What is the Factor Comparison Method?
The factor comparison method is a systematic job evaluation technique that helps organizations develop fair and equitable compensation structures. Developed by Thomas E. Hitten in the early 20th century, it remains a valuable tool for HR professionals seeking to ensure pay equity and transparency.
How It Works
Unlike methods that evaluate whole positions, the factor comparison method breaks jobs down into several compensable factors, typically four or five, such as:
- Skill Level: Expertise and knowledge required
- Effort: Both mental and physical exertion are needed
- Responsibility: Level of accountability and authority
- Working Conditions: Environmental factors and hazards
Each factor is assigned a monetary value, allowing organizations to determine the relative worth of different jobs based on objective criteria. For example, a job’s $80,000 salary might be split into 30% for skill, 25% for responsibility, 20% for effort, and 15% for working conditions, with the remainder for additional factors.
Step-by-Step Process
- Select Benchmark Jobs
Identify 20–25 well-defined, representative positions across the organization to serve as reference points. - Identify and Define Key Factors
Choose the compensable factors (e.g., skill, effort, responsibility, working conditions) and define them clearly for consistent application. - Rank Benchmark Jobs by Factor
Evaluate and rank each benchmark job against each factor independently. - Assign Monetary Values
Allocate portions of each benchmark job’s salary to the identified factors, distributing the total pay among them. - Evaluate Remaining Jobs
Compare other positions to the benchmark jobs by factor, assigning monetary values accordingly. - Establish Pay Structure
Group jobs with similar total values to form pay grades, which then guide salary ranges and compensation decisions.
Regular reviews ensure the system remains current as organizational needs and market conditions evolve.
Advantages of the Factor Comparison Method
- Objectivity and Fairness
Compensation is based on job-related factors, reducing personal bias and supporting internal pay equity. - Customizability
Organizations can tailor factors to their unique needs, making the method adaptable across industries and job types. - Monetary Clarity
Job value is expressed directly in monetary terms, simplifying salary decisions and enabling transparent discussions. - Flexibility
Factor ratings can be adjusted as needed, with no upper limit. - Support for Collective Bargaining
The method’s transparency and factual basis make it appealing for union negotiations and justifying pay decisions.
Disadvantages of the Factor Comparison Method
- Complexity and Resource Intensity
The process is time-consuming, costly, and requires significant expertise—especially for large organizations with many roles. - Potential for Subjectivity
Despite its structure, assigning values to factors can introduce bias, especially if evaluators favor certain factors. - Implementation Challenges
Consistency can be hard to maintain as priorities shift, and limiting evaluations to a few standard factors may oversimplify complex jobs. - Issues with Pay Equity
Inconsistent factor definitions or weighting can lead to systemic inequities, including gender bias. - High Cost
The need for expert input and detailed analysis makes it more expensive than simpler methods. - Not Ideal for All Organizations
The method may not suit smaller, rapidly changing, or highly innovative organizations due to its rigidity and complexity.
Final Thoughts
The factor comparison method stands out as a structured and transparent approach to job evaluation, enabling organizations to build fair and competitive pay systems. While it offers objectivity, adaptability, and clarity in compensation, its complexity and resource demands make it best suited for organizations ready to invest in rigorous evaluation processes. By carefully weighing its advantages and disadvantages, organizations can determine if this method aligns with their compensation strategy and long-term goals. Ultimately, the right job evaluation method supports both organizational fairness and employee satisfaction.
Quick FAQs about the Factor Comparison Method
Q1. How does the factor comparison method work?
It evaluates jobs by breaking them into key factors like skill, effort, responsibility, and working conditions, assigning each a monetary value to compare roles and determine their worth.
Q2. What are the main advantages of using the factor comparison method?
It offers objectivity, customizability, fair pay distribution, wide applicability, and expresses job worth in monetary terms, helping reduce pay bias.
Q3. Are there any drawbacks to implementing the factor comparison method?
Yes, it can be complex, time-consuming, costly, and may require specialized expertise, with some potential for subjectivity.
Q4. How many factors are typically used in the factor comparison method?
Usually, four or five key factors—skill, effort, responsibility, and working conditions—are used, though organizations may add more as needed.
Q5. Is the factor comparison method suitable for all types of organizations?
It’s best for large, structured organizations; smaller or rapidly changing businesses may prefer simpler evaluation methods.
Related HR Terms and Concepts for Factor Comparison Method
