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HR 202 Chapter 06
1.
Compensation Chapter 06 Person-Based Structures ©McGraw-Hill
Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
2.
©McGraw-Hill Education. Introduction The logic
underlying job-based pay structures flows from scientific management, championed by Frederick Taylor. • Taylor sought the “one best way” to perform every element of the job. Today’s work is analyzed with an eye toward increasing competitiveness and success. • Transactional work is separated from tacit work. • Once fragmented, work processes can be re-bundled into new jobs. Pay structures based on skills, knowledge, or experience offers flexibility to align talent with redesigned workplaces.
3.
©McGraw-Hill Education. Person-Based Structures:
Skill Plans Skill-based pay is used mostly in manufacturing. • An advantage is a better match of people to flow of work, avoiding bottlenecks and idle hands. Skill-based structures link pay to the depth or breadth of the skills, abilities, and knowledge a person acquires relevant to work. • These structures pay for all the certified skills of the individual, regardless of whether the work requires all or a few skills. • The wage attaches to the person. • In contrast, a job-based plan pays employees for the job, regardless of the skills they possess.
4.
©McGraw-Hill Education. Types of
Skill Plans Specialist – Depth Pay is based on the knowledge of the individual. Rather than on job content or output. A teacher is an example. Basic responsibilities do not vary on a daily basis. Generalist – Breadth Those in a multiskill system earn pay increases by acquiring new knowledge. More pay comes from certification of new skills. Responsibilities can change drastically over a short time.
5.
©McGraw-Hill Education. Exhibit 6.2:
Skill Ladder at Balzers Tool Coating Jump to long image description.
6.
©McGraw-Hill Education. Purpose of
the Skill-Based Structure Supports the strategy and objectives. • In practice, the “line of sight” is difficult to make clear. Supports work flow. • A main advantage is matching people to changing workflow. Is fair to employees. • Skill-based plans may give workers more control over their work life but favoritism and bias may be a problem. • The legality of such plans have not been addressed in the courts. Motivates behavior toward organization objectives. • Fluid work assignments require less supervision, resulting in labor cost savings.
7.
©McGraw-Hill Education. “How-to” –
Skill Analysis The process begins with an analysis of skills. • Related skills can be grouped into a skill block and skill blocks can be arranged by levels into a skill structure. • A process is needed to describe, certify, and value the skills. The major skill analysis decisions are: • What is the objective of the plan? • What information should be collected? • What methods should be used? • Who should be involved? • How useful are the results for pay purposes? Skill analysis is a systematic process of identifying and collecting information about skills required to perform work in an organization.
8.
©McGraw-Hill Education. Exhibit 6.3:
Determining the Internal Skill-Based Structure Jump to long image description
9.
©McGraw-Hill Education. Information and
Involvement There is less uniformity in terms in person-based plan than there is in a job-based plan. Skill-based plans have very specific information on every aspect of the production process. • Plans are suited for continuous-flow technologies where employees work in teams. Employee involvement is almost built into skill-based plans. • Employees and managers are the source of information for: • Defining the skills. • Arranging them into a hierarchy. • Bundling them into skill blocks. • And certifying whether a person actually possesses the skills.
10.
©McGraw-Hill Education. Exhibit 6.4:
Determining the Internal Skill-Based Structure Jump to long image description.
11.
©McGraw-Hill Education. Establish Certification
Methods Organizations may use peer review, on-the-job demonstrations, or tests to certify that employees possess and apply skills. Newer applications are moving to fixed review points in the year. Scheduling makes it easier to budget and control payroll increases. Other changes include: • Ongoing recertification. • Removal of certification when a skill is deemed obsolete.
12.
©McGraw-Hill Education. Outcomes of
Skill-Based Pay Plans Skill-based plans are readily accepted by employees and provide strong motivation to increase individual skills. These plans become increasingly expensive if all workers top-out. • Employers may have an average wage higher than competitors. • Unless flexibility permits a leaner staff, labor costs will be higher. • Some employers require employees to stay at a rate for a certain time. • Labor-intensive products may create a competitive disadvantage.
