Totally Rewarding Chats | Ep. 14: Why Job Evaluation and Grading Is So Important

The importance of job grading and fair pay structures

In this conversation, Sean Luitjens interviews Philipp Schuch, the founder of Gradar, a job evaluation and compensation platform. They discuss the importance of job grading and its role in establishing fair and rational pay structures. They also explore the challenges organizations face in implementing job grading, especially in light of new pay transparency legislation in Europe. Philipp emphasizes the need for organizations to empower their HR teams and build professional rewards management practices. They also touch on the potential benefits of job grading for predictive analytics and organizational growth.

In this episode:

• Host, Sean Luitjens, General Manager of Compensation Benchmarks, Visier

• Guest, Philipp Schuch, Founder and CEO, Gradar

Episode transcript

Sean Luitjens (00:01.669)
All right, another Totally Rewarding Chat. And I have Philipp Schuch with me. And I know I just practiced this, but how did I do? All right, awesome. From Gradar, nice to have you from where in Germany?

Philipp Schuch (00:09.766)
Quite well.

Philipp Schuch (00:17.062)
It's Düsseldorf, so it's in the West German part of Germany.

Sean Luitjens (00:18.853)
Okay.

Yeah, no, one of my favorite, actually, I'm not gonna lie, we didn't talk about this before, but one of my favorite places to run along the run, run along the river.

Philipp Schuch (00:28.646)
It is, it's beautiful and it's a city where the river Rhine goes through its middle. So it's perfect. It's very open, very green. It's beautiful.

Sean Luitjens (00:39.173)
I'm amazed always at the bike paths. You could literally bike from there to like anywhere in like Germany.

Philipp Schuch (00:45.158)
Yeah, and it's flat. It's all the way down to the Netherlands, so it's good riding.

Sean Luitjens (00:50.405)
It's fun. So why don't we start with you just give us your elevator pitch or your history. You can take however many floors in your building you need with your elevator. But let's get the elevator pitch.

Philipp Schuch (01:03.558)
Yeah, so my name is Philipp Schuch. I'm the founder of Gradar. Gradar is a cutting edge job evaluation and compensation platform. And it's transforming the entire industry as we have used consulting knowledge and put it into a product and make it available as a very comprehensive and cost effective SaaS solution.

The core of the product is job evaluation and job architectural management. But related to the job evaluation results are options for salary benchmarks, job -specific competencies, AI -generated job descriptions, and gender pay gap analysis features that would also support compensation structuring efforts in an organization.

Sean Luitjens (01:59.845)
And so did you magically end up at this job or where were you at before and how did you get to the point at which you said, I need to build this thing?

Philipp Schuch (02:10.15)
Well, I started as a strategic rewards consultant, supporting clients with benchmarking surveys and grading projects and pay bands and all of these things. And at some point I realized there are so many smart and well-trained HR and rewards professionals out there, they don't need this type of consulting support. They just need a software for their daily tasks. And so I figured, okay, I could be the one building the software. It's a niche market. And there's still a market for all the consultants out there. But we have so many clients, more than 400 in total by now, that use our product pretty much independent from any kind of consulting support.

Sean Luitjens (03:02.485)
So to prove you're human, what do you do for fun outside of work? I know you have a young one, so this is a limited question.

Philipp Schuch (03:09.19)
Yeah, I've got three of them. I used to run an ambulance or I used to drive an ambulance when I was younger and I did this as a voluntary EMT for a while, but I just don't have the time for this anymore. There are three children and their hobbies take up all the time that I have.

Sean Luitjens (03:13.413)
Yeah.

Sean Luitjens (03:35.045)
Their hobbies become your hobbies. So yeah, yeah. Okay.

Philipp Schuch (03:36.902)
Yeah, well, at least I'm watching them play hockey and what? Field hockey, not ice hockey. But that's my life now.

Sean Luitjens (03:44.581)
Okay.

Sean Luitjens (03:48.229)
Okay, that makes sense for sure with three. So let's just start with grading. So like let's take a step back and say why, you know, what is it exactly for those that, you know, don't know exactly what grading ever heard the term or the synonyms and why should people even think about doing this?

