Person-Focused Pay Structures 1
Person-Focused Pay Structures
Meghan Todd
School of Business, Liberty University
Author Note
Meghan Todd
I have no known conflict of interest to disclose.
Correspondence concerning this article should be addressed to Meghan Todd.
Email: mtodd11@liberty.edu
Person-Focused Pay Structures 2
Person-Focused Pay Structures
Have you ever been in the position where you feel you can’t show all your talents at your
current job? Well, Susan is in her 8th year of her technological manufacturing career and feels the
same exact way. At her current job, Susan feels like she has so much more to offer than what is
currently being asked of her which caused her to be on the job market yet again. Susan may
benefit from using a person-focused pay structure. A person-focused pay structure rewards the
employee for having the necessary position knowledge, skills, and abilities to succeed in their
job (Martocchio, 2020). This type of pay structure could alleviate Susan’s frustration of not being
recognized for her talents and skills in technological manufacturing. In her next position, she
should look for this kind of pay structure. They are common and offer many advantages for the
organization and employee.
Person-Focused Pay Structures & Organizational Adoption
Within person-focused pay structures there are three types of programs: pay-for-
knowledge, skill-based pay, and competency-based pay (Martocchio, 2020). Pay-for-knowledge
is a compensation system that bases an employee’s salary on the knowledge they possess rather
than on their job classification (Gupta et al., 1986). Skills-based pay is a pay structure that bases
the employee’s salary on their skills and as they learn new skills. These two pay structures
“reward employees for the range, depth, and types of skills or knowledge they can apply
productively to their jobs” (Martocchio, 2020, p. 110). Competency-based pay is different from
the other two because employees are paid based on how they can use their knowledge, skills, and
abilities to perform their jobs successfully. Person-focused pay structures can be designed based
on the employees obtaining new horizontal, vertical or a greater depth of knowledge or skills
(Martocchio, 2020, p. 110).
Person-Focused Pay Structures 3
Person-focused pay structures aren’t new but have taken awhile to be adopted by
organizations. Many organizations started using forms of person-focused pay structures as early
as the 1980s. One reason for the slow adoption from organizations is because person-focused pay
structures increased labor costs. These types of pay structures have become more popular in
organizations that want to increase the value of their human capital (Gregory, 1999). Person-
focused pay structures allows for organizations to have employees that are very well trained in
their specific skill set which in return helps them have a competitive advantage.
Advantages & Disadvantages
Organizations use person-focused pay structures to achieve many important outcomes.
Organizational outcomes include a higher workforce productivity, better attitudes, and superior
membership behaviors (Mitra et al., 2011). One of the main reasons for using a person-focused
pay structure is to encourage workplace flexibility. When employees have extensive knowledge,
skills, and abilities in their positions work problems can be fixed quickly and easily. A large
amount of research has shown that there is a positive impact between higher levels of pay and
job satisfaction including attitudes and commitment (Mitra et al., 2011). Compared to other pay
structures, pay levels are often higher for person-focused pay structures like skills-based pay
(Mitra et al., 2011). Person-focused pay structures lead to better attitudes, higher satisfaction, and
better commitment because the organization is investing in their employee’s growth and
development. Due to organizations investing in their employees under a person-focused pay
structure, employees are often more attracted to those organizations. Employees enjoy person-
focused pay structures compared to other pay structures because they offer job enrichment and
job security (Martocchio, 2020). Disadvantages of person-focused pay structures include higher
labor costs, not meshing well with current incentive pay systems in place at the organization, the
Person-Focused Pay Structures 4
organization not having well designed training program in place, and how to determine the
money value of skill and knowledge (Martocchio, 2020). Labor costs increase because higher
skilled employees should be paid higher. Incentive pay systems need to be adjusted according to
the organization (Campion et al., 2017). Mixing incentive pay programs is not always the best
idea. If a person-focused pay structure and another incentive pay structure are both being used,
employees might not want to learn the new skills to increase their pay if it is less than the
incentive award employees could earn based on the skills they already possess (Martocchio,
2020). How to determine the monetary value of skills and knowledge is also tricky. Often,
knowledge and skills depend on the organization which would make it hard to compare with
other organizations (Martocchio, 2020).
Conclusion
Although person-focused pay structures are not new, their use appears to be increasing
(Lawler et al., 1993). Overall, Susan would greatly benefit from a person-focused pay structure.
She feels like she isn’t able to showcase her talent and skillset in the technological manufacturing
field with her past jobs. She wants to offer more than what she has been asked in the past. A
person-focused pay structure would highlight Susan’s unique skillset within the technological
manufacturing field. She would be hired based upon her skill and knowledge on technological
manufacturing and most likely be paid more for it. In Susan’s situation, the advantages of a
person-focused pay structure definitely outweigh the disadvantages. Ephesians 2:10 says, “for
we are his workmanship, created in Christ Jesus for good works, which God prepared
beforehand, that we should walk in them” (English Standard Version, 2001). No matter what
kind of talent we have, God has given us them for a unique reason. With our talents we are to
serve others. God has given us all unique skills and abilities because we are to work together.
Person-Focused Pay Structures 5
References
Campion, E. D., Campion, M. C., & Campion, M. A. (2017). Best Practices in Incentive
Compensation Bonus Administration Based on Research and Professional
Advice. Compensation & Benefits Review,49(3), 123-134.
doi:10.1177/0886368718777335
English Standard Bible. (2001). https://esv.literalword.com/
Gregory, J. (1999). Encouraging Organizational Learning Through Pay after a Corporate
Downsizing. Special Issue: Organizational Downsizing,2(3), 163-181.
Gupta, N., Jenkins, G.D., Jr. and Curington, W.P. (1986), Paying for knowledge: Myths and
realities. Natl. Prod. Rev., 5: 107-123. https://doi.org/10.1002/npr.4040050204
Martocchio, J. J. (2020). Strategic Compensation(10th ed.). Pearson.
Mitra, A., Gupta, N., & Shaw, J. D. (2011). A comparative examination of traditional and skill-
based pay plans. Journal of Managerial Psychology, 26(4), 278-296.
Lawler, Edward & Ledford Jr, Gerald & Chang, Lei. (1993). Who uses skill-based pay, and why
they use it? Compensation & benefits review. 25. 10.1177/088636879302500204.
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