13.
©McGraw-Hill Education. Guidance from
Research and Experience Early research showed 60% of companies starting a skill-based plan continued using the plan after seven years. • Plans were more viable in firms following a cost-cutter strategy. These plans may be a better fit in industries where labor costs are a small share of total costs. • These plans have an estimated 10-15% higher labor costs. Are jack-of-all-trades really a master of none? • Greater increments of flexibility achieve fewer improvements. • There may be an optimal number of skills per individual. • Campers create bottlenecks.
14.
©McGraw-Hill Education. Person-based Structures:
Competencies There are several perspectives on what competencies are and what they are supposed to accomplish. • A lack of consensus means competencies can be a number of things and stand in danger of becoming nothing. A competency-based structure begins by looking at the work performed in the organization. • The underlying knowledge, skills, and behaviors that form success at any level or job are the core competencies. • Competency sets translate each core competency into action. • Competency indicators are observable behaviors. • They anchor the degree of a competency at each level of complexity of the work and sometimes include scales.
15.
©McGraw-Hill Education. Exhibit 6.5:
Determining the Internal Competency-Based Structure
16.
©McGraw-Hill Education. Defining Competencies Early
conceptions of competencies focused on five areas: • Skills – demonstration of expertise. • Knowledge – accumulated information. • Self-concepts – attitudes, values, self-image. • Traits – general disposition to behave in a certain way. • Motives – recurrent thoughts that drive behaviors. Organizations are now emphasizing business-related descriptions of behaviors. Competencies are becoming a collection of observable behaviors requiring no inference, assumption or interpretation.
17.
©McGraw-Hill Education. Purpose of
the Competency-Based Structure Organization Strategy. • The main appeal is the direct link to the organization’s strategy. Work Flow. • Competencies may require more tacit knowledge. Fair to Employees. • Advocates say they can empower employees. • Critics worry about basing pay on personal characteristics. • Justifying pay differences may create risks that need managed. Motivate Behavior toward Organization Objectives. • Competencies provide guidelines and keep people focused. • They are a common means of communicating and working together.
18.
©McGraw-Hill Education. Exhibit 6.8:
Frito-Lay Managerial Competencies
19.
©McGraw-Hill Education. “How-To” –
Competency Analysis The first decision is to clarify the objective of the plan. • The structure may exist on paper through competency sets and scaled behavioral indicators but bear little connection to the actual work. Core competencies are not unique for each company. • What differs is how each company applies their competencies. Competencies derive from leadership’s beliefs about the organization and its strategic intent. • Not all employees understand the connection. If people are paid based on competencies, there must be a way to certify their possession of that competency. • There seems to be no objective way of certifying competency.
20.
©McGraw-Hill Education. Structure, Employee
Selection and Training Competency-based structures have relatively few levels and wide differentials for increased flexibility. • Generic structures can be applied to almost any professional work. There is clear evidence that ability is related to general competencies. • The Great Eight captures the themes in competency frameworks. If employers want competent managers, they need to select or train and develop people who are: • High in need for power, need for control, and who have extroverted personalities. • Failure to adequately screen employees may lead to de-motivated employees who seek competencies, but are ill-suited to do so.
21.
©McGraw-Hill Education. Guidance from
the Research on Competencies Competencies may identify outstanding performance but there is debate on whether they can be measurable and objective. Competencies often morph into compensable factors. There may be potential application when viewing competencies as a portfolio highlighting returns on competencies. Only one study has analyzed the competencies/performance relationship for managers. Is it appropriate to pay for what a person is believe capable of doing versus what they are doing? Are competency-based systems susceptible to discrimination?
22.