Philipp Schuch (04:11.206)
Yeah. So job grading, that's where the name Gradar comes from, is a synonym for job evaluation. And job evaluation is basically a process that looks at the requirements of a job, such as responsibilities, the skills required, the complexity and working conditions maybe, and then comes up with a ranking order of the jobs.

There's something that is called point factor based job evaluation and this is exactly what Gradar does. And job evaluation is used not only to build this rank order of jobs but also to determine jobs of equal value. And the equal value of work is one of the key concepts of pay transparency legislation in Europe and in many other countries.

Sean Luitjens (05:07.749)
even in your breath. So yeah, let's go. We're not so far behind. We're behind, but we're not so far behind.

Philipp Schuch (05:07.814)
So, yeah.

Philipp Schuch (05:16.23)
What?

Sean Luitjens (05:16.261)
We'll let it go. I won't even make you comment. So how do people get started with that? And what's the process? Because it sounds, I mean, if you have 10 people in your company, grading 10 sounds not so bad. If you have 2000 people in your company across 12 countries, the sound reasonably miserable to try to go through and give points and scores to everybody. So can you walk through that process?

Philipp Schuch (05:47.974)
Yeah, so the first step is to differentiate from the incumbents or the people holding the jobs, which means you would identify the unique jobs in your organization. So all those that are called specialist finance or accountant or expert finance or expert one, two, three in finance, those position titles would be consolidated onto unique jobs.

So that at the end of the day, you might have something like a junior accountant, account, and a senior accountant, a specialist, senior specialist, and an expert in finance. And then you would map the employees against these jobs and then start evaluating the jobs. And this could be based on a job description or it could be based on the results or input from an interview setting. And the interview might be with people managers that know a lot about the jobs or with subject matter experts. And you would then apply the different factors from the job evaluation system to get the grade for each job and then put these jobs into this ranking order. And that's a very different approach. We call it, it's a value driven approach. So the grade is a value.

And it doesn't tell us anything about the price of the labor yet. And I think that's the big difference to an American practice where the price of labor is often in the foreground. So where you would be looking into different market surveys to see how much other market participants are paying for the job of an accountant or junior accountant.

Sean Luitjens (07:34.405)
Yeah, I've often said, I think, Europeans, and by the way, despite being American, I know Europe is more than one country. Europeans basically grade first and then look at the role. Americans will look at a role first and then potentially put it in a grade. And that's how they market price. You know, not for all and don't want to generalize, but that's generally that you're right. They look at this is how much this role pays. So then it must be in this grade. This one is this grade.

So now maybe it pays this type, you know, this range is kind of the European mode I think

Philipp Schuch (08:11.174)
Yeah, absolutely. And the outcome with our European customers is often that they have the job grading and they use this to establish a fair and rational pay structure, for example, based on grades and job families or just grades and then set up pay bands that would define the minimum and maximum level of pay. And those pay bands, they are not necessarily driven by market rates. So we have many clients that wouldn't even use marked surveys to determine the pay bands, but only have a look at their internal compensation at the moment. So this is a, yet again, this is the very different approach. And this might be due to the prevalence of labor agreements or collective labor agreements in the markets or just the different tradition, but it's very typical to align the jobs first to create career paths and then work with grade-based pay structures.

Sean Luitjens (09:12.656)
Okay. And so what's the easiest way to start? I mean, is it, you know, obviously you've got a tool and you know, I don't want you to not talk about the tool, but you know, where, where's the easiest place? Is it gathering up your employees? Is it trying to get job descriptions or job descriptions required to start? Or do you, you know, how do you, you know, basically take a mess of, you know, we've got a thousand person company. how do we start the process of getting everyone graded?

Philipp Schuch (09:39.238)
Yeah, so the first step is to gather data. And easiest thing to do this is to have an Excel file, then maybe the names of the employees together with their current position titles, align those entries with departments and if possible, job families and maybe other information that exists in the organization.

But the reality is that, for example, job descriptions often do not exist or are of very poor quality because they are totally outdated or weren't written right. So, yeah, gather as much information as possible. That's really our advice. And then the step to consolidate those position titles into jobs, into unique jobs, that's the biggest part, really, before you can actually start with a job evaluation exercise.

