For more and more HR departments, grading systems are becoming a matter of top priority – partly because of legal pressure to ensure transparency over pay, and partly because a fast, flexible grading system is a prerequisite for dynamic, business-oriented HR management. hkp.com spoke to hkp/// group experts Verena Vandervelt and David Voggeser.
What is your view on the latest developments in grading?
David Voggeser: We are currently seeing profound transformations taking place on the market, the result of legal and other factors. Under the German Pay Transparency Act, which has now passed into law, firms must introduce comparable measurements for different positions within the company. Without a standardized, fair basis for job evaluations, such as a modern grading system, it is almost impossible to prove that you have graded jobs and set pay levels without discriminating on the basis of gender, age, skin color or other factors.
Does the law state which particular system firms must use?
David Voggeser: No. But it clearly formulates the requirement for transparency over pay. No HR department – and certainly not one that is part of a large, complex organization – can afford to collect all the relevant information, put it together and check it before including it in the report that needs to be issued each time an employee submits a question about compensation. HR staff can avoid having to do this with the help of a modern grading system.
Apart from implementing the legal requirements, what else is driving firms to introduce modern grading systems?
Verena Vandervelt: A second driver, which is actually even stronger, is the need to simplify the grading process as a whole. This has become even more important as the pace of change at organizations has increased and the creation of new, agile startups has gained momentum, especially in recent years.
What does that mean in practice?
Verena Vandervelt: Well, it may sound a bit hackneyed, but firms really are under more pressure than ever to engage in continuous change and reorganization. That calls for agile methods, instruments and the like.
David Voggeser: In addition, firms often choose to follow up particularly innovative ideas not within the organization itself but in a separate, largely self-governing unit – a "corporate startup". Just like normal startups, these are fast, agile, innovative and have flat hierarchies. The firm's HR processes and instruments need to reflect this development.
What does that have to do with grading?
David Voggeser: Companies don't want HR systems that are unable to keep up with the new requirements and speed of change. If the top management can reorganize an entire company in just a few months, then they have every right to expect that re-grading the positions affected by the reorganization won't take a few years. And that's where the grading systems that are currently the market leading providers fall down.
But surely the firms behind those grading systems have made them "future-proof".
Verena Vandervelt: You might think so, but the truth is that the firms can't change their very nature. They find it difficult to simply throw out their old systems and approaches, so they do a certain amount of window-dressing to try to make themselves look more up-to-date. But the criteria employed by the most popular standard systems are too rigid, complex and time-consuming to use. Their evaluations are also sometimes questionable, which is particularly problematic given the increasing frequency of organizational changes.
David Voggeser: That's right. As soon as the volume of responsibility assigned to a certain job changes – revenue, earnings or budget responsibility, in purely quantitative terms – the most popular systems automatically raise or lower the grade for the position.
Even though the importance of the position for the company may not have changed.
David Voggeser: Exactly. What the current standard systems lack is the ability to judge whether a position is still just as strategically important after a reorganization as it was before, despite the fact that its revenue responsibility may have decreased.
That sounds like a death-knoll for grading systems.
David Voggeser: No – in fact it's quite the opposite. Firms still need structures for managing their HR processes and systems, quite apart from the aforementioned legal regulations resulting from the introduction of the Pay Transparency Act. Just like the companies themselves, the grading systems need to be fast and agile, without losing any of their effectiveness or accuracy.
How can they do that?
Verena Vandervelt: By means of simpler systems, fewer evaluation criteria, and a comprehensive perspective on each function. Our own grading system, hkp/// JET, employs just four criteria: impact, complexity, communication, and knowledge, with just a few different possible levels for each criterion.
But is that be enough for a large corporation, too?
Verena Vandervelt: Absolutely. A simple, lean matrix is suitable for evaluating everything from the most straightforward jobs to top-management positions – and with demonstrably greater precision than popular standard systems. Simple doesn't necessarily mean bad.
David Voggeser: It is worth noting that we are currently receiving requests from leading international corporations. Even the most loyal fans of traditional grading systems are quickly converted when they see how we can turn grading from a major, in some cases never-ending project into a lean process with sustainable success.
It's hard to imagine that your simplified grading system is really suitable for everyone from startups to major corporations.
David Voggeser: I know what you mean. But it's a fact. hkp/// JET offers the same benefits to major corporations as it does to startups. Of course, it can be slimmed down even further as necessary.
Verena Vandervelt: In the case of very small companies, for instance, we can use a simple, summary ranking. And if we are working with a more agile project organization, in some cases it makes sense to classify jobs according to competences. The different approaches can be combined while still ensuring comparability.
That sounds very exciting. What does the future hold for grading, and what advice would you give companies now?
David Voggeser: With the pressure to transform growing all the time, evaluating jobs using the most popular systems today is becoming increasingly difficult and time-consuming. Clearly, the days are numbered for traditional grading systems. You don't build a low-energy house and then heat it with a rickety wood stove that you have to keep adding fuel to just to keep it going. In today's digital age, companies need to review their outdated HR systems and in the short to medium term replace them. And that is particularly true for old-fashioned, standard grading systems.
Thank you very much!