The document discusses internal pay structures within organizations. It describes how internal pay equity, or alignment, refers to pay relationships between jobs, skills, and competencies within a single organization. These relationships form a pay structure that should support workflow, promote fairness, and direct employee behavior toward organizational goals. The document then examines different types of internal pay structures, what shapes them, their impacts on performance and fairness, and how to determine which type of structure fits an organization best.

1. 3
Internal alignment, often called internal
equity, refers to the pay relationships
between the jobs / skills / competencies
within a single organization. The
relationships form a pay structure that can
support the workflow, is consistent
among employees, and directs their
behavior toward organization objectives.

2. 3
Compensation Strategy:
Internal Equity…If done properly, it:
Supports Work Flow
Supports Fairness
Directs Behavior Toward
Organization Objectives
(Motivation)

3. 3
Pay structure, refers to the array of pay
rates for different work or skills within a
single organization. The number of levels,
differentials in pay between the levels, and
the criteria used to determine those
differences create the structure. They may
vary greatly between organizations.

4. 3
Internal Consistency:
A Typical Engineering Job Structure
Hierarchy
Entry Level I Engineer: Limited use of basic principles. Close supervision.
Senior Engineer: Full use of standard principles and concepts. Under
general supervision.
Systems Engineer: Wide applications of principles and concepts, plus
working knowledge of other related disciplines. Under very general
direction.
Lead Engineer: Applies extensive knowledge as a generalist or specialist.
Exercises wide latitude.
Advisor Engineer: Applies advanced principles, theories, and concepts.
Assignments often self-initiated.
Recognized Consultant Engineer: Exhibits an exceptional degree of ingenuity,
Authority – creativity, and resourcefulness. Acts independently to uncover and resolve
Level VI operational problems.

5. 3
What Shapes Internal Structures?
EXTERNAL FACTORS:
Economic Pressures
Government Policies, Laws, Regulations
Stakeholders
Cultures and Customs (not really relevant
in the US today)
ORGANIZATION FACTORS:
Strategy HR Policy
Available Technology Employee Acceptance
Human Capital Cost Implications
(People)
INTERNAL STRUCTURE:
Levels
Differentials
Criteria

6. 3
Which Structure has the Greatest Impact
on Performance? On Fairness?
Structure A Structure B
Layered (Classical) De-layered (Broadband)
Chief Engineer Chief Engineer
Engineering Manager
Consulting Engineer
Senior Lead Engineer
Lead Engineer Consulting Engineer
Senior Engineer
Engineer
Engineer Trainee Associate Engineer

7. 3
Strategic Choice:
Hierarchical vs Egalitarian
Egalitarian
Hierarchical
(Broad bands)
Levels Many Fewer
Differentials Large Small
Criteria Person or Job Person or Job
Supports: Close Fit Loose Fit
Work Organization Individual Performers Teams
Consistent
Application
Performance Equal Treatment
Behaviors Opportunities for Promotion Cooperation

8. 3
Benefits of an Internally Aligned (Equitable)
Structure
Undertake training
Increase experience
Reduce turnover
Pay structure Facilitate career progression
Facilitate performance
Reduce pay-related
grievances
Reduce pay-related work
stoppages

9. 3
What Research Tells Us About the
Effects of Various Structures
 Equity Theory
 Tournament Theory
 Institutional Model: Copy Others

10. 3-
Perceived Equity of a Pay Structure
(Equity Theory)
MY PAY OTHERS’ PAY
My qualifications Their qualifications
My work performed Their work performed
My product value Their product value

11. 3-
Which Structure Fits Your
Organization Best?
How the work is organized
Consistent among employees
Directs behavior toward organization objectives