Sean Luitjens (10:39.493)
So do you have to have an internal job architecture or career framework that is consistent to start doing this? Because what's considered a one title in one country is a different title in another country is a different title in another country. And so do you do this country by country or are you trying to get a consistent framework across the whole company?

Philipp Schuch (11:01.446)
Yeah.

That's a kind of a philosophical question, I would say. So I think the reality is that using a one size fits all often doesn't work. This might work in very mature organizations that have spent a lot of time and effort on building a consistent career framework with consistent career paths and consistent titles. But when we come into an organization, they are often in a position where they don't have anything. So they will have a great variety of job titles and using the job grading approach or the job evaluation approach that looks at not at the title but at the requirements of the jobs will actually help them to speak a common language across different entities, across different countries. And I think that's the big advantage of using this point factor based approach.

Sean Luitjens (12:00.677)
Okay.

Philipp Schuch (12:00.902)
And then the outcome is a job architecture where you can have rules and where you can have common typical titles, whether they are internal or also external is to be defined. But that's a very typical outcome of such an exercise.

Sean Luitjens (12:16.965)
You know, I mean, it makes sense because then you start thinking about where I want to hire, what I want to do, and I'm...comparing apples to apples. And I think I've been, my soapboxes, I've been out and around, especially around pay equity is a good example of getting your data in place and making sure you have not just apples to oranges isn't good anymore. It's not just, you know, red apples to red apples. It's actually got to be the right kind of apple to the right kind of apple to be able to compare for pay equity. So what's the biggest hurdle? So, you know, as you're looking at companies, it sounds so easy to do.

And it sounds like, you know, everyone should do it. So why isn't everyone doing it? You know, currently.

Philipp Schuch (12:59.878)
That's a very good point. So, and yet again, I think we can talk about differences in different organizations setups. So in European organizations, we see rewards professionals as a role emerge at maybe a thousand employees. But that's a big maybe. So.

Sean Luitjens (13:26.021)
Okay.

Philipp Schuch (13:28.198)
it's more likely to really have them in organizations with more than two and a half thousand employees. Whereas when I look at American organizations, the size of the organization is probably much smaller where you have this type of specialized role.

Sean Luitjens (13:41.253)
Yeah, I used to say about 500 in the US is somewhere, you know, give or take is where they start to get rewards. Don't let, you know, I will say part of the rationale for that is generally because of our, and we will not talk any more about it. Our benefits system here creates the need to have more professionals in that space around the comp and bedside.

Philipp Schuch (14:04.23)
And then when you look at European organizations, many of them will be using some kind of collective labor agreement. So they don't really have the need to have this kind of support for a very small population that is exempt in a more classic sense. So that's maybe one of the reasons why it's...

Sean Luitjens (14:26.373)
But 2027 is coming. So in 2027 has got basically, you know, it's going to have requirements that are for organizations significantly smaller than a thousand people. And I know people think 2027 seems so far away, but it's probably by the time you do all the work to get yourself ready, it's two to maybe four comp cycles to get yourself scored away. So how do you get, you know,

Philipp Schuch (14:29.19)
What?

Sean Luitjens (14:55.557)
how do you see this all playing out because it's you've got comp professionals down not available comp rewards professionals not in the size space that some of these countries are requiring to have transparency.

Philipp Schuch (15:10.246)
Absolutely. So what the European Union did last year was they issued a directive on pay transparency. And a key concept of this directive and a key requirement is for organizations with 100 at the latest stage or 150 employees starting in 2027 to report their gender pay gap and to use a way to determine work of equal value, so job evaluation, to define pay bands and to run the analysis on. So this is a huge jump for many organizations that don't have anything in place today. And when we...

Sean Luitjens (15:53.317)
Yeah, they, you know, this is where, you know, you had a thousand people, you know, to 1500 is where they had a rewards professional. And now you've got somebody in a 200 person shop is going to have to try to figure all this out. Right.

Philipp Schuch (16:02.278)
Exactly.

Philipp Schuch (16:08.39)
Absolutely. And this is, I mean, we see this challenge every day. So an organization starts using GradAR and it could be a 12 ,000 employee organization or 20 ,000 employee organization that didn't have anything in the past. So, and it takes them years to build their job architecture and to really start living the processes and embedded in their systems. And now the EU is asking organizations with a hundred or 150 employees, to do the same.

