job roles while establishing fair and equitable pay structures.

Essentially, the factor comparison method of job evaluation assesses positions based on specific compensable factors including skill, mental effort, physical effort, responsibility, and working conditions. The process typically involves selecting benchmark jobs, identifying key factors, ranking these jobs, assigning monetary values, and finally establishing a comprehensive job ranking and pay structure. Though what is factor comparison method can be complex and time-consuming, it offers significant benefits for organizations seeking equitable compensation systems. Furthermore, this methodology allows HR professionals to determine the worth of newly created positions and set appropriate monetary values for each role.

In this guide, we’ll explore the factor comparison method steps in detail, examine its applications across different organizational contexts, and provide practical examples to help modern HR managers implement this valuable tool effectively. Whether you’re restructuring your compensation system or seeking to ensure pay equity, understanding this method is essential for today’s HR professionals.

What is the Factor Comparison Method of Job Evaluation?

The factor comparison method stands as a quantitative job evaluation technique that assesses different positions within an organization by breaking them down into specific compensable factors rather than evaluating jobs as wholes. This systematic approach assigns monetary values to each factor, creating a framework for establishing fair and equitable pay structures across diverse job roles.

Origin and purpose of the method

Originally developed in 1926 by Thoman E. Hitten as an offshoot of point rating, the factor comparison method emerged as a response to the need for more precise job evaluation systems after considering the recruitment metrics for effective hiring. Unlike other methods available at that time, this approach incorporated some principles of point rating while introducing significant innovations in the use of benchmark jobs and methods for comparing positions and establishing wage rates.

The primary purpose of this evaluation technique is to ensure internal equity and align salary structures with market standards. By identifying similarities and differences between various job roles, organizations can pinpoint areas where they can improve their compensation offerings. Additionally, the method helps determine other factors to motivate employees with thoughtful compensation and identifies potential disparities in how different employees are compensated for performing the same job.

When implementing the factor comparison method of job evaluation, HR professionals typically focus on five key factors:

• Mental requirements
• Skill requirements
• Physical requirements
• Responsibilities
• Working conditions

For clerical, technical, and supervisory staff, the first four factors are generally recommended, occasionally excluding working conditions depending on the nature of the work.

How it differs from whole-job ranking

The factor comparison method differs significantly from whole-job ranking approaches in several fundamental ways. First, instead of ranking entire positions holistically, this method breaks jobs down into specific components or factors. Consequently, each factor can be evaluated independently, allowing for more precise compensation structures.

Moreover, the factor comparison method assigns monetary values to each identified factor, creating a direct link between job components and compensation. This approach contrasts sharply with ranking methods that simply place jobs in order without quantifying their relative worth.

Another key distinction is the use of benchmark jobs as reference points. The method requires selecting benchmark positions that are well-defined, representative of various organizational levels and functions, and generally stable in terms of duties and responsibilities. These benchmark jobs serve as standards against which all other positions are evaluated.

The overall objective remains establishing fair and equitable pay grades within an organization, which can boost employee satisfaction throughout the employee cycle. However, the process is comparatively complicated to apply and can be difficult to explain to workers. Furthermore, the method assumes that wage rates for benchmark jobs are correct and definitive, with all other rates determined by reference to them—a premise that may not always hold true.

Despite these challenges, the factor comparison method continues to be commonly used in large organizations, government agencies, and unionized industries where maintaining fair pay practices is particularly important.

Key Factors Used in the Factor Comparison Method

The cornerstone of any effective factor comparison method lies in the specific factors that serve as evaluation criteria. While organizations may customize these factors based on their unique needs, five standard factors have emerged as the foundation for most job evaluation systems. Let’s examine each of these factors in depth.

Skill requirements

Skill requirements encompass the expertise, knowledge, and abilities necessary to perform a job effectively. These requirements typically include:

• Educational qualifications
• Technical expertise and specialized knowledge
• Years of experience required
• Problem-solving abilities
• Communication proficiency

During evaluation, HR professionals assess the complexity and depth of skills needed for each position. For instance, a software developer position might be rated highly on technical expertise but lower on required communication skills, whereas a sales manager position might show the opposite pattern. This factor often receives the highest monetary allocation in many evaluation systems, sometimes accounting for up to 30% of a job’s total salary value.

