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Person-Based Structures

Internal Alignment: Determining the Structure

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COMPENSATION

TWELFTH EDITION

Part Two

Chapter Six

MILKOVICH │ NEWMAN │ GERHART

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Overview

Chapter six examines person-based structures,

first focusing on skill plans and skills analysis,

then competencies and competency analysis.

Next, the text looks at internal alignment; person-based or job-based.

The chapter concludes with a look at:

administering and evaluating the plan,

bias in internal structures, and the perfect structure.

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EXHIBIT 6.1

Many Ways to Create Internal Structure

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Person-Based Structures: Skill Plans

Skill-based pay shows up in manufacturing, where the work involves

teams, multiskills, and flexibility.

An advantage is less bottlenecks as people are better matched to the work flow.

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Skill Plans

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Skill-based structures

Link pay to the depth or breadth of the skills, abilities, and knowledge a person acquires that are relevant to the work.

Structures based on skill 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.

The wage attaches to the person.

In contrast, a job-based plan pays employees for the job to which they are assigned, regardless of the skills they possess.

Types of Skill Plans

Specialist: Depth

Pay is based on knowledge of the person doing the job, rather than on job content or output.

Basic responsibilities do not vary on a day-to-day basis.

Generalist/Multiskill Based: Breadth

Earn pay increases by acquiring new knowledge.

Certification rather than job assignments.

Assigned to jobs based on certification and work flow.

Responsibilities can change over a short time.

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Purpose of the Skill-Based Structure

Supports the strategy and objectives.

Supports work flow – a main advantage.

Is fair to employees.

Motivates behavior toward organization objectives.

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EXHIBIT 6.3

Determining the Internal Skill-Based Structure

Skill analysis is a systematic process of identifying and collecting information about skills required to perform work in an organization.

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“How To”: Skill Analysis

What information to collect?

Specific information on every aspect of the production process.

Whom to involve?

Employees and managers.

Establish certification methods.

Peer review, on-the-job demonstrations, or tests.

Scheduled fixed review points and recertification.

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Outcomes of Skill-Based Pay Plans

Well accepted by employees.

Provide strong motivation for individuals to increase their skills.

Become increasingly expensive.

A plan’s success is determined by how well it aligns with the organization’s strategy.

May fit better in a firm with low labor costs.

“Jack-of-all-trades”? Or master of none?

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EXHIBIT 6.6

Determining the Internal Competency-Based Structure

Core competencies are often linked to the mission statement.

Competency sets translate each core competency into action.

Competency indicators are the observable behaviors that indicate competency.

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EXHIBIT 6.8

Sample Behavioral Competency Indicators

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Defining Competencies

Early conceptions focused on:

skills, knowledge, self-concepts, traits, and motives.

Competencies are becoming a collection of observable behaviors that require no inference, assumption or interpretation.

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Purpose of the Competency-Based Structure

Directly links to the organization’s strategy.

Supports work flow.

Is fair to the employees.

Motivates behavior toward the organization’s objectives.

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“How-To”: Competency Analysis

Clarify the plan objective.

What information to collect?

Personal characteristics.

Visionary.

Organization specific.

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EXHIBIT 6.10

The Top 20 Competencies

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“How To”: Competency Analysis

Whom to involve?

Competencies derive from executive leader’s beliefs about the organization’s strategic intent.

Establish certification methods.

Identify ways to demonstrate competencies.

Resulting structure.

Has relatively few levels and wide differentials for increased flexibility.

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EXHIBIT 6.12

Toy Company’s Structure Based on Competencies

Such a generic structure could be applied to almost any professional work.

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“How To”: Competency Analysis

Competencies and employee selection and training/development.

Competencies relate to individual characteristics of personality, motivation, and ability.

Failure to adequately screen employees:

puts additional pressure on training/development, and

de-motivates employees seeking to acquire and demonstrate these competencies.

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EXHIBIT 6.13

Titles and High-Level Definitions of the Great Eight Competencies

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EXHIBIT 6.13

Titles and High-Level Definitions of the Great Eight Competencies

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“How To”: Competency Analysis

Guidance (and caution) from the research.

Can competencies translate into a measurable, objective basis for pay?

Some researchers say to view competencies as an investment portfolio.

Is it appropriate to pay what you are capable of doing versus what you are doing?

Are competency-based systems susceptible to discrimination?

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One More Time: Internal Alignment Reflected in Structures

The purpose of job- and person-based procedures is to design and manage a pay structure that aids success.

Managers must ensure the structure remains aligned by reassessing work/skills/competencies when necessary.

In reality, the distinction blurs and the focus is on what factors create value.

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Administering and Evaluating the Plan

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Essential criteria:

Fairness in the plan’s administration.

Availability of sufficient information.

Adequate communication and employee involvement.

Reliability of Job Evaluation Techniques

A reliable evaluation is one where different evaluators produce the same results.

Improve reliability by using evaluators familiar with the work and trained in job evaluation.

Some organizations use group consensus.

Reliabilities for job evaluation scores are higher than those for job analysis ratings.

To reduce costs, managers now evaluate.

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Validity

Validity is the degree the evaluation assesses relative job worth.

Measured in two ways:

Degree of agreement between

ranking results compared to agreed-upon ranking of benchmarks.

“Hit rates”

degree the evaluation plan matches (hits) an agreed-upon pay structure for benchmark jobs.

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Acceptability

Methods to assess and improve employee acceptability:

formal appeals process allows a request for reanalysis and/or skills reevaluation.

employee attitude surveys assess perceptions of how useful evaluation is as a management tool.

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Bias in Internal Structures

No evidence that job evaluation is susceptible to gender bias.

Wages criteria bias indirectly affects job evaluation.

Recommendations:

Define compensable factors and scales.

Ensure factor weights are unbiased.

Apply the plan in a bias-free manner.

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EXHIBIT 6.17

Contrasting Approaches

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EXHIBIT 6.17

Contrasting Approaches

What is the best approach to pay structures, and how will we know it when we see it? The answer is, it depends.

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The Perfect Structure

Provide sufficient ambiguity to afford flexibility.

Generic approach

may not provide sufficient detail to make a clear link between pay, work, and results.

Too detailed approach may become rigid.

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Summary

Chapter six examined person-based structures,

first focusing on skill plans and skills analysis,

then competencies and competency analysis.

Next, the text looked at internal alignment; person-based or job-based.

The chapter concluded with a look at:

administering and evaluating the plan,

bias in internal structures, and the perfect structure.

6 – ‹#›