And I think this is going to overwhelm many HR departments, because it is additional time needed to do this, and it's an additional skill set needed, and many of them might not have it. So, and at the same time, there are not enough consultants out there who could support with this, such an endeavour. So the EU is basically asking organizations to build super professional rewards management practices. And the reality is that many organizations aren't there yet at all, or haven't even started at all. So this is going to be huge for organizations in Europe to comply.

Sean Luitjens (17:23.301)
How long, let's take that 250 person company that now has to comply and figure all this out. I mean, how long do you think it would take them, and we can talk a little bit about tech, but with and without technology to go through a process to have everyone graded?

Philipp Schuch (17:42.95)
So such an organization might have about 100 unique jobs in the organization. And as a rule of thumb, we can say you can evaluate about 25 jobs a day. If you're sitting in a simple interview setup, or if you use well -written job descriptions together with HR, then this is a rough number that can be managed per day. So it would take them between four and maybe five days to evaluate all jobs.

But this doesn't include preparing the data, mapping the employees against the correct jobs, talking to your different stakeholders, like your employee representatives, the wonderful Betriebsräte in Germany and so on. So that's another time that would have to be calculated. And then obviously once you have the job evaluation results, you've got to run the general pay gap analysis, you've got to start building the pay bands.

And ideally implement some processes, maybe in an HRAS, so that you can actually use these methods and tools in a sustainable manner. Yet again, this describes a problem because the market for HR systems in Europe is pretty much untapped. So there are some vendors out there, and you have like Personio or Factorial or Bisnio in Spain or Fission in Belgium.

They do have amazing systems, but they all lack proper support for compensation management. They're not very good at this. So I think many HR departments will then rely on an Excel -based solution, which isn't ideal and might not be well thought through because they have never done it before. So it's a huge challenge.

Sean Luitjens (19:32.805)
Yeah, from our perspective, it's really interesting because we're, you know, obviously we're on the comp planning end of the, we have a comp planning piece, right? And we do pay equity analysis inside the suite of tools. But the grading, of course, all that is always I've got a cool pyramid you would appreciate. I talk about pay equity when I'm out just having the right data again. And you've got to have those jobs graded and all that work done first, then you can do your analysis, then you can roll it into a comp planning tool with remediation factors and a plan. But obviously, if the foundation isn't right, everything you roll up through the next suite of tools tends to, you know, it won't be correct is going to be the fundamental.

Philipp Schuch (20:16.102)
Yeah, absolutely. And so organizations do not have the drop -evaluation in place and they do not have tech in place that could support them with this either. And that's the big challenge, I guess.

Sean Luitjens (20:27.653)
So are you saying, so let's say, you know, cause comp as a service, I think you mentioned it earlier. I think comp as a service is going to be an interesting thing through here. You don't want to hire another person. A comp as a service to me is, you know, there's going to be people very proficient to coming in and grading your jobs and getting everything squared away. They'll come in, have a tool in place, you know.

For this obviously they would be picking greater. There might be an organization that has greater that comes in and does it and then leaves that as the tech behind. Do you think that still is like a month is a reasonable time if somebody kind of understands what's going on because you start to block these things out? I think personally,

You've got 25, 26, 27 coming. In 27, you have to kind of report or face penalties. Who knows what the actual legal ramifications will be? Although they don't look good. They don't look. Assuming you got it together this year, you'd only have 26 and 27 for most companies who do one cycle a year to remediate, to get themselves under the bar.

So for me, it's like, is a month reasonable for people to try to find a month when all the other stuff they have going on before they get to the year?

Philipp Schuch (21:47.27)
Yeah, I mean, if you can really focus on the topics for months, then this might be impossible, especially in an SME with 250 employees. So this could be a problem.

Sean Luitjens (21:57.157)
But that's where Composite Service is, right? So if you outsource it and they're familiar with the tech, I mean, there's always the, to me, the question is if you're gonna interview, and I know you don't wanna hear this, but I'm much, I'm more familiar with IPE and hate points, updating myself with hate, corn fairy points. But you know that process still takes time in the interviews etc that assumes the company's got people available right because you know the project the Gantt chart always looks great on paper until no one's schedule is open.

