© 2010 McGraw Hill Ryerson 6-1 COMPENSATION Third Canadian Edition Milkovich, Newman, Cole

© 2010 McGraw Hill Ryerson 6-2 Many Ways to Create Internal Structure Business and Work-Related Internal Structure Person-based (Chapter 6) Job-based (Chapters 4-5) Job analysis Job descriptions Job evaluation: classes or compensable factors Factor degrees and weighting Job-based structure PURPOSE Collect, summarize work information Determine what to value Assess value Translate into structure SkillsCompetencies Skill blocksCompetency sets Certification process Skill analysisCore competencies Competency indicators Person-based structure Person-based structure

© 2010 McGraw Hill Ryerson 6-3   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 Skill-Based Pay Structures

© 2010 McGraw Hill Ryerson 6-4 Types of Skill-Based Pay Plans 1. Specialist: In-Depth 2. Generalist / Multiskill-Based: Breadth

© 2010 McGraw Hill Ryerson 6-5 Purpose of the Skill-Based Structure  support the strategy and objectives  support work flow  fair to employees  motivate behaviour toward organizational objectives

© 2010 McGraw Hill Ryerson 6-6  a systematic process to identify and collect information about skills required to perform work in an organization. Skill Analysis

© 2010 McGraw Hill Ryerson 6-7 Determining the Internal Skill-Based Pay Structure Skill analysisSkill 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?

© 2010 McGraw Hill Ryerson 6-8 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?

© 2010 McGraw Hill Ryerson 6-9 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)

© 2010 McGraw Hill Ryerson 6-10 CORE COMPETENCY COMPETENCY SETS COMPETENCY INDICATORS Taken from mission statement; for example, “business awareness.” Grouping of factors that translate core competency into observable behaviour; for example, cost management, business understanding. Observable behaviours that indicate the level of competency within a competency set. For example, “identifies opportunities for savings.” Competency-Based Pay Terminology

© 2010 McGraw Hill Ryerson 6-11 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

© 2010 McGraw Hill Ryerson 6-12 Top Twenty Competencies Achievement orientation Concern of quality Initiative Interpersonal understanding Customer service orientation Influence and impact Organization awareness Networking Directiveness Teamwork & cooperation Achievement orientation Concern of quality Initiative Interpersonal understanding Customer service orientation Influence and impact Organization awareness Networking Directiveness Teamwork & cooperation Developing others Team leadership Technical expertise Information seeking Analytical thinking Conceptual thinking Self-control Self-confidence Business orientation Flexibility Developing others Team leadership Technical expertise Information seeking Analytical thinking Conceptual thinking Self-control Self-confidence Business orientation Flexibility

© 2010 McGraw Hill Ryerson 6-13  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 Internal Alignment: Job- or Person-Based Structures

© 2010 McGraw Hill Ryerson 6-14 Avoiding Bias in Pay Structures 1.Define the compensable factors and scales to include the content of jobs held predominantly by women. 2.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? 3.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.

© 2010 McGraw Hill Ryerson 6-15 Contrasting Approaches (1 of 2) Job-BasedSkill-BasedCompetency-Based What is valued Compensable factorsSkillsCompetencies Quantify the value Factor degree weightsSkill levelsCompetency 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 PromotionSkill acquisitionCompetency 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

© 2010 McGraw Hill Ryerson 6-16 Contrasting Approaches (2 of 2) Job-BasedSkill-BasedCompetency-Based Employee focus Seek promotions to earn more pay Seek skillsSeek 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

© 2010 McGraw Hill Ryerson 6-17 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