STRATEGIC COMPENSATION A Human Resource Management Approach Chapter 5: Person-focused Pay Chapter 5 discusses person-focused pay. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Person-Focused Plans Rewards employees for acquiring job- related Competencies Knowledge Skills Two main types: Pay-for-knowledge Skill-based pay Person-focused pay plans rewards employees for acquiring job-related competencies, knowledge, and skills. There are two types of competency-based pay programs such as pay-for-knowledge pay and skill-based pay. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Competency-Based Pay Programs Pay-for-knowledge: reward managerial, service, or professional workers for successfully learning specific curricula Skills-based: used mostly for employees who do physical work, increases these workers’ pay as they master new skills A combination of both Pay-for-knowledge reward managerial, service, or professional workers for successfully learning specific curricula. Skills-based pay is used mostly for employees who do physical work, increases these workers’ pay as they master new skills. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Pay Programs Reward employees for improving or acquiring new skills/knowledge Horizontal skills: Skills at the same level of responsibility or difficulty Ex: Clerical employees of a retail store trained to perform record-keeping tasks Employee attendance records Schedule salesperson’s work shifts Master the use of office supplies for reordering Person focused pay systems reward employees for acquiring horizontal skills, vertical skills, and greater depth of knowledge or skills. Horizontal skills represent similar skills. Clerical employees of a retail store trained to perform record-keeping tasks can be given as an example of horizontal skills. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Pay Programs (Cont’d) Vertical skills: Skills that are traditionally considered supervisory Scheduling, coordinating, training, leading others Depth of skills: Level of expertise or specialization an employee possesses HR professional specialize in compensation: Job evaluation Salary survey analysis Market pay system designs Incentive (merit) pay system design Vertical skills are those skills that are traditionally considered supervisory like scheduling, coordinating, training, and leading others. Depth of skills refer to level of expertise or specialization an employee possesses. For instance, HR professional specializing in compensation should be taking courses on job evaluation, salary survey analysis, market pay system designs, and incentive (merit) pay system design. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Vertical Skills Works well for work teams Service industry Manufacturing industry Employees Learn functional skills Perform managerial tasks Vertical skills works well for self-managed work teams because team members need to learn how to manage one another. These type of teams bring employees together from various functional areas to plan, design, and complete one product or service. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Competencies Uniquely combined characteristics of the person that enables employees to fulfill job requirements well Core competencies are derived from company’s strategic statements Competencies are uniquely combined characteristics that enable an employee to fulfill job requirements, including, personality, attitudes, knowledge, skills, and behaviors. Core competencies are often derived from companies’ strategic statements. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Person-Focused Pay Program Models Stair-step: the steps represent jobs from a particular job family that differ in terms of complexity Skill-block: applies to jobs within the same job family, but skills do not necessarily build on each other There are four types of person-focused pay program such as stair-step, skill-block, job-point accrual model, and cross-departmental model. In stair-step model, each step represents jobs from a particular job family that differs in terms of complexity. Skill-block applies to jobs within the same job family, but skills do not necessarily build on each other. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Person-Focused Pay Program Models (Cont’d) Job-point accrual: encourages employees to develop skills and learn to perform jobs from different job families Cross-departmental: promote staffing flexibility by training employees in one department with critical skills they would need to perform effectively in other departments Job-point accrual model encourages employees to develop skills and learn to perform jobs from different job families. Cross-departmental models promote staffing flexibility by training employees in one department with some of the critical skills they would need to perform effectively in other departments. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Stair-Step Model Jobs from same job family Jobs differ in complexity Higher the step, greater the skills Companies use separate models Models designed to match jobs In stair-step model, each step represents jobs from a particular job family that differ in terms of complexity and each position differs according to greater number of skills needed to perform the job. Each “step-up” requires more skills than the position “below” it. Companies use separate models and models are designed to match jobs. