McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Milkovich/Newman: Compensation, Ninth Edition Chapter 6 Person-Based Structures

6-2 Chapter Topics Person-Based Structures: Skill Plans Person-Based Structures: Skill Plans “How to”: Skill Analysis “How to”: Skill Analysis Person-Based Structures: Competencies Person-Based Structures: Competencies “How to”: Competency Analysis “How to”: Competency Analysis One More Time: Internal Alignment Reflected in Structures One More Time: Internal Alignment Reflected in Structures Administering the Plan Administering the Plan

6-3 Chapter Topics (cont.) Evidence of Usefulness of Results Evidence of Usefulness of Results Bias in Internal Structures Bias in Internal Structures The Perfect Structure The Perfect Structure Your Turn: Climb the Legal Ladder Your Turn: Climb the Legal Ladder

6-4 Exhibit 6.1: Many Ways to Create Internal Structure

6-5 Person-Based Structures: Skill Plans Advantage of a skill-based plan is that people can be deployed in a way that better matches the flow of work Advantage of a skill-based plan is that people can be deployed in a way that better matches the flow of work –Avoids bottle necks –Avoids idling

6-6 Skill-based structures link pay to the depth or breadth of the skills, abilities, and knowledge person acquires that are relevant to the work. In contrast, a job-based plan pays employees for the job to which they are assigned, regardless of the skills they possess. What is a Skill-Based Structure?

6-7 Types of Skill Plans Skill plans can focus on Skill plans can focus on –Depth based  Specialist –Breadth based:  Generalist/ multiskilled based

6-8 Exhibit 6.2: Skill Ladder at Balzer Tool Coating

6-9 Purpose of the Skill-Based Structure Supports strategy and objectives Supports strategy and objectives Supports work flow Supports work flow Fair to employees Fair to employees Motivates behavior toward organization objectives Motivates behavior toward organization objectives Supports strategy and objectives Supports strategy and objectives Supports work flow Supports work flow Fair to employees Fair to employees Motivates behavior toward organization objectives Motivates behavior toward organization objectives

6-10 “How To” – Skill Analysis To build a structure, a process is needed to describe, certify, and value the skills To build a structure, a process is needed to describe, certify, and value the skills –What is the objective of the plan? –What information should be collected? –What methods should be used? –Who should be involved? –How useful are the results for pay purposes?

6-11 Exhibit 6.3: Determining the Internal Skill-Based Structure

6-12 Systematic process of identifying and collecting information about skills required to perform work in an organization. What Is Skill Analysis?

6-13 “How To” – Skill Analysis (cont.) What information to collect? What information to collect? –Foundation skills –Core electives –Optional electives Whom to involve? Whom to involve? –Employees and managers Establish certification methods Establish certification methods –Peer review, on-the-job demonstrations, or tests, or formal tests

6-14 “How To” – Skill Analysis (cont.) Guidance from the research on skill-based plans Guidance from the research on skill-based plans –Design of certification process crucial in perception of fairness –Alignment with organization’s strategy –May be best for short-term initiatives

6-15 Exhibit 6.4: FMC’s Technician Skill-Based Structure

6-16 Person-Based Structures: Competencies Several perspectives on what competencies are and what they are meant to accomplish Several perspectives on what competencies are and what they are meant to accomplish –Skill that can be learned and developed or a trait that includes attitudes and motives? –Focus on the minimum requirements that the organization needs to stay in business or focus on outstanding performance? –Characteristics of the organization or of the employee?

6-17 Exhibit 6.5: Determining the Internal Competency-Based Structure

6-18 Terms in Competency Analysis Core competencies Core competencies –Related to mission statements expressing organization’s philosophy, values, business strategies, and plans Competency sets Competency sets –Translate each core competency into action Competency indicators Competency indicators –Observable behaviors that indicate the level of competency within each set

6-19 Competency-Based Approaches Exhibit 6.6: TRW Human Resources Competencies Exhibit 6.6: TRW Human Resources Competencies Exhibit 6.7: Sample Behavioral Competency Indicators Exhibit 6.7: Sample Behavioral Competency Indicators

6-20 Exhibit 6.6: TRW Human Resources Competencies

6-21 Defining Competencies Organizations seem to be moving away from the vagueness of self-concepts, traits, and motives Organizations seem to be moving away from the vagueness of self-concepts, traits, and motives Greater emphasis on business-related descriptions of behaviors “that excellent performers exhibit much more consistently than average performers” Greater emphasis on business-related descriptions of behaviors “that excellent performers exhibit much more consistently than average performers” Competencies are becoming “a collection of observable behaviors that require no inference, assumption or interpretation” Competencies are becoming “a collection of observable behaviors that require no inference, assumption or interpretation”