Philipp Schuch (22:34.598)
Yeah, this is the biggest challenge. So when you don't have the skills in -house, you at least need somebody who will do the project management and who will get the different stakeholders in the same room so that you can actually talk to them. And our suggestion would always be find someone in your HR team who is interested to learn the methodology.

And who's interested to learn about how to design pay bands and how to manage pay afterwards so that we can have this effect of empowerment for the entire HR team. So that's what our preference would always be. I think that the classic approach of consultants in the past was, hey, we're going to deliver something. There's an Excel sheet. There's a PowerPoint slide deck. Here you go. Work with this.

They often did a poor job in really empowering and educating their clients on how to use this information in the data.

Sean Luitjens (23:38.501)
Well, there's two, there's always two parts to that. The pessimistic side of me, of course, would be if you teach a man to fish and you're a fisherman, it's not great for you long term, right? So the consultants, and in theory, good consultants, they also, most of the work they did to be a little more fair would be something that you fix it and then it might not need fixing again, right? For three years, right? Here's my pay philosophy. Here's my structure. You don't, something you don't want to change all the time. So if they do a really good job, it's not something you need it again. Whereas, I don't know if you've heard the term wicked problem, but if you Google wicked problem, not just because I'm from the Northeast, but, you know, it's a problem that always changes. And so you're adding people, your company's growing, people are, you're hiring people higher in the range. You have to repoint people. Like I got stuff going on. It just can't be solved. Check the box and I'll come back to it in two years and to an audit. It just changes all the time.

Philipp Schuch (24:38.502)
The interesting piece is going to be, and this is not clear yet really, but we have recently had some cases in court where the judges said, okay, you as an organization need to be able to really prove why somebody is being paid a certain amount. And this concept, is very close to thinking that we know from collective labor agreements, where pay is exactly defined based on the grade, for example, and where there's very little room for differentiation. And this is something that is going to change. I think in the past, we were able to use pay bands, where the minimum and maximum level of pay were defined to make an informed decision or to ask our managers to make an informed decision. But now I think you need to have more rules.

And this is when I talk about empowerment, we need to empower HR to support their managers to make not only those informed decisions, but to also use the new rules appropriately. And the rules could be maybe based on grade and job family and then performance management. But at the same time, we all know how not so well performance management is being performed in many organizations.

Sean Luitjens (26:01.157)
Yeah, I mean even in a given company we always pick on marketing but marketing will give everyone fives and development will be harder and a five is impossible to get and so you can't compare. I'm actually really curious over time with these small organizations. I mean, you're talking about 250 people. You said they might have a hundred roles. So you start doing the math on determining pay equity where you're going to have sample sizes of one to three. How do you determine if there's bias and pay equity? And so I'm very curious long -term, will countries in the EU allow you to compare yourself versus like graded organizations so you get figure out that my gap, I'm curious. I'm not saying I have the answer. I'm curious if they will allow because if I've got two accountants in there, you know, somewhere, even if I use multivariate regression, the sample size is too small, right? So can I use it against everybody who's potentially on Gradar or potentially on somewhere else to basically use that as a defensible mechanism to say,

Philipp Schuch (26:46.726)
No. No.

Sean Luitjens (27:06.501)
look, I'm still not a great payer, right? Because it can't fix the problem that there's a gap, but the gap is actually significantly smaller or within the 5 % bound based on a larger sample size. But the only way that'll work, where my brain falls apart every time on this, is everyone has to be graded the same, almost like you are one company, so that you can compare, like I said, not just red apples to red apples, but Mac apples to Mac apples across companies.

Philipp Schuch (27:35.462)
And before this happens, I think we're going to see an analysis within your own organization that will be looking at work of equal value. So it might not be that in the analysis based on the job, but on all the jobs in grade 10 and all the jobs in grade eight.

Sean Luitjens (27:56.581)
Got you. All grade 10 becomes a sample size, not accountants in grade 10. Got you.

Philipp Schuch (28:04.23)
Yeah, so that's, I think, the concept or one of the core concepts behind the pay transparency directive that we're going to see work of equal value being used much, much more often than in the past.

