Skill Based Incentives From Theory to Action Presented by: James C. Fox, Ph.D. Chairman Fox Lawson & Associates LLC 3101 Old Highway 8, Suite 304 Roseville, MN Phone: (651) x102 Fax:(651) April 3, 2001

b a c kn e x t h o m e Skill Based Pay In use in 19% of surveyed organizations Competency based pay is in use by 11% of surveyed organizations Combined, these systems have increased in use by 10.4% since % of those surveyed examined these pay systems in the last year We expect that more will be in use in the future

b a c kn e x t h o m e Skill Based Pay Characteristics of skill-based pay –Individually based pay vs. job based pay –Focus is on skill development and skill utilization –Encourages cross training –Permits flexibility in staffing

b a c kn e x t h o m e Advantages Encourages skill development and career development Creates staffing flexibility Improves employee satisfaction Reinforces teamwork and employee involvement Lowers staff requirements for the same amount of work Higher output and quality over the long term

b a c kn e x t h o m e Disadvantages Can be difficult to conduct external competitive analysis by job title benchmarking Skill blocks can be difficult to define and price Works best for trades and production based jobs May result in paying for skills not used Certification/re-certification process must be established Time and money is needed for training More employees can “top out” Administrative complexities

b a c kn e x t h o m e When Will It Work When you want a pay system that supports a new culture The organization strongly supports career development and cross-training Pay for skills is encouraged The change is supported by supervisors and managers When training money is readily available The organization supports total quality initiatives

b a c kn e x t h o m e When Is It Likely To Fail There is a lack of supervisor and management support Unwillingness to endure implementation problems Cultural desire for equity at the expense of individual differences (pay the job - not the person) Skill blocks are not well defined Failure to install certification process

b a c kn e x t h o m e Works Well For Public Safety Maintenance and Trades Customer Service Health Care Manufacturing and Production

b a c kn e x t h o m e How to Get Started Define occupational group or job category Get employees in affected occupational groups involved Form design teams Educate teams about skill based pay systems Clarify the job in detail For each set of duties, map the skills and knowledges that are needed Rate each skill and knowledge as entry, journey, specialist or mentor

b a c kn e x t h o m e Steps to Develop Verify the skills needed for each duty or task with employees in the job Define minimum and maximum salary for jobs within the group or category Determine the dollar value of each incremental skill block Determine whether the blocks are independent or dependent of each other (pay for one or more blocks or pay for blocks only in a sequence)

b a c kn e x t h o m e Customer Service Blocks Parking Lot Attendant Cashier Taxi Starter Bus Driver (Dallas/Ft. Worth International Airport)

b a c kn e x t h o m e Fire Fighter Skill Blocks Fire Fighter I Fire Fighter II Fire Fighter III Fire Fighter IV Emergency Medical Technician Paramedic Driver/Operator (Parker Fire Protection District, Parker, CO)

b a c kn e x t h o m e Health Care - Nursing Nursing Assistant Certified Nursing Assistant Licensed Vocational/Practical Nurse Registered Nurse (AA program) Registered Nurse (three year program) Registered Nurse (BA/BS degree program) Clinical specialty certification(s)

b a c kn e x t h o m e Equipment Operator Two axle vehicles under 8,000 lbs. without trailers (pick-up trucks) Two axle vehicles under 8,000 lbs. with trailers Dump trucks and refuse trucks Sewer vacuum trucks Tractors and back-hoes Cranes Heavy graders and dozers 18 wheel tractor/trailer combinations

b a c kn e x t h o m e Mechanics Small engines (two cycle) SAE certified brake specialist SAE certified transmission specialist SAE certified gasoline engine mechanic SAE certified diesel/heavy equipment mechanic SAE certified Master Mechanic

b a c kn e x t h o m e State of New York DOT Highway maintenance worker Objective was to get more capable workers on the highways, increase coverage and staffing flexibility 4 levels –Trainee 1 –Trainee 2 –Worker 1 –Worker 2 Hired in as a Trainee 1, usually To remain in program, must meet specific training requirements

b a c kn e x t h o m e Trainee 1: Grade 6 Goal: to obtain Class B commercial drivers license and Heavy Dump Truck certificate training Operate Category 1 equipment – tractor mower – patch roller – fork lift, etc Perform heavy physical labor

b a c kn e x t h o m e Trainee 2: Grade 7 Goal: OJT Physical maintenance work Operate Category 1 equipment on regular basis and less complex Category 2 equipment Obtain certification on Category 2 equipment, such as: –aerial lift device –backhoe –sweeper

b a c kn e x t h o m e Worker 1: Grade 8 Routinely operate Category 1 & 2 equipment on which certified Operate some Category 3 equipment, such as: – hydraulic excavator – bull dozer – grader Basic knowledge of vehicle and traffic law, safety manual, operational guidelines, etc. Obtain certification in Category 2 and 3 equipment

b a c kn e x t h o m e Worker 2: Grade 10 Master equipment operator Operate any Category 2 or 3 equipment Provide on the job training to other workers

b a c kn e x t h o m e Results Reduced overall staffing needed Saved $4 million per year in costs Improved service

Fox Lawson & Associates Compensation and Human Resources Specialists