Managing Employee Performance and Reward Concepts, Practices, Strategies 2nd edition

Person-based base pay Skill-based base pay: Job family structures Skill sets and skill-based pay progression Competency-based base pay: Broad-banded structures Competency-based/related pay progression Strategic alignment with base pay options

Options for base pay Competency zones/levels Competency assessment Broad bands Competency-based/related pay Seniority and/or ‘merit’ based increments and promotion Market surveys and/or job evaluation Job-based/position-based pay Modes of pay progression Evaluation techniques Structures Options Position-based systems: Person-based systems: Skill sets Skill assessment Broad grades/job families Skill-based pay 1. Pay spines/ladders 2. Narrow grades

Skill-based pay: from narrow grades to broad grades

Skills analysis: skill dimensions for an administrative support role Breadth skills: Client reception File management Inquiry processing Word-processing Memos, letters and forms Invoicing Minute-taking Equipment purchase Depth skills: Office finance and accounting Electronic records management Spreadsheet software Vertical skills: Office management Task scheduling Team leadership

Skill-based pay progression in a broad graded structure 1. ‘Stair-step’ model: sequential skill sets for an administrative support role Broad grade entry point Training entry point Word-processing Producing memos, letters and forms $35,000 Minute-taking Office accounting Set 1 (breadth skills) Computer records management $41,000 Invoicing and purchasing Work scheduling Set 2 (breadth/depth skills) Team leadership $48,000 Office management Administrative support broad grade Set 3 (vertical skills) $30,000

Skill-based pay progression in a broad graded structure 2. Non-sequential (breadth) skill sets for an administrative support role Broad grade entry point/minimum = $30,000 Minute-taking Petty cash Word-processing Client reception File management Equipment purchase Memos and letters External inquiries Staff attendance and leave and/ or Invoicing Forms Staff inquiries Record-keeping Office finance Document production Office communication +$2,500 + $2,500

Skill-based pay Advantages: Allows organisations to ensure employees have the appropriate type and level of skills before they are assigned to a position Facilitates functional flexibility through multiskilling and teamworking Facilitates systematic organisational learning and continuous improvement Encourages strategically aligned skill development Multiskilling allows rapid response to technological and product market change Encourages a participative work culture by allowing for the devolution of decision-making tasks to line employees Supports skill-based career paths for blue- and pink-collar workers

Skill-based pay Disadvantages: Rewards skill accumulation rather than skill application Training bottlenecks Increased training costs ‘Topping out’ Skill obsolescence

Fully broad-banded pay structure: example

Modified broad-banding – with market-based zones or ranges Broad-banding with pay zones Broad-banding/broad-grades with internal pay ranges

Developing a competency-based pay system (within a broad-banded structure) Main steps: 1. Competency analysis (as for competency-based performance management) Determine the organisation’s ‘core competencies’ Determine which roles will be covered by the system Identify a sample of superior performers in each of these roles Collect data on what characteristics distinguish superior performers from average performers in each role (i.e. ‘differentiating competencies’) Develop behavioural descriptors and the overall competency model Test the model to ensure the chosen competencies do predict superior performance

Developing a competency-based pay system (within a broad-banded structure) 2. Configuring competency levels Life-cycle model: ‘learning’, ‘applying’, ‘guiding’, ‘shaping’ (typically three or four levels) 3. Pricing bands and zones The major challenge! Benchmark jobs and ‘high/low’ market pricing 4. Assessing and rewarding individuals for competencies Behavioural observation and assessment Assessment centres

Example of competency-based progression in a broad band Combination of core and role competency assessment determines each individual’s pay level in the broad band Multi-source competency assessment (e.g. supervisor, two peers, two subordinates) Decline in competency profile may result in reduction in base salary (or freeze)

Example of competency-based progression in a broad band

Pay for competencies plus results (= competency-related or ‘contribution-based’ pay) in a modified broad-banded structure

Competency-based/related pay (with broad-banding) Advantages: Encourages career development within role Seeks to establish a guaranteed link between base pay and high-performance capability Has universal application since ‘core competencies’ are applicable to every job and every employee in the organisation Unlike skill-based pay, not just applicable to routine (manual, technical and administrative) work Allows scope to reward knowledge workers without the need for promotion to management level

Competency-based/related pay (with broad-banding) Disadvantages: Absence of conceptual clarity. What are ‘competencies’? Distinction between ‘core’ and ‘role’ competencies unclear Emphasis on ‘soft’ competencies as opposed to ‘hard’ technical skills may result in invalid assessment Are high-performance competencies appropriate for routine non-managerial and manual work? Competencies do not equal results; may be little more than a circuitous way of paying for individual performance Excessive emphasis on individual (cf. group) contribution Can degenerate into a system for assessing personality and rewarding personality traits Problem of pricing competencies – no agreed or reliable way to price them Must be developed in conjunction with a broad-banded structure and consequently involves radical organisational change

‘Strategic alignment’ base pay options Service work; knowledge work; managerial roles Roles: High involvement; non-unionised Culture: Organic Structure: Prospector Strategy: Broad bands and competency-based (or -related) progression Process; technical; maintenance; administrative Semi-high involvement; some unionisation Semi-organic Quality defender; analyser Broad grades and skill-based progression Line- and middle-level positions Traditional; unionised Mechanistic Cost defender Pay scales and narrow grades