PERSON-FOCUSED PAY STRUCTURE 2
Abstract
The method of compensation known as person-focused pay has increased in popularity among
several industries, including manufacturing and service-based companies. Studies have been
conducted recently to examine the benefits employers, and employees might gain from a change
in historical financial rewards. The remuneration given is derived by the individual rather than a
traditional model of which position or title they hold. Person-focused pay systems enable an
opportunity for increased compensation as they gain experience. Ideally, a combination of
person-focused pay and the traditional merit-pay systems might increase the opportunity for
individuals to earn more financial rewards and benefit the businesses that model these types of
compensation structures.
Keywords: person-focused, traditional, merit-based, skills, pay structures
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Person-Focused Pay Structure
Historically, a person’s compensation for work was based on the job, the official title for
the role, responsibilities, and requirements needed to be successful and productive. Information
provided by WorldatWork states that 84% of businesses in the United States have a method to
evaluate jobs using traditional job-based pay (Tenhiälä et al., 2023, p. 2). The structure is devised
by a hierarchy of roles and specific ranges of salaries reflecting complexity and status. In an
effort to maintain impartiality, remove complexities, and assist with the growth of succession
plans, job-based pay is an attractive option. Another option for compensating employees is based
on a system of what a person knows, which would increase their value to a company. This
system is also called person-focused pay or skill-based. While employee attitudes toward work in
this manner might show some negative contexts, more evidence has been produced to show the
positive consequences (Tenhiälä et al., 2023, p. 3). Often, people are hired to do the same job
with the exact expectations, but one of the individuals might have the benefit of more experience
or knowledge and thus get paid a different wage. People work for businesses to satisfy
interpersonal relationships, a positive self-image, and “the desire and need to earn a living”
(Lopes, 2011, p. 63). Maslow’s hierarchy of needs theory suggests that people need
psychological, safety and health, personal, and self-actualization to find security and
accomplishment (Nordgren et al., 2020, p. 3). With that thought in mind, the greater the
economic rewards given for work, the more significant results in performance are returned
(Nordgren et al., 2020, p. 1). The implementation of a person-focused pay system is based on the
premise “that an organization can better perform its mission with highly trained, flexible,
thinking employees rather than a hired pair of hands” (Bunning, 1992, p. 62). Companies that
function with the person-focused pay programs are traditionally ten years old, employ 150 to
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2,000 workers, and operate in the manufacturing or production segment of industry”
(Martocchio, 2020, p. 112). Research suggests that skill-based pay works best in start-up
organizations, participative cultures, and offering incentive structures paired with skill pay
(Murray & Gerhart, 1998, p. 78).
Person-focused pay plans are beneficial as employees increase their earnings by
increasing their professional skills, mastering multiple steps that may be essential or elective, and
cross-training across various departments (Bunning, 1992). This process of rewards varies from
traditional merit-type plans, which focus on how well or the defined role for the position
(Bunning, 1992, p. 62). Employees need motivation to work, and the skill-based pay model gives
incremental pay raises based on the more extraordinary skill set learned and competencies
exhibited (Murray & Gerhart, 1998, p. 69). Businesses must actively participate in this pay
scheme and recreate jobs to have motivating potential and a “supportive compensation system”
(Murray & Gerhart, 1998, p. 69). As the employee gains skills, they can be assigned tasks with
greater diversity, which increases knowledge about their position’s critical impact. Expounding
the competencies results in decreased supervision requirements and increased quality control
(Murray & Gerhart, 1998, p. 69). One study claimed that money was the only motivator in the
performance of employees, and nothing else would offer an incentive to do more (Nordgren et
al., 2020, p. 1). However, skill-based pay increases the satisfaction of workers and gives them a
feeling of empowerment and trust in management, further increasing productivity and growth
(Van der Meer, 2018, p. 370). There are several types of person-centered pay systems: pay-for-
knowledge, skill-based pay, and competency-based pay (Martocchio, 2020, p. 109). The systems
base pay on learning specific industry-specific knowledge and skills, which potentially will
augment contributions to the business.
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Disadvantages also occur along with all the positive aspects of person-focused pay
systems. Labor cost is the primary hurdle when considering a skill-based pay system. When the
employee gains rank in the system, the cost to employ them also rises. Unless the employee
creates an exponential growth in productivity and quality of work produced while also
decreasing the amount of other labor required, labor costs could increase (Murray & Gerhart,
1998, p. 70). Training and managerial expenses also rise since both of these factors are essential
in person-focused plans rather than job-based plans (Martocchio, 2020). Another aspect that
presents challenges is researching the economic cost of providing the skill training and
comparing that across different industries, as multiple variables affect business processes.
Individuals are more likely to feel internally and externally esteemed by their
organization when they consider their compensation is based on their value to the business rather
than an arbitrary number assigned to the role. The subject of this discussion, Susan Jackson,
might find comfort or contentment within an establishment that provided a pay system based on
person-focused accomplishments. She would be allowed to showcase her unique knowledge and
education, both of which provide skills to benefit her employer. By receiving a salary that
reflects her accomplishments, since it is based on what she has proven able to do, Susan might
find feelings of value and prestige in herself. Those psychological emotions would drive her to
work productively, giving her employer and herself tangible results and escalating future growth.
As employees receive what they consider just compensation for their efforts, they strive to
continue to improve their activities, providing an environment of support, encouragement, and
monetary benefits for all involved.
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