New age role sizing and position evaluation has been around since the first competency modelling developed around the early 1990’s. The preciseness of these systems have improved over the years and we can now confidently pay the right base salary, differentiate between position and incumbent and even place the HR asset value on the balance sheet (note).
The old “job” evaluation and the psychometric basis for sizing “jobs” has really been dead for a number of years. The point-factor job evaluation and processes like starting employees off at 85% and progressing to 115% of an imprecise number to start with would raise a few challenges – yet we still see remnants of this approach. The Productivity Commission study into executive remuneration questioned the processes used to determine the salaries that executives were paid and obviously market forces create the creep resulting in the salary levels we see today. What is critical is the not so much the package paid to specific appointments (this is a P&L expense), rather it is the value of the contribution of the position to the organisation. This is the value of the HR asset that should go on the balance sheet.
In modern human capital management the base salary is calculated precisely for the position. With an ideal position design then the applicant, incumbent or promotion candidate (s) can be assessed against this position and also valued. The new quantitative position evaluation uses competencies (outcome based competency vs behavioural) and this sets the position value and also used as the valuation on the individuals.
Competencies designed appropriately will have dimension such as a starting and finishing complexity as well as a significance to the position to deliver the critical outcomes. With over 20 years of experience in establishing competency models in Australia, some have become highly accurate and precise means of valuing the contribution of firstly the position and secondly the incumbent. Some of the earlier competency models designed in Australia were used in the early 1900’s in the restructure of the London Police Department. The modelling and verification of the systems have come a long way since this time.
A well designed position will be driven by the outcomes it produces for the respective stakeholder. These outcomes are measurable and therefore form the basis for the performance management system. The competencies key to the position are those competencies required to produce the outcomes at the standard set by the performance measures. This structured approach to position design provides the “ideal” position design and as the competency model is quantitative we also have the size of the position. Link this to market values then the sizing model becomes a valuation model curve. Competencies are generic across disciplines and position categories so all the positions in an organisation are designed and valued off the same model. The only difference may be the salary model positioning in the market place such as Q1, Median, 60th percentile or Q3.
As the value of the HR asset can be calculated an increasing number of organizations are putting the HR assets onto the balance sheet, although currently we are only allowed to put it on as a balance sheet note. However, even as a note it can still be used and reported on as a legitimate measure. In the valuation of our companies/businesses the HR assets explains the gap between book value and market capitalization, and that gap is made up of human capital and other intellectual capital.
If you have any questions contact Max.
Maxumise Consulting Pty Limited
Tel: +61 (0)407998516