Sean Luitjens (28:16.165)
Gotcha. So any other last, I don't want to say the last words, that sounds awful, but you know, kind of last words around grading or anything else. You know, the exciting thing that is job grading.

Philipp Schuch (28:30.79)
Well, as I said earlier, I think it's the solution to many different aspects of an organization. So we see it as a key requirement for transparency. And the concept is a given when I look at the Pay Transparency Directive. We see it as a core requirement when you start defining your own pay bands, when you start defining career paths.

When I look at the Gradar tool, we have the ability these days to use the input from the grading exercise to generate, with the help of an AI, to generate job descriptions and to have things like job -specific competencies in place. So it's really job grading is at the core of any job architecture, especially when you combine it with job families so that you can really connect rewards practices and talent management and policies and processes. And that's what I find super exciting.

Sean Luitjens (29:33.317)
Yeah, it's interesting. I guess I'll phrase it slightly different. I find job grading, having done it a couple of places or whatever, as kind of the most...mundane, boring thing I want to do least, Philip. And I say that with the utmost respect because all the really cool stuff that then comes when you start tying analytics together, doing analytics about what's going to happen in predictive analytics, all require this thing that I personally don't want to sit on and do. But, but to be able to compare all those things kind of in any analytics of truth, I think it is really critical. And so as much as it doesn't seem like real fun to sit down and go through, even for, you know, company to spend four weeks in interview people, make sure it's there. I think both the defensibility, having it done, having it in a neutral system, like I think there's just a lot of good things that come from it. And thank goodness you built a tool because I've, you know, messed around with the old school method of doing it and that is even less fun.

Philipp Schuch (30:32.71)
Absolutely, and some people actually like using our tool. And when I look at the user statistics and I see that some organizations have dozens of evaluators or HR business partners that would access the system on a daily basis to see their job descriptions, to see the competency profiles, to see the pay bands and market data, I think we're doing something right there.

Sean Luitjens (30:57.669)
I think so. And don't get me wrong. I know people I've worked with in the past, they love it and they're really good at it and organizations that get it right. I think not only is it going to be required. So there's a part of me who kind of like, okay, transparency is not only, you know, everyone should be a fair pair, but there's going to be other, I think, upsides for organizations. I think organizations would be short -sighted if they just use the grading and get everybody graded and just use it for transparency. I think there's some really cool analytical items around predictive analytics and how you grow your company and how you become more profitable. Once you have that ready to be consistent across all the jobs, I think it's going to be super cool.

Philipp Schuch (31:41.286)
I've talked to a couple of prospects lately and they all said, hey, we finally have this leverage over our management team to start using a job grading system because it's a requirement. And they know how many good things you can do based on this foundation. So for us, I think it's going to be great as a business to have this.

And at the same time, on the level of the entire society, we're going to see much, much more professional rewards practices than in the past. And I think this in itself is a huge benefit for society.

Sean Luitjens (32:21.093)
That'll be great. Before we go, are you watching any of the Euro cup, any predictions? Because by the time this comes out, we'll know if you're right or wrong.

Philipp Schuch (32:33.126)
Well, I think I'm rooting for Germany, obviously, but I'm also quarter Dutch. So that's, and the Dutch, they're going to play, I think they're playing in Düsseldorf tonight or tomorrow or something. So that's going to be exciting.

Sean Luitjens (32:36.901)
Apple for Germany.

Sean Luitjens (32:45.317)
Well, let's go.

Sean Luitjens (32:53.061)
You didn't put the orange one though. I'm surprised you didn't wear orange today.

Philipp Schuch (32:58.278)
Yeah, well, that's a good point. Well, you know, maybe the baby spat on it or something.

Sean Luitjens (33:04.421)
Yeah, that could be. This has been great. So for those that are watching, you can see Philip's information there. It's gradar .com. We usually, unless I make a mistake, we have his email as well out there. And Philip's been great with everybody that have sent his way to do demos, to walk through, and kind of no matter the level. So if you have questions, feel free to reach out. Awesome. Thanks so much.

Philipp Schuch (33:30.502)
Anytime. You're most welcome.