©McGraw-Hill Education. Internal Alignment
Reflected in Structures The internal structure of work in the organization should reflect the internal alignment policy and support business operations. Managers must ensure the structure remains internally aligned. • Failure to do so risks bias and potentially unethical behaviors. In practice, when evaluating higher-value, nonroutine work, the distinction between job- and person-based approaches blurs. • The focus is on what factors create value for the organization. The person influences the job content in managerial and professional work. • Skill-based fits more easily with manufacturing work, but contemporary manufacturing requires tacit, nonroutine knowledge.
23.
©McGraw-Hill Education. Administering and
Evaluating the Plan Whatever plan is designed, a crucial issue is the fairness of its administration. • Sufficient information should be available to apply the plan. • Communication and employee involvement are critical for acceptance. Studies show job-based evaluation is used as a measurement. • Research assesses its reliability, validity, costs, and compliance. • Any value added by job evaluation is largely ignored. Research on person-based structures focus on their effects on behaviors and organization objectives. • Ignoring doubts on reliability and validity.
24.
©McGraw-Hill Education. Reliability of
Job Evaluation Techniques A reliable evaluation has evaluators producing the same results. • Most organizations now use market pricing to determine salaries, making job evaluation results less influential on salaries. • When evaluations do play a role in salary setting, high reliability between raters may still leave room for different resulting salaries. Improve reliability with trained evaluators familiar with the work. • Some organizations use group consensus to increase reliability. Reliability for job evaluation scores are higher than those for job analysis ratings. In efforts to reduce costs, job evaluation committees are disappearing.
25.
©McGraw-Hill Education. Validity of
Job Evaluation Techniques Validity refers to the degree to which the job evaluation assesses what is intended – the relative worth of jobs to the organization. Validity of the job evaluation has been measured in two ways: • The degree of agreement between rankings in the evaluation with agreed-upon ranking of benchmarks used as the criterion. • By hit rates – the degree to which the evaluation plan matches an agreed-upon pay structure for benchmark jobs. Many studies report that when different evaluation plans are compared, they generate similar rankings but low hit rates. The definition of validity needs broadened to include the impact on pay decisions.
26.
©McGraw-Hill Education. Acceptability Several methods
are used to assess and improve employee acceptability. • The formal appeals process allows employees to request a reanalysis and skills reevaluation if they believe they were incorrectly evaluated. • Employee attitude surveys can assess perceptions of how useful evaluation is as a management tool.
27.
©McGraw-Hill Education. Bias in
Internal Structures Continuing differences in jobs held, and pay differences, focused attention on internal structures as a source of discrimination. Attention is directed at job evaluation as a potential source of bias against women and a mechanism to reduce bias. • It is widely speculated that job evaluation is susceptible to gender bias. • Evidence does not support this proposition. • No evidence shows an evaluator’s gender affects results. One study found compensable factors related to job content did reflect bias against work done predominantly by women. • But factors pertaining to employee requirements did not.
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©McGraw-Hill Education. Wages Criteria
Bias If job evaluation is based on current wages and jobs held by women are underpaid, then results mirror bias in the pay rates. Recommendations to ensure bias-free evaluation plans: • Define the compensable factors and scales to include the content of jobs held predominantly by women. • Ensure that factor weights are not biased against jobs held predominantly by women. • Apply the plan in as bias-free a manner as feasible. • Ensure job descriptions are bias-free. • Exclude incumbent names from the job evaluation process. • Train diverse evaluators. All issues apply to skill- and competency-based plans.
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©McGraw-Hill Education. The Perfect
Structure Increase pay through promotions or acquisition of skills. A job-based approach pays only as much as the work is worth. The skill- or competency-based plans pay for the highest level of skill regardless of work performed – maximizing flexibility. • The employer must control the rate of certification of skills and offset the higher rates with greater productivity. The best approach to pay structures depends on the situation. • Provide sufficient ambiguity to afford flexibility. Internally aligned pay structures can be designed to: • Help determine pay for the wide variety of work and ensure that pay influences attitudes and behaviors and directs toward objectives.
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Because learning changes
everything.® www.mheducation.com ©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education. End of Chapter 06.
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