1. STRATEGIC COMPENSATION A Human Resource Management Approach
Chapter 5:
Person-focused Pay
Chapter 5 discusses person-focused pay.
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Person-Focused Plans
Rewards employees for acquiring job- related
Competencies
Knowledge
Skills
Two main types:
Pay-for-knowledge
Skill-based pay
Person-focused pay plans rewards employees for acquiring job-related competencies, knowledge, and skills. There are two types of competency-based pay programs such as pay-for-knowledge pay and skill-based pay.
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3. Competency-Based Pay Programs
Pay-for-knowledge: reward managerial, service, or professional workers for successfully learning specific curricula
Skills-based: used mostly for employees who do physical work, increases these workers’ pay as they master new skills
A combination of both
Pay-for-knowledge reward managerial, service, or professional workers for successfully learning specific curricula. Skills-based pay is used mostly for employees who do physical work, increases these workers’ pay as they master new skills.
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Pay Programs
Reward employees for improving or acquiring new skills/knowledge
Horizontal skills: Skills at the same level of responsibility or difficulty
Ex: Clerical employees of a retail store trained to perform record-keeping tasks
Employee attendance records
Schedule salesperson’s work shifts
Master the use of office supplies for reordering
Person focused pay systems reward employees for acquiring horizontal skills, vertical skills, and greater depth of knowledge or skills. Horizontal skills represent similar skills. Clerical employees of a retail store trained to perform record-keeping tasks can be given as an example of horizontal skills.
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Pay Programs (Cont’d)
Vertical skills: Skills that are traditionally considered supervisory
Scheduling, coordinating, training, leading others
Depth of skills: Level of expertise or specialization an employee possesses
HR professional specialize in compensation:
Job evaluation
Salary survey analysis
Market pay system designs
Incentive (merit) pay system design
Vertical skills are those skills that are traditionally considered supervisory like scheduling, coordinating, training, and leading others. Depth of skills refer to level of expertise or specialization an employee possesses. For instance, HR professional specializing in compensation should be taking courses on job evaluation, salary survey analysis, market pay system designs, and incentive (merit) pay system design.
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Vertical Skills
Works well for work teams
Service industry
Manufacturing industry
Employees
Learn functional skills
Perform managerial tasks
Vertical skills works well for self-managed work teams because team members need to learn how to manage one another. These type of teams bring employees together from various functional areas to plan, design, and complete one product or service.
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Competencies
Uniquely combined characteristics of the person that enables employees to fulfill job requirements well
Core competencies are derived from company’s strategic statements
Competencies are uniquely combined characteristics that enable an employee to fulfill job requirements, including, personality, attitudes, knowledge, skills, and behaviors. Core competencies are often derived from companies’ strategic statements.
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8. Person-Focused Pay Program Models
Stair-step: the steps represent jobs from a particular job family that differ in terms of complexity
Skill-block: applies to jobs within the same job family, but skills do not necessarily build on each other
There are four types of person-focused pay program such as stair-step, skill-block, job-point accrual model, and cross-departmental model. In stair-step model, each step represents jobs from a particular job family that differs in terms of complexity. Skill-block applies to jobs within the same job family, but skills do not necessarily build on each other.
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9. Person-Focused Pay Program Models (Cont’d)
Job-point accrual: encourages employees to develop skills and learn to perform jobs from different job families
Cross-departmental: promote staffing flexibility by training employees in one department with critical skills they would need to perform effectively in other departments
Job-point accrual model encourages employees to develop skills and learn to perform jobs from different job families. Cross-departmental models promote staffing flexibility by training employees in one department with some of the critical skills they would need to perform effectively in other departments.
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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
In stair-step model, each step represents jobs from a particular job family that differ in terms of complexity and each position differs according to greater number of skills needed to perform the job. Each “step-up” requires more skills than the position “below” it. Companies use separate models and models are designed to match jobs.
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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 and vertical skills
Skill-block model applies to jobs within one job family per model and employees progress to increasingly complex jobs. Skills do not necessarily build on each other and emphasizes the development of both horizontal and vertical skills.
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12. Job-Point Accrual Model
Applies to jobs from different job families
Creates organizational flexibility
Points are assigned to various skills
The higher the number of points, the higher the core compensation level
Job-point accrual model encourages employees to develop skills and learn to perform jobs from different job families. Creates organizational flexibility and promotes company goals by assigning a relatively greater number of points to skills that address key company concerns. The higher the number of points, the higher the core compensation level.
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13. Cross-Departmental Model
Employees develop skills usable in other departments
Helps manage sporadic, short-term staffing shortages
Helps meet seasonal fluctuations
Ex: Holiday shopping rush
In cross-departmental model, employees develop skills usable in other departments. This model can help production companies manage sporadic, short-term staffing shortages. Also, this type of model can help companies meet seasonal fluctuations in demands for their products or services such as holiday shopping rush.
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Person-Focused Pay
Compensates employees for flexibility
Compensated for potential contributions
Based on skills and knowledge
Used for jobs not easily assessed
For skills and knowledge
Person-focused pay compensates employees for developing the flexibility and skills to perform a number of jobs effectively. These programs reward employees for potential contributions based on skills and knowledge. Person-focused pay plans apply in limited contexts and are used for jobs not easily assessed.
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Job-Based Pay
Compensates employees for current jobs
Pay limits set for each job
Evaluations based on job descriptions and objectives
Two main types
Merit pay
Incentive pay
Job-based pay compensates employees for jobs they currently perform. Pay levels are set for each job and evaluations are based on job descriptions and objectives. Job-based pay has two main types such as merit pay and incentive pay.
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16. Contrasting Person-Focused Pay With Job-Based Pay
Feature
Person-Focused
Job-Based
Pay level determination
Market basis for skill valuation
Market basis for job valuation
Base pay
Awarded on how much an employee knows or on skill level
Awarded on the value of compensable factors
Base pay increases
Awarded on an employee’s gain in knowledge or skills
Awarded on attaining job-defined goal
Job promotion
Awarded on an employee’s skills base and proficiency on past work
Awarded on exceeding job performance standards
Key advantage to employees
Job variety and enrichment
Perform work and receive pay for a defined job
Key advantage to employers
Work scheduling flexibility
Easy pay system administration
This table compares person-focused pay with job-based pay in terms of pay level determination, base pay, base pay increases, job promotion, key advantage to employees, and key advantage to employers.
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Employee Advantages
Can provide job enrichment
Can provide job security
Can make jobs more intrinsically motivating
Can make jobs more interesting
Increases employees’ flexibility
These programs can provide job enrichment and job security to employees. Through job enrichment, it creates more intrinsically motivating and interesting work environments. They increase employees' flexibility.
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18. Job Characteristics Theory
Employees are more motivated to perform jobs that contain:
Skill variety: Requires using different abilities
Task identity: Enables employees to do entire job
Autonomy: Allows employees to choose
Feedback: Provides clear communications
According to the job characteristics theory, employees will be motivated to perform jobs that contain a high degree of four core characteristics namely skill variety, task identity, autonomy, and feedback. Skill variety requires using different abilities, task identity enables employees to do entire job, autonomy allows employees to choose in determining how to do the job, and feedback provides clear communications.
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19. Advantages to Employers
Leads to enhanced job performance
Leads to reduced staffing
Leads to greater flexibility
Improves quality
Increases productivity levels
These programs can lead to enhanced job performance with better quality work and more productive workers. This type of pay systems can lead to reduced staffing and greater flexibility by developing employees' vertical and horizontal skills.
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Disadvantages
Can increase hourly labor costs
Can increase training costs
Can increase overhead costs
May not mesh well with existing incentive pay systems
This type of programs can increase hourly labor costs, training costs, and overhead costs. Moreover, they may not mesh well with existing incentive pay programs.
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