The chapter discusses person-based compensation structures like skill plans and competencies. It provides guidance on analyzing skills and competencies, including determining objectives, collecting relevant information, involving employees, and establishing certification methods. Skill plans can focus on depth or breadth of skills while competencies reflect an organization's strategy and values. The chapter also addresses ensuring internal structures are administered fairly and are useful for pay purposes, as well as guarding against bias.

1. Milkovich/Newman: Compensation, Ninth Edition
McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 6
Person-Based
Structures

2. 6-2
Chapter Topics
■ Person-Based Structures: Skill Plans
■ “How to”: Skill Analysis
■ Person-Based Structures: Competencies
■ “How to”: Competency Analysis
■ One More Time: Internal Alignment Reflected
in Structures
■ Administering the Plan

3. 6-3
Chapter Topics (cont.)
■ Evidence of Usefulness of Results
■ Bias in Internal Structures
■ The Perfect Structure
■ Your Turn: Climb the Legal Ladder

4. 6-4
Exhibit 6.1: Many Ways to Create Internal Structure

5. 6-5
Person-Based Structures: Skill Plans
■ Advantage of a skill-based plan is that people
can be deployed in a way that better matches the
flow of work
– Avoids bottle necks
– Avoids idling

6. 6-6
Skill-based structures link pay to the depth or
breadth of the skills, abilities, and knowledge
person acquires that are relevant to the work.
In contrast, a job-based plan pays employees for
the job to which they are assigned, regardless of
the skills they possess.
What is a Skill-Based Structure?

7. 6-7
Types of Skill Plans
■ Skill plans can focus on
– Depth based
▪ Specialist
– Breadth based:
▪ Generalist/ multiskilled based

8. 6-8
Exhibit 6.2: Skill Ladder at Balzer Tool
Coating

9. 6-9
Purpose of the Skill-Based Structure
■ Supports strategy and objectives
■ Supports work flow
■ Fair to employees
■ Motivates behavior toward
organization objectives

10. 6-10
“How To” – Skill Analysis
■ To build a structure, a process is needed to
describe, certify, and value the skills
– 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?

11. 6-11
Exhibit 6.3: Determining the
Internal Skill-Based Structure

12. 6-12
Systematic process of
identifying and collecting
information about skills
required to perform
work in an organization.
What Is Skill Analysis?

13. 6-13
“How To” – Skill Analysis (cont.)
■ What information to collect?
– Foundation skills
– Core electives
– Optional electives
■ Whom to involve?
– Employees and managers
■ Establish certification methods
– Peer review, on-the-job demonstrations, or tests, or
formal tests

14. 6-14
“How To” – Skill Analysis (cont.)
■ Guidance from the research on skill-based plans
– Design of certification process crucial in perception
of fairness
– Alignment with organization’s strategy
– May be best for short-term initiatives

15. 6-15
Exhibit 6.4: FMC’s Technician Skill-Based Structure

16. 6-16
Person-Based Structures: Competencies
■ Several perspectives on what competencies are
and what they are meant to accomplish
– Skill that can be learned and developed or a trait that
includes attitudes and motives?
– Focus on the minimum requirements that the
organization needs to stay in business or focus on
outstanding performance?
– Characteristics of the organization or of the
employee?

17. 6-17
Exhibit 6.5: Determining the Internal
Competency-Based Structure

18. 6-18
Terms in Competency Analysis
■ Core competencies
– Related to mission statements expressing
organization’s philosophy, values, business
strategies, and plans
■ Competency sets
– Translate each core competency into action
■ Competency indicators
– Observable behaviors that indicate the level of
competency within each set

19. 6-19
Competency-Based Approaches
■ Exhibit 6.6: TRW Human Resources
Competencies
■ Exhibit 6.7: Sample Behavioral Competency
Indicators

