Chapter 6: Person-Based Pay Structures

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1 Chapter 6: Person-Based Pay Structures Person-Based Pay Structures Skill-based pay structures- link pay to the depth or breadth of the skills, abilities and knowledge a person acquires that are relevant to the work -skill based usually applied to blue-collar work -competency based usually applied to white collar work -majority of applications of skill based pay have been found in manufacturing and assembly work where work can be specified and defied -people can be deployed in a way that better matches the flow of work (avoid bottlenecks and idle hands) -pay individuals for all the skills for which they have been certified regardless of whether the work they are doing requires all or just a few of those particular skills -very different approach compared to job-based plan, which pays employees for the job to which they are assigned, regardless of the skills they possess Types of Skill Plans Specialist: Depth pay on knowledge level (more knowledge, more effective and flexible =higher pay), seniority associated with pay increase, (specialists in corporate law, finance, welding) Generalist/Multiskill-Based: Breadth earn pay increases by acquiring more knowledge (knowledge is specific to range of related jobs), pay increases come with certification of new skills, rather then job assignments(generalists with knowledge in all phases of operations (manufacturing, finance, maintenance, human resources)) Purpose of the Skill-Based Structure Supports the strategy and objectives- skills on which a structure is based should be directly related to organizations objectives and strategy Supports Workflow- skill based plan can more easily match people to changing workflow Is Fair To Employee- employees like potential of higher pay that comes with learning -encouraging employees to take charge of own development, skill-based plans may give them more control over their work lives -favoritism and bias may play role in determining who gets first crack at training necessary to become certified at higher paying skill level -employees complain they are forced to pick up slack for those who are out for training -courts have not yet been asked to rule on legality of two people doing the same task for different skill-based) pay

2 Motivates Behavior Toward Organization Objectives- person-based plans have potential to clarify new standards and behavioral expectations How To: Skill Analysis Skill analysis-a systematic process to identify and collect information about skills required to perform work in organization Skill category- grouping of related blocks of varying skill levels that represent all activities of a single job family or steps in a process (ie. Production technician) Skill block- grouping of skills, activities, or behaviors (ie bearing housing assembly) Skill-smallest unit of analysis, a specific statement of what a person does (ie. Inspect oil levels and all filters) Determining the Internal Skill-Based Structure: Internal Alignment Skill Analysis -similar to task statements in job analysis Skill Blocks -related skills can be grouped together Skill Certification Skill-Based Pay Structure What Information To Collect -far less uniformity in use of terms in person-based plans than in job-based plans -foundation skills- include quality seminar videos on materials, handling and hazardous materials, three day safety workshops -core electives- necessary to facility s operations (ie. Welding, paining, finishing, assembly, inspection) and each skill is assigned point value -optional electives- additional specialize competencies (range from computer applications to team leadership and consensus building) Whom to Involve? -employee involvement almost always built into skill-based plans -employees source for defining skills, arranging them into hierarchy, bundling them into skill blocks, and certifying whether a person actually possesses the skills

3 Establish Certification Methods -some organizations use peer reviews, on-the-job demonstrations, and tests for certification -leaders and peers used in certification process -newer skill-based applications have been moving away from on-demand review and toward scheduling fixed-review points during the year -scheduling makes easier to budget and control payroll increases -many plans require employees be recertified because skills can get rusty when not used frequently -skill based plans become increasingly expensive as the majority of employees become certified at the highest pay levels -employers combatting higher labour costs by having leaner staffing and requiring employees to stay at rate for certain length of time before taking training and moving to higher rate Guidance From the Research on Skill-Based Plans -skill based plans generally well accepted by employees because it is easy to see connection between plan, the work, and the size of paycheck -plans provide strong motivation for individuals to increase their skills ( learn to earn popular slogan use in these plans) -skill based approaches may be only short-term initiatives for specific settings Person-Based Pay Structures: Competencies Internal Alignment Core Competencies Competency Sets Behavioural Descritors Competency- Based Structure Competencies- underlying, broadly applicable knowledge, skills, and behaviors that form the foundation for successful work performance Competency-based pay structure- links pay to work-related competencies Core competencies- competencies required for successful work performance in any job in the organization -those that form foundation for successful performance at all jobs in the organization (often linked to mission statements that express organizations philosophy, values, business strategies, and plans) -taken from mission statement Competency sets- specific components of a competency -begin to translate each core competency into action