Mental and physical effort

The effort dimension splits into two distinct components that assess different aspects of job demands.

Mental effort measures the cognitive demands of a position, including decision-making responsibilities, problem-solving complexity, and concentration requirements. Jobs requiring sustained focus, strategic thinking, or complex analysis typically score higher in this category.

Physical effort, alternatively, evaluates the bodily exertion and stamina needed. This includes factors such as lifting requirements, standing duration, physical dexterity, and repetitive motion demands. A warehouse worker might score highly on physical effort but lower on mental effort, while an accountant’s scores would likely show the reverse pattern.

Together, these effort components might account for approximately 20-25% of a position’s total compensation value in many evaluation systems.

Level of responsibility

Responsibility evaluates the accountability, authority, and supervisory roles associated with a position. This factor considers:

• Financial accountability (budget management, purchasing authority)
• Supervisory responsibilities (number of direct reports)
• Impact of decisions on organizational outcomes
• Degree of autonomy in decision-making
• Custody of confidential information

Positions with higher responsibility levels naturally command greater compensation, with this factor typically accounting for about 25% of total job value in many organizations. A departmental director with budget oversight and multiple direct reports would score significantly higher than an individual contributor with limited decision-making authority.

Working conditions

This final factor assesses the physical environment and potential hazards or discomfort associated with a role. Elements evaluated include:

• Exposure to environmental factors (heat, cold, noise)
• Safety hazards and risk levels
• Stress factors and psychological pressure
• Schedule demands (shifts, on-call requirements)
• Travel requirements and location constraints

Jobs with challenging working conditions typically receive compensation premiums to offset these difficulties. Nevertheless, this factor usually carries the lowest weight in the overall evaluation, often accounting for about 15% of total job value.

Organizations implementing the factor comparison method should consider involving employees in identifying or reviewing these factors. This participatory approach provides deeper insights into job requirements while simultaneously building transparency and trust in the evaluation process. Through careful analysis of these standardized factors, HR professionals can create equitable compensation structures that appropriately value each position’s unique demands and contributions.

Step-by-Step Guide to Implementing the Factor Comparison Method

Implementing the factor comparison method requires meticulous planning and execution. This systematic approach ensures your organization establishes a fair compensation structure that accurately reflects job worth. Below, I outline the comprehensive process that will guide you through each stage of implementation.

1. Select benchmark jobs

The foundation of any successful factor comparison method begins with selecting appropriate benchmark jobs. These positions serve as anchors for your entire evaluation system. Ideally, select 20-25 jobs from various departments that meet these criteria:

• Well-defined responsibilities and established salary structures
• Representative of various levels and functions within your organization
• Stable in terms of duties and responsibilities
• Familiar to the evaluation committee

First, analyze these roles thoroughly, documenting their responsibilities, requirements, and current compensation. The quality of your benchmark selection directly impacts the accuracy of your entire evaluation system, so choose positions that truly represent your organization’s job spectrum.

2. Define and rank compensable factors

Subsequently, identify and clearly define the key factors that determine job value in your organization. Typical compensable factors include skills, mental effort, physical effort, responsibility, and working conditions.

When defining these factors:

• Ensure each factor is present in all jobs being evaluated
• Make them definable and measurable
• Verify they vary across different positions
• Confirm they are observable and job-related

Afterward, rank each benchmark job independently against each factor. For instance, rank all benchmark jobs according to skill requirements, then separately by responsibility level. This ranking process should involve input from both management and employees to ensure buy-in from all stakeholders.

3. Assign monetary values to each factor

Now comes the critical step of allocating financial value to each factor. Break down the total salary of benchmark positions and distribute portions to different job factors. For instance, a position with an established salary might allocate 30% to skill level, 25% to responsibility, 20% to effort, 15% to working conditions, and 10% to additional factors.

This process creates a monetary scale for each factor that will serve as the foundation for evaluating all other positions. The monetary assignments must reflect both internal equity concerns and market competitiveness.