6-22 Exhibit 6.7: Sample Behavioral Competency Indicators

6-23 Purpose of the Competency-Based Structure Organization strategy Organization strategy Exhibit 6.8: Frito-Lay Managerial Competencies Exhibit 6.8: Frito-Lay Managerial Competencies Work flow Work flow Fair to employees Fair to employees Motivates behavior toward organization objectives Motivates behavior toward organization objectives Organization strategy Organization strategy Exhibit 6.8: Frito-Lay Managerial Competencies Exhibit 6.8: Frito-Lay Managerial Competencies Work flow Work flow Fair to employees Fair to employees Motivates behavior toward organization objectives Motivates behavior toward organization objectives

6-24 Exhibit 6.8: Frito-Lay Managerial Competencies

6-25 “How To” – Competency Analysis Objective Objective What information to collect? What information to collect? –One scheme to classify competencies includes  Personal characteristics  Visionary  Organization specific –Examples  Refer Exhibit 6.9, Exhibit 6.10, and Exhibit 6.11

6-26 Exhibit 6. 9: 3M Leadership Competencies

6-27 Exhibit 6.10: Behavioral Anchors for Global-Perspective Competency

6-28 Exhibit 6.11: The Top 20 Competencies

6-29 “How To” – Competency Analysis (cont.) Whom to involve? Whom to involve? –Competencies are derived from executive leadership’s beliefs about strategic organizational intent Establish certification methods Establish certification methods Resulting structure Resulting structure –Designed with relatively few levels Guidance from the research on competencies Guidance from the research on competencies –Appropriateness to pay for what is believed to be the capacity of an individual as against what the individual does

6-30 Exhibit 6.12: Product Development Competency for Marketing Department at a Toy Company

6-31 Exhibit 6.13: Toy Company’s Structure Based on Competencies

6-32 Purpose of job- or person-based plan Purpose of job- or person-based plan –Design and manage an internal pay structure to help achieve organizational objectives  Reflects internal alignment policy continuously  Supports business operations In practice, during evaluation of higher-value, nonroutine work, distinction between job- versus person-based approaches blurs In practice, during evaluation of higher-value, nonroutine work, distinction between job- versus person-based approaches blurs One More Time: Internal Alignment Reflected in Structures

6-33 Administering the Plan A crucial issue is the fairness of the plans administration A crucial issue is the fairness of the plans administration Sufficient information should be available to apply the plan Sufficient information should be available to apply the plan Communication and employee involvement are crucial for acceptance of resulting pay structures Communication and employee involvement are crucial for acceptance of resulting pay structures

6-34 Evidence on Usefulness of Results Reliability of job evaluation techniques Reliability of job evaluation techniques –Different evaluators produce same results –Can be improved by using evaluators familiar with the work and who are trained in job evaluation Validity Validity –Degree to which evaluation achieves desired results –Validity of job evaluation is measured in two ways

6-35 Evidence on Usefulness of Results (cont.) Validity (cont.) Validity (cont.) –Validity of job evaluation is measured in two ways  Degree of agreement between rankings; ranking of benchmarks  ‘Hit rates’; pay structure for benchmark jobs as criterion –Definition of validity needs broadening to include impact in pay decisions Acceptability Acceptability –Formal appeals process –Employee attitude surveys

6-36 Bias in Internal Structures Gender bias Gender bias –No evidence that job evaluation is susceptible to gender bias –No evidence that job evaluator's gender affects results –Compensable factors related to job content – contact with others and judgment – does reflect bias –Compensable factors related to employee requirements – education and experience – does not reflect bias

6-37 Bias in Internal Structures (cont.) Wages criteria bias Wages criteria bias –Job evaluation results may be biased if jobs held predominantly by women are incorrectly underpaid

6-38 Recommendations to Ensure Job Evaluation Plans Are Bias Free Define compensable factors and scales to include content of jobs held predominantly by women Define compensable factors and scales to include content of jobs held predominantly by women Ensure factor weights are not consistently biased against jobs held predominantly by women Ensure factor weights are not consistently biased against jobs held predominantly by women Apply plan in as bias free a manner as feasible Apply plan in as bias free a manner as feasible –Ensure job descriptions are bias free –Exclude incumbent names from job evaluation process –Train diverse evaluators

6-39 Exhibit 6.14: Contrasting Approaches