4 -grouping of factors that translate core competency into observable behavior Competency indicators-observable behaviors that indicate the level of competency within each competency set -may be used for staffing and evaluation and pay purposes Defining Competencies -early conceptions of competencies are based on five areas: 1. skills (demonstration of expertise) 2. knowledge (accumulated information) 3. self-concepts (attitudes, values, self-image) 4. traits (general disposition to behave in a certain way) 5. motives (recurrent thoughts that drive behaviors) Top Twenty Competencies: -achievement orientation -concern of quality -initiative -interpersonal understanding -customer service orientation -influence and impact -orientation awareness -networking -directedness -teamwork and cooperation -developing others -team leadership -technical expertise -information seeking -analytical thinking -conceptual thinking

5 -self control -self-confidence -business orientation -flexibility Competency Analysis Objective Competency analysis- systematic process to identify and collect information about the competencies required for successful work performance What Information To Collect -collect information on: -personal characteristics -visionary competencies -organization-specific competencies Whom to Involve? -competencies are derived from executive leadership s beliefs about organization and its strategic intent - Establish Certification Methods - Guidelines from Research on Competencies -competencies often morph into compensable factors -basic question remains whether it is appropriate to pay for what an employee is capable of doing versus what he or she is actually doing One More Time: Internal Alignment Reflected In Structures -purpose of job or person based plan: to design and manage an internal pay structure that helps achieve organizations objectives -aligned with internal alignment policy -supports business operations

6 Managing the Plan -crucial issue is fairness of management -details of plan should be described in manual that includes all information necessary to apply the plan (such as definitions of compensable factors, degrees, or details of skill blocks, competencies, and certification methods) -employee acceptance is important in order to build acceptance, communication with all employees whose jobs are part of the process used to build the pay structure is required -administrative concerns are primary reason people-based plans have been slow to catch on because 1) lack of expertise to manage the skills certification process and 2) a means to externally price jobs Evidence of the Usefulness of the Results -criteria for evaluating usefulness of pay structures, how they achieve objectives and reliability and validity whether job-based or person-based are similar -most research focuses on procedures used rather than usefulness, its effects on employee behaviors or its effectiveness in achieving organizational objectives -research on person-based structures tends to focus on their effects on behaviors and organization objectives and ignores questions of reliability and validity Reliability of Job Evaluation Techniques -reliable evaluation would be one where different evaluators produce the same results -reliability can be improved by evaluators who are familiar with the work and trained in the job evaluation process Validity/Usefulness validity- refers to degree to which the evaluation achieves the desired results -validity of job evaluation has been measured in two ways: 1. By agreement (degree of agreement between rankings that resulted from the job evaluation compared to an agree-upon rank of benchmarks used as the criterion and 2. by hit rates (degree to which the job evaluation plan matches (hits) an agreed-upon ranking or pay structure for benchmark jobs) -predetermined, agreed-upon ranking or pay structure can be established by organization leadership or be based on external market data, union negotiations, or the market rates for jobs held predominantly by men (or combination of these) Acceptability -several devices are used to assess and improve employee acceptability -employees who belied jobs are evaluated incorrectly should be able to request re-analysis and/or skills re-evaluation (most firms allow this from managers but not extended to employees unless they re represented by unions who have negotiated grievance process)

7 Gender Bias In Internal Pay Structures Avoid bias in pay structures: 1. Define the compensable factors and scales to include the content of jobs held predominantly by women. 2. Ensure that factor weights are not consistently biased against jobs held predominantly by women. Are factors usually associated with these jobs always given less weight? 3. Apply the plan in as bias free a manner as feasible. Ensure that the job descriptions are bias free, exclude incumbent names from the job evaluation process, and train diverse evaluators. Three Types of Structure Job-Based Skill-Based Competency-Based What is valued Compensable factors Skill blocks competencies Quantify the Factor degree weights Skill levels Competency levels value Mechanisms to translate into pay Assign points that reflect criterion pay structure Certification and price skills in external market Certification and price competencies in external market Based on competency developed/market Pay structure Based on job performed/market Based on skills certified/market Pay increases Promotion Skill acquisition Competency development Managers focus Link employees to work Utilize skills effectively Be sure competencies add Promotion and placement Provide training value Cost control via pay for Control costs via Provide competencydeveloping job and budget increase training, certification, opportunities and work assignments Control costs via certification and work Employee focus Procedures Advantages Limitations Seek promotions to earn more pay Job analysis Job evaluation Clear expectations Sense of progress Pay based on value of work performed Potential bureaucracy Potential inflexibility Seek skills Skill analysis Skill certification Continuous learning Flexibility Reduced work force Potential bureaucracy Requires cost controls assignments Seek competencies Competency analyses Competency certification Continuous learning Flexibility Lateral movement Potential bureaucracy Requires cost controls

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