4. Evaluate all other jobs using benchmarks

Once benchmark jobs are fully evaluated, use them as reference points to assess all remaining positions. Compare each job’s requirements to benchmark jobs for each factor individually. The process involves:

1. Analyzing how the job compares to benchmarks on each factor
2. Assigning appropriate monetary values based on these comparisons
3. Calculating total job value by summing all factor values

Throughout this process, maintain consistency in your evaluation approach to ensure fairness across all positions.

5. Establish pay grades and salary structure

Finally, with all evaluations complete, create a job hierarchy by grouping positions with similar total values. Jobs falling within similar point ranges can be grouped into the same pay grade.

Prior to implementation, validate your structure against market standards using industry compensation reports. This benchmarking ensures your compensation remains competitive while maintaining internal equity.

Once verified, establish formal pay grades with minimum, midpoint, and maximum salary levels for each grade. This structure provides room for growth within positions while maintaining overall compensation equity.

Remember to periodically review and adjust your evaluation results to keep the system relevant as organizational needs and market conditions evolve for improved employee experience.

Advantages and Disadvantages of the Factor Comparison Method

Every job evaluation methodology presents its own set of strengths and limitations. The factor comparison method, although detailed and systematic, is no exception to this rule. Understanding these characteristics helps HR managers determine whether this approach aligns with their organizational needs.

Advantages: Flexibility and fairness in pay structure

The factor comparison method offers remarkable versatility across diverse job types. Since it utilizes standard factors applicable to virtually any position, organizations can evaluate everything from entry-level roles to executive positions using consistent criteria.

Notably, this method excels in establishing transparent monetary values for each position, creating a clear foundation for salary discussions. The structured approach helps organizations distribute compensation equitably based on predefined factors rather than subjective opinions, thereby reducing workplace grievances.

One significant benefit is the method’s adaptability to organizational needs. HR teams can customize the factors to align perfectly with their specific compensation strategy and industry requirements. Furthermore, the absence of upper limits for factor ratings provides exceptional flexibility when evaluating positions.

Perhaps most importantly, the approach minimizes bias in compensation decisions by focusing on objective job-related factors instead of employee backgrounds or personal attributes. This promotes fairness in pay structures while supporting internal equity—ensuring employees performing comparable work receive similar compensation.

Disadvantages: Time-consuming and requires expertise

Conversely, implementing the factor comparison method demands substantial resources. The process of rating every job against multiple factors proves exceptionally time-consuming and costly. Additionally, maintaining consistency in application becomes increasingly challenging as organizational priorities evolve.

The methodology inherently involves subjective elements despite its structured approach. Since authority figures must determine job values, bias may infiltrate the process. Furthermore, the selection and weighting of factors introduce another layer of potential subjectivity.

Actually implementing this method requires specialized knowledge and skills from evaluators. Without proper expertise, organizations risk inaccurate weighting or factor selection, potentially leading to skewed results. This expertise requirement makes the method comparatively expensive to implement versus simpler evaluation approaches.

Lastly, some question the limitation of using only five standard factors for evaluation, as jobs differ significantly across and within organizations. This constraint may oversimplify complex positions or fail to capture unique aspects of specialized roles.

Factor Comparison Method Example in a Manufacturing Setup

To illustrate the factor comparison method in action, let’s examine a real-world example from a manufacturing environment. This practical demonstration showcases how theoretical principles translate into actionable compensation decisions.

Job roles used: Machine Operator, Technician, Supervisor

For our example, we’ll evaluate three common manufacturing positions: Machine Operator, Maintenance Technician, and Production Supervisor. These benchmark jobs represent different levels of responsibility and skill within the organization’s hierarchy. Each position requires distinct capabilities and contributes uniquely to operational success, making them ideal for demonstrating the factor comparison method’s application.