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Skill-Block Model Applies to jobs in same job family Employees expected to progress to increasingly complex jobs Skills may not build on each other Emphasizes horizontal and vertical skills Skill-block model applies to jobs within one job family per model and employees progress to increasingly complex jobs. Skills do not necessarily build on each other and emphasizes the development of both horizontal and vertical skills. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Job-Point Accrual Model Applies to jobs from different job families Creates organizational flexibility Points are assigned to various skills The higher the number of points, the higher the core compensation level Job-point accrual model encourages employees to develop skills and learn to perform jobs from different job families. Creates organizational flexibility and promotes company goals by assigning a relatively greater number of points to skills that address key company concerns. The higher the number of points, the higher the core compensation level. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Cross-Departmental Model Employees develop skills usable in other departments Helps manage sporadic, short-term staffing shortages Helps meet seasonal fluctuations Ex: Holiday shopping rush In cross-departmental model, employees develop skills usable in other departments. This model can help production companies manage sporadic, short-term staffing shortages. Also, this type of model can help companies meet seasonal fluctuations in demands for their products or services such as holiday shopping rush. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Person-Focused Pay Compensates employees for flexibility Compensated for potential contributions Based on skills and knowledge Used for jobs not easily assessed For skills and knowledge Person-focused pay compensates employees for developing the flexibility and skills to perform a number of jobs effectively. These programs reward employees for potential contributions based on skills and knowledge. Person-focused pay plans apply in limited contexts and are used for jobs not easily assessed. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Job-Based Pay Compensates employees for current jobs Pay limits set for each job Evaluations based on job descriptions and objectives Two main types Merit pay Incentive pay Job-based pay compensates employees for jobs they currently perform. Pay levels are set for each job and evaluations are based on job descriptions and objectives. Job-based pay has two main types such as merit pay and incentive pay. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Contrasting Person-Focused Pay With Job-Based Pay Feature Person-Focused Job-Based Pay level determination Market basis for skill valuation Market basis for job valuation Base pay Awarded on how much an employee knows or on skill level Awarded on the value of compensable factors Base pay increases Awarded on an employee’s gain in knowledge or skills Awarded on attaining job-defined goal Job promotion Awarded on an employee’s skills base and proficiency on past work Awarded on exceeding job performance standards Key advantage to employees Job variety and enrichment Perform work and receive pay for a defined job Key advantage to employers Work scheduling flexibility Easy pay system administration This table compares person-focused pay with job-based pay in terms of pay level determination, base pay, base pay increases, job promotion, key advantage to employees, and key advantage to employers. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Employee Advantages Can provide job enrichment Can provide job security Can make jobs more intrinsically motivating Can make jobs more interesting Increases employees’ flexibility These programs can provide job enrichment and job security to employees. Through job enrichment, it creates more intrinsically motivating and interesting work environments. They increase employees' flexibility. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Job Characteristics Theory Employees are more motivated to perform jobs that contain: Skill variety: Requires using different abilities Task identity: Enables employees to do entire job Autonomy: Allows employees to choose Feedback: Provides clear communications According to the job characteristics theory, employees will be motivated to perform jobs that contain a high degree of four core characteristics namely skill variety, task identity, autonomy, and feedback. Skill variety requires using different abilities, task identity enables employees to do entire job, autonomy allows employees to choose in determining how to do the job, and feedback provides clear communications. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Advantages to Employers Leads to enhanced job performance Leads to reduced staffing Leads to greater flexibility Improves quality Increases productivity levels These programs can lead to enhanced job performance with better quality work and more productive workers. This type of pay systems can lead to reduced staffing and greater flexibility by developing employees' vertical and horizontal skills. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall Disadvantages Can increase hourly labor costs Can increase training costs Can increase overhead costs May not mesh well with existing incentive pay systems This type of programs can increase hourly labor costs, training costs, and overhead costs. Moreover, they may not mesh well with existing incentive pay programs. Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall