A Human Resource Management Approach STRATEGIC COMPENSATION A Human Resource Management Approach Chapter 6 Person-Focused Pay Prentice Hall, Inc. © 2006 Prepared by David Oakes

Person - Focused Plans job - related Knowledge Skills Rewards employees for acquiring job - related Competencies Knowledge Skills 2 main types Pay - for - knowledge Skill - based pay Prentice Hall, Inc. © 2006

Competency - Based Pay Programs Pay - for - knowledge Skills - based A combination of both Prentice Hall, Inc. © 2006

Pay Programs Rewards employees for improving or acquiring new skills / knowledge Horizontal Those at same level of responsibility or difficulty Vertical Those at a higher level of responsibility or difficulty Depth Level of expertise or specialization Prentice Hall, Inc. © 2006

Competencies Uniquely combined characteristics of the person that enables employees to fulfill job requirements well Core competencies are derived from company’s strategic statements Prentice Hall, Inc. © 2006

Vertical Skills Programs Works well for work teams Service industry Manufacturing industry Employees Learn functional skills Perform managerial tasks Prentice Hall, Inc. © 2006

Pay - For - Knowledge Plans Reasons for adoption Removes entitlement label Connects pay to job-related abilities Increases employee autonomy Technological innovations Increased global competition Prentice Hall, Inc. © 2006

Pay-for-Knowledge Models Stair - step Skill - block Job - point accrual Cross - departmental Prentice Hall, Inc. © 2006

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 Prentice Hall, Inc. © 2006

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 & vertical skills Prentice Hall, Inc. © 2006

Job - Point Accrual Model Applies to jobs from different job families Creates organizational flexibility Points assigned to skills Higher the number of points, the higher the core compensation level Prentice Hall, Inc. © 2006

Cross - Departmental Model Employees develop skills usable in other departments Helps manage sporadic, short – term staffing shortages Helps meet seasonal fluctuations Prentice Hall, Inc. © 2006

Person - Focused Pay Compensates employees for flexibility Compensated for potential contributions Based on skills & knowledge Used for jobs not easily assessed For skills and knowledge Prentice Hall, Inc. © 2006

Job - Based Pay Compensates employees for current jobs Pay limits set for each job Evaluations based on job descriptions & objectives 2 main types Merit pay Incentive pay Prentice Hall, Inc. © 2006

Employee Advantages Can provide job enrichment Can provide job security Can make jobs more intrinsically motivating Can make jobs more interesting Increases employees’ flexibility Prentice Hall, Inc. © 2006

Job Characteristics Theory Employees more motivated to perform jobs that contain Skill variety Task identity Autonomy Feedback Prentice Hall, Inc. © 2006

Core Characteristics Skill variety Task identity Autonomy Feedback Requires using different abilities Task identity Enables employees to do entire job Autonomy Allows employees to choose Feedback Provides clear communications Prentice Hall, Inc. © 2006

Advantages To Employers Leads to enhanced job performance Leads to reduced staffing Leads to greater flexibility Improves quality Increases productivity levels Prentice Hall, Inc. © 2006

Disadvantages Can increase hourly labor costs Can increase training costs Can increase overhead costs May not mesh well with existing incentive pay systems Prentice Hall, Inc. © 2006

Lowest - Cost Competitive Strategy Lowers output costs per employee Training should improve productivity Improves product & service quality Long - term gains should outweigh short - term costs Prentice Hall, Inc. © 2006

Differentiation Competitive Strategy Requires employees who are Creative Open - minded Risk - takers Requires long - term focus Pay - for - knowledge effective with work teams Prentice Hall, Inc. © 2006