The average pay of employees is likely to be higher than in a job-based pay system. In successful SBP systems, productivity increases offset the additional costs. However, if these gains do not result, an organization could experience excessive labor costs. SBP systems are complex and much effort, employee involvement, and communication is necessary to implement them. Organizations experienced with job-based pay systems are usually not prepared for the difficulties of getting an SBP system off the ground. SBP systems require a major investment in training. This investment is both in direct costs as well as in time devoted to training activities. Many organizations are not prepared for continuous training and the scheduling difficulties that are inherent in SBP systems.
See Exhibit 6.6, page 166
See Exhibit 6.11, page 175
See text pages 182-183
Many Ways to Create Internal Structure Business and Work -Related Internal Structure Person-based Skill Competencies Job-based Job analysis Job descriptions Job evaluation: classes or compensable factors Factor degrees and weighting Job-based structure PURPOSE Collect, summarize work information Determine what to value Assess value Translate into structure (Chapter 5) (Chapter 5) (Chapter 5) (Chapter 6) (Chapter 6) (Chapter 4) Skill analysis Skill blocks Certification process Person-based structure Core competencies Competency sets Behavioral descriptors Person-based structure
Skill - based pay ( SBP ) structures link pay to the depth (for a Specialist) or breadth (for a Multi-skilled generalist) of the skills, abilities and knowledge a person acquires that is relevant to the work . These structures 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. In contrast, a job-based plan pays employees for the job to which they are assigned, regardless of the skills they possess.
The Purpose of a Skill - Based Structure <ul><li>Support Strategy & Objectives </li></ul><ul><li>Support Work Flow </li></ul><ul><li>Fair to Employees (Overly ‘Fair’?) </li></ul><ul><li>Directs Behavior Toward Organization Objectives </li></ul>
Skill analysis - a systematic process to identify and collect information about skills required to perform work in an organization…just like job analysis does for a job
SKILL CATEGORY Grouping of related skill blocks of varying skill levels that represent all activities of a single job family or steps in a process; for example, production technician. SKILL BLOCK Grouping of skills, activities, or behaviors; for example, bearing housing assembly. SKILL Smallest unit of analysis, a specific statement of what a person does; for example, inspect oil levels and all filters. Skill - Based Terminology
How is SBP Different From a Job-Based Pay System? <ul><li>Skills or skill units, rather than jobs are compensable </li></ul><ul><li>Specific skill mastery is measured and certified </li></ul><ul><li>Pay and job changes do not necessarily go hand in hand </li></ul><ul><li>There is little emphasis on seniority in pay determination </li></ul>
Why Use a Skill-Based Pay System? <ul><li>From the firm’s perspective, SBP can: </li></ul><ul><li>Encourage employee flexibility </li></ul><ul><li>Reinforce a high-involvement organization design </li></ul><ul><li>Support the compensation strategy in ways that hold down costs </li></ul>
Advantages of a Skill-Based System <ul><li>higher productivity </li></ul><ul><li>higher quality </li></ul><ul><li>lower costs </li></ul><ul><li>lower staffing levels </li></ul><ul><li>lower absenteeism </li></ul><ul><li>lower turnover </li></ul><ul><li>improved union relations </li></ul>
Disadvantages of Skill-Based Pay <ul><li>Average employee pay is likely greater than under other evaluation plans due to payments for skills whether or not being used </li></ul><ul><li>Excessive labor costs occur if productivity increases have not offset additional costs </li></ul><ul><li>SBP systems require a major training investment </li></ul>
Determining the Internal Competency -Based Structure Internal alignment Core competencies Competency sets Behavioral descriptors Competency – based structure <ul><li>Basic Decisions </li></ul><ul><li>What is the objective of the plan? </li></ul><ul><li>What information should be collected? </li></ul><ul><li>What methods should be used to determine </li></ul><ul><li>and certify competencies? </li></ul><ul><li>Who should be involved? </li></ul><ul><li>How useful are the results for pay purposes? </li></ul>Work relationships within the organization
Purpose of the Competency-Based Structure <ul><li>Support Work Flow </li></ul><ul><li>Fair to Employees </li></ul><ul><li>Directs Behavior Toward Organization Objectives </li></ul>
Competency Defined <ul><li>Demonstrable and transportable employee characteristics that are independent of a specific job or position. Competency includes knowledge, skills and behaviors that enable performance… However, since there is a lack of true consensus regarding exactly what the term Competency means (a number of things to different people), it may end up becoming nothing at all…additionally, there is much debate as to whether Competencies can be translated into a measurable, objective basis for determining pay decisions </li></ul>
CORE COMPETENCY COMPETENCY SETS COMPETENCY INDICATORS Taken from mission statement; for example, “business awareness.” Grouping of factors that translate core competency into observable behavior; for example, cost management, business understanding. Observable behaviors that indicate the level of competency within a competency set. For example, “identifies opportunities for savings.” Competency - Based Terminology
Criteria for Evaluating the Usefulness of ALL Pay Structures How well do they achieve their objectives Reliability of Job Evaluation Techniques Validity / Usefulness Acceptability
Recommendations to Ensure that Job Evaluation Plans are Bias Free <ul><li>Define the compensable factors and scales to include the content of jobs held predominantly by women </li></ul><ul><li>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 </li></ul><ul><li>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 </li></ul>
SUMMARY:Contrasting Approaches (1 of 2) Be sure competencies add value Provide competency – developing opportunities Control costs via certification, and work assignments Utilize skills efficiently Provide training Control costs via training, certification, and work assignments Link employees to work Promotion and placement Cost control via pay for job and budget increase Managers’ focus Competency development Skill acquisition Promotion Pay increases Based on competency developed / market Based on skills certified/ market Based on job performed/market Pay structure Certification and price competencies in external market Certification and price skills in external market Assign points that reflect criterion pay structure Mechanisms to translate into pay Competency levels Skill levels Factor degree weights Quantify the value Competencies Skill blocks Compensable factors What is valued Competency - Based Skill - Based Job - Based
Contrasting Approaches (2 of 2) Potential bureaucracy Requires cost controls Potential bureaucracy Requires cost controls Potential bureaucracy Potential inflexibility Limitations Continuous learning Flexibility Lateral movement Continuous learning Flexibility Reduced work force Clear expectations Sense of progress Pay based on value of work performed Advantages Competency analysis Competency certification Skill analysis Skill certification Job analysis Job evaluation Procedures Seek competencies Seek skills Seek promotions to earn more pay Employee focus Competency - Based Skill - Based Job - Based
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