20. 6-20
Exhibit 6.6: TRW Human Resources Competencies

21. 6-21
Defining Competencies
■ Organizations seem to be moving away from the
vagueness of self-concepts, traits, and motives
■ Greater emphasis on business-related
descriptions of behaviors “that excellent
performers exhibit much more consistently than
average performers”
■ Competencies are becoming “a collection of
observable behaviors that require no inference,
assumption or interpretation”

22. 6-22
Exhibit 6.7: Sample Behavioral Competency Indicators

23. 6-23
Purpose of the Competency-Based
Structure
■ Organization strategy
■ Exhibit 6.8: Frito-Lay
Managerial
Competencies
■ Work flow
■ Fair to employees
■ Motivates behavior
toward organization
objectives

24. 6-24
Exhibit 6.8: Frito-Lay Managerial
Competencies

25. 6-25
“How To” – Competency Analysis
■ Objective
■ What information to collect?
– One scheme to classify competencies includes
▪ Personal characteristics
▪ Visionary
▪ Organization specific
– Examples
▪ Refer Exhibit 6.9, Exhibit 6.10, and Exhibit 6.11

26. 6-26
Exhibit 6. 9: 3M Leadership Competencies

27. 6-27
Exhibit 6.10: Behavioral Anchors for
Global-Perspective Competency

28. 6-28
Exhibit 6.11: The Top 20 Competencies

29. 6-29
“How To” – Competency Analysis
(cont.)
■ Whom to involve?
– Competencies are derived from executive
leadership’s beliefs about strategic organizational
intent
■ Establish certification methods
■ Resulting structure
– Designed with relatively few levels
■ Guidance from the research on competencies
– Appropriateness to pay for what is believed to be the
capacity of an individual as against what the
individual does

30. 6-30
Exhibit 6.12: Product Development Competency for
Marketing Department at a Toy Company

31. 6-31
Exhibit 6.13: Toy Company’s Structure
Based on Competencies

32. 6-32
■ Purpose of job- or person-based plan
– Design and manage an internal pay structure to help
achieve organizational objectives
▪ Reflects internal alignment policy continuously
▪ Supports business operations
■ In practice, during evaluation of higher-value,
nonroutine work, distinction between job-
versus person-based approaches blurs
One More Time: Internal Alignment
Reflected in Structures

33. 6-33
Administering the Plan
■ A crucial issue is the fairness of the plans
administration
■ Sufficient information should be available to
apply the plan
■ Communication and employee involvement are
crucial for acceptance of resulting pay structures

34. 6-34
Evidence on Usefulness of Results
■ Reliability of job evaluation techniques
– Different evaluators produce same results
– Can be improved by using evaluators familiar with
the work and who are trained in job evaluation
■ Validity
– Degree to which evaluation achieves desired results
– Validity of job evaluation is measured in two ways

35. 6-35
Evidence on Usefulness of Results
(cont.)
■ Validity (cont.)
– Validity of job evaluation is measured in two ways
▪ Degree of agreement between rankings; ranking of
benchmarks
▪ ‘Hit rates’; pay structure for benchmark jobs as criterion
– Definition of validity needs broadening to include impact in
pay decisions
■ Acceptability
– Formal appeals process
– Employee attitude surveys

36. 6-36
Bias in Internal Structures
■ Gender bias
– No evidence that job evaluation is susceptible to
gender bias
– No evidence that job evaluator's gender affects
results
– Compensable factors related to job content – contact
with others and judgment – does reflect bias
– Compensable factors related to employee
requirements – education and experience – does not
reflect bias

37. 6-37
Bias in Internal Structures (cont.)
■ Wages criteria bias
– Job evaluation results may be biased if jobs held
predominantly by women are incorrectly underpaid

38. 6-38
Recommendations to Ensure Job
Evaluation Plans Are Bias Free
■ Define compensable factors and scales to
include content of jobs held predominantly by
women
■ Ensure factor weights are not consistently biased
against jobs held predominantly by women
■ Apply plan in as bias free a manner as feasible
– Ensure job descriptions are bias free
– Exclude incumbent names from job evaluation
process
– Train diverse evaluators

39. 6-39
Exhibit 6.14: Contrasting Approaches