COMPENSATION
Third Canadian Edition
Milkovich, Newman, Cole
6-1
© 2010 McGraw Hill Ryerson
Many Ways to Create
Internal Structure
Business and Work-Related
Internal Structure
PURPOSE
Person-based (Chapter 6)
Skills
Competencies
Job-based
(Chapters 4-5)
Collect, summarize
work information
Job analysis
Job descriptions
Determine what to
value
Job evaluation:
classes or
compensable factors
Skill blocks
Assess value
Factor degrees and
weighting
Certification
process
Translate into
structure
Job-based structure
Person-based Person-based
structure
structure
Skill analysis Core
competencies
Competency sets
Competency
indicators
6-2
© 2010 McGraw Hill Ryerson
Skill-Based Pay Structures
 link pay to the depth or breadth of the skills, abilities, and
knowledge a person acquires that is relevant to the work
 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
 very different approach compared to a job-based plan,
which pays employees for the job to which they are
assigned, regardless of the skills they possess
6-3
© 2010 McGraw Hill Ryerson
Types of Skill-Based
Pay Plans
1. Specialist: In-Depth
2. Generalist / Multiskill-Based: Breadth
6-4
© 2010 McGraw Hill Ryerson
Purpose of the Skill-Based
Structure
 support the strategy and objectives
support work flow
 fair to employees
 motivate behaviour toward organizational
objectives
6-5
© 2010 McGraw Hill Ryerson
Skill Analysis
 a systematic process to identify and
collect information about skills
required to perform work in an
organization.
6-6
© 2010 McGraw Hill Ryerson
Determining the Internal
Skill-Based Pay Structure
Skill analysis
Skill blocks
Skill
certification
Skill-based
pay structure
Basic Decisions
• What is the objective of the plan?
• What information should be collected?
• What methods should be used to determine
and certify skills?
• Who should be involved?
• How useful are the results for pay purposes?
6-7
© 2010 McGraw Hill Ryerson
Determining the Internal
Competency-Based Pay Structure
Core
competencies
Competency
sets
Behavioural
descriptors
Competency –
based pay structure
Basic Decisions
• What is the objective of the plan?
• What information should be collected?
• What methods should be used to determine
and certify competencies?
• Who should be involved?
• How useful are the results for pay purposes?
6-8
© 2010 McGraw Hill Ryerson
Competencies
 underlying, broadly applicable knowledge,
skills, and behaviours that form the
foundation for successful work performance
(exhibited by excellent performers more
consistently than average performers)
6-9
© 2010 McGraw Hill Ryerson
Competency-Based Pay
Terminology
Taken from mission statement; for example, “business
awareness.”
CORE
COMPETENCY
COMPETENCY SETS
Grouping of factors that translate core competency
into observable behaviour; for example, cost
management, business understanding.
COMPETENCY
INDICATORS
Observable behaviours that indicate the
level of competency within a
competency set. For example,
“identifies opportunities for savings.”
6-10
© 2010 McGraw Hill Ryerson
Competency Analysis
 a systematic process to identify and
collect information about the
competencies required for successful
work performance
collect information on:
 personal characteristics
 visionary competencies
 organization-specific competencies
establish certification methods
6-11
© 2010 McGraw Hill Ryerson
Top Twenty Competencies
• Achievement orientation
• Concern of quality
• Initiative
• Interpersonal
• Developing others
• Team leadership
• Technical expertise
• Information seeking
understanding
• Customer service
• Analytical thinking
orientation
• Conceptual thinking
• Influence and impact
• Organization awareness • Self-control
• Self-confidence
• Networking
• Business orientation
• Directiveness
• Teamwork & cooperation • Flexibility
6-12
© 2010 McGraw Hill Ryerson
Internal Alignment: Job- or
Person-Based Structures
 Purpose of job- or person-based pay plans
 Internal pay structure to help achieve
organizational objectives
 Aligned with internal alignment policy
Supports business operations
 Managing the plan
 Manual
 Communication to foster employee
acceptance
6-13
© 2010 McGraw Hill Ryerson
Avoiding Bias in
Pay Structures
1.
2.
3.
Define the compensable factors and scales to include
the content of jobs held predominantly by women.
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?
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.
6-14
© 2010 McGraw Hill Ryerson
Contrasting Approaches (1 of 2)
Job-Based
Skill-Based
Competency-Based
What is valued
Compensable factors
Skills
Competencies
Quantify the value
Factor degree weights
Skill levels
Competency levels
Mechanisms to translate
into pay
Assign points that reflect
criterion pay structure
Certification and price skills
in external market
Certification and price
competencies in external
market
Pay structure
Based on job
performed/market
Based on skills certified/
market
Based on competency
developed / market
Pay increases
Promotion
Skill acquisition
Competency development
Managers’ focus
Link employees to work
Promotion and placement
Cost control via pay for job
and budget increase
Utilize skills efficiently
Provide training
Control costs via training,
certification, and work
assignments
Be sure competencies add
value
Provide competency –
developing opportunities
Control costs via
certification, and work
assignments
6-15
© 2010 McGraw Hill Ryerson
Contrasting Approaches (2 of 2)
Job-Based
Skill-Based
Competency-Based
Employee focus
Seek promotions to earn
more pay
Seek skills
Seek competencies
Procedures
Job analysis
Job evaluation
Skill analysis
Skill certification
Competency analysis
Competency certification
Advantages
Clear expectations
Sense of progress
Pay based on value of
work performed
Continuous learning
Flexibility
Reduced work force
Continuous learning
Flexibility
Lateral movement
Limitations
Potential bureaucracy
Potential inflexibility
Potential bureaucracy
Requires cost controls
Potential bureaucracy
Requires cost controls
6-16
© 2010 McGraw Hill Ryerson
Conclusion
 internal pay structures need to be aligned with
the organization’s business strategy and
values, the design of the work flow, and a
concern for the treatment of employees
 techniques for establishing internally aligned
structures include the job-based approach (job
analysis and job evaluation) and person-based
approaches (skill/competency-based plans)
 these techniques can aid in achieving the
objectives of the pay system when they are
properly designed and managed
6-17
© 2010 McGraw Hill Ryerson