Ranking and monetary value assignment

First, we identify and rank each position against five key factors:

Next, we assign monetary values to each factor based on these rankings:

Skills: ₹42,190.23 (2nd), ₹84,380.45 (3rd), ₹126,570.68 (1st)
Responsibilities: ₹33,752.18 (3rd), ₹67,504.36 (2nd), ₹101,256.54 (1st)
Effort: ₹25,314.14 (3rd), ₹50,628.27 (2nd), ₹75,942.41 (1st)
Working Conditions: ₹16,876.09 (3rd), ₹33,752.18 (2nd), ₹50,628.27 (1st)
Education/Experience: ₹8,438.05 (3rd), ₹42,190.23 (2nd), ₹84,380.45 (1st)

Final job value calculation and pay grade setup

In practice, the total monetary value for each position is calculated by summing the values across all factors:

• Machine Operator: ₹210,951.13 (Skills: ₹84,380.45 + Responsibilities: ₹33,752.18 + Effort: ₹50,628.27 + Working Conditions: ₹33,752.18 + Education/Experience: ₹8,438.05)
• Maintenance Technician: ₹329,083.76 (total of all factors)
• Production Supervisor: ₹354,397.89 (total of all factors)

Alternatively, examining proportions can be revealing. For a Production Supervisor earning ₹5,906,631.56, approximately 30% (₹1,771,989.47) might be allocated to skill level, 20% (₹1,181,326.31) to effort, with remaining percentages distributed across other factors.

Based on these calculations, the organization establishes pay grades corresponding to job values, ensuring equitable compensation across similar positions.

Conclusion

The factor comparison method undoubtedly stands as a powerful tool for HR managers seeking to establish fair and equitable compensation structures. Throughout this guide, we explored how this century-old technique efficiently breaks down jobs into fundamental compensable factors rather than evaluating positions holistically. Additionally, we examined the five key factors—skill requirements, mental effort, physical effort, responsibility, and working conditions—that form the backbone of this evaluation method.

Certainly, implementing this approach requires significant investment in time and expertise. Nevertheless, the resulting benefits often justify these resource commitments. Organizations gain a transparent, defensible compensation framework that minimizes bias while maintaining flexibility across diverse job categories. Though subjective elements remain inherent to the process, a carefully structured implementation significantly reduces their impact.

The manufacturing example previously discussed demonstrates how this theoretical framework translates into practical application. By systematically ranking positions and assigning monetary values to each factor, organizations create a comprehensive job hierarchy that supports both internal equity and external competitiveness. Furthermore, this methodology adapts well to changing organizational priorities, making it a sustainable approach for long-term compensation management.

After all, effective job evaluation forms the foundation of any successful compensation strategy. Whether your organization operates in manufacturing, service, or knowledge sectors, the factor comparison method provides a structured approach to valuing diverse positions fairly. Despite its implementation challenges, this time-tested methodology continues to offer significant value for modern HR managers committed to building equitable workplaces.

FAQs

Q1. What is the factor comparison method in job evaluation? 

The factor comparison method is a quantitative job evaluation technique that assesses different positions within an organization by breaking them down into specific compensable factors. It assigns monetary values to each factor, creating a framework for establishing fair and equitable pay structures across diverse job roles.

Q2. What are the key factors used in the factor comparison method? 

The key factors typically used in the factor comparison method are skill requirements, mental effort, physical effort, level of responsibility, and working conditions. These factors are used to evaluate and compare different job positions within an organization.

Q3. How does the factor comparison method differ from other job evaluation techniques? 

Unlike whole-job ranking methods, the factor comparison method breaks jobs down into specific components and assigns monetary values to each factor. It also uses benchmark jobs as reference points for evaluating all other positions, providing a more detailed and quantitative approach to job evaluation.

Q4. What are the advantages of using the factor comparison method? 

The factor comparison method offers flexibility across diverse job types, establishes transparent monetary values for positions, and minimizes bias in compensation decisions. It also allows for customization of factors to align with specific organizational needs and promotes fairness in pay structures.

Q5. What are the challenges in implementing the factor comparison method? 

Implementing the factor comparison method can be time-consuming and costly. It requires specialized knowledge and skills from evaluators, and maintaining consistency in application can be challenging as organizational priorities evolve. There’s also a risk of subjectivity in factor selection and weighting