Milkovich/Newman: Compensation, Ninth Edition
Chapter 6
McGraw-Hill/Irwin
Person-Based
Structures
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
Exhibit 6.1: Many Ways to Create Internal Structure
6-2
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
6-3
What is a Skill-Based Structure?
Skill-based structures link pay to the
depth or breadth of the skills, abilities,
and knowledge persons acquire 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.
6-4
Types of Skill Plans

Skill plans can focus on
– Depth based
 Specialist
– Breadth based:
 Generalist/ multiskilled based
6-5
Purpose of the Skill-Based Structure

Supports strategy and objectives

Supports work flow

Fair to employees

Motivates behavior toward
organization objectives
6-6
Exhibit 6.3: Determining the
Internal Skill-Based Structure
6-7
“How To” – Skill Analysis

To build a structure, a process is needed to
describe, certify, and value the skills
 What information to collect? (Exhibit 6.4:
FMC’s Technician Skill-Based Structure)
– 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
6-8
Exhibit 6.4: FMC’s Technician Skill-Based Structure
6-9
“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
6-10
How is SBP Different From Job-Based?

Skills or skill units are compensable, rather than
jobs (although note that job-based pay does
typically involve skill as compensable factor)

Mastery of skill blocks measured and certified

Pay changes don’t necessarily accompany job
changes

Little emphasis placed on seniority in pay
determination
6-11
Potential Effects of Skill-Based System

Higher productivity

Lower costs (???)

Higher quality

Lower staffing levels

Lower absenteeism

Lower turnover

Improved relations with labor union
6-12
Disadvantages of Skill-Based Pay

Average pay of Ees likely higher

High labor costs, IF productivity increases do
not offset additional costs

SBP systems more complex

SBP systems require major investment in
training
6-13
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?
6-14
Exhibit 6.5: Determining the Internal
Competency-Based Structure
6-15
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
6-16
Competency-Based Approaches

Exhibit 6.6: TRW Human Resources
Competencies

Exhibit 6.7: Sample Behavioral Competency
Indicators
6-17
Exhibit 6.6: TRW Human Resources Competencies
6-18
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”
6-19
Exhibit 6.7: Sample Behavioral Competency Indicators
6-20
Exhibit 6.8: Frito-Lay Managerial
Competencies
6-21
“How To” – Competency Analysis

What information to collect?
– Examples
 Refer Exhibit 6.9, Exhibit 6.10, and Exhibit 6.11
6-22
Exhibit 6. 9: 3M Leadership Competencies
6-23
Exhibit 6.10: Behavioral Anchors for
Global-Perspective Competency
6-24
Exhibit 6.11: The Top 20 Competencies
6-25
Exhibit 6.12: Product Development Competency for
Marketing Department at a Toy Company
6-26
Exhibit 6.13: Toy Company’s Structure
Based on Competencies
6-27
“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
6-28
One More Time: Internal Alignment
Reflected in Structures

Purpose of job- or person-based plan
– Design and manage an internal pay structure to help
achieve organizational objectives
 Reflects internal alignment policy
 Supports business operations

In practice, during evaluation of higher-value,
nonroutine work, distinction between jobversus person-based approaches blurs
6-29
Administering the Plan
A crucial issue is the fairness of the plan’s
administration
 Sufficient information should be available to
apply the plan (i.e., ‘manual’)
 Communication and employee involvement are
crucial for acceptance of resulting pay structures
 Appeals process

6-30
Evidence on Usefulness of Results
Reliability
of job evaluation techniques
– 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

Acceptability
– Formal appeals process
– Employee attitude surveys
6-31
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 against
work done predominantly by women
– Compensable factors related to employee
requirements – education and experience – does not
reflect bias
6-32
Bias in Internal Structures (cont.)

Wages criteria bias
– Job evaluation results may be biased if jobs held
predominantly by women are incorrectly underpaid
6-33
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
6-34
Exhibit 6.14: Contrasting Approaches
6-35