chapter 6 - person based pay structures Flashcards
Labor Market
Definition:
The labor market is the industry, the size of the organization, and the location where you compete to hire employees. Also called the Talent Market.
Why it matters:
Companies often talk about paying fairly to “market” but neglect defining what “market” actually means. Many companies make the mistake of defining their market based on their business competitors – the reality is we recruit from and for employees that are broader than our immediate competitors.
What are the criteria for defining the relevant labor market?
occupation geography competitors
Internally Aligned Pay Structures.. Why?
Why should we create pay structures?
1. Help determine pay
2. Support fair pay decisions
3. Ensure pay influences people’s attitudes and behaviors towards the organizations’ objectives
More review
Chapter 4: Job analysis - the systematic way to evaluate the duties and responsibilities that comprise a job’s content and provide input to determine value of the job
We learned:
Job analysis is foundational to every function in HR
What “essential duties” are
There are qualitative & quantitative ways to conduct job analysis
Outcome of job analysis?
Chapter 5: Job evaluation is the systematic way to determine the relative worth of a job to establish internal structures (determine a job’s worth/value):
Job (task)-based structures look at what people are doing and the expected outcomes; most common approach (Chpt 5)
Skill or competency-based structures look at the person (Chpt 6)
In Chapter 5 we learned:
What a benchmark job is & why start with these jobs
Job evaluation methods - which is the most common? Second most common?
Outcome of job evaluation?
How Do Skill-Based Plans Work?
Skill-based structures link pay to the depth or breadth of skills, abilities and knowledge a person possess/acquires that are relevant to the work
Pay is for certified skills regardless of whether the work requires all or just a few of those skills
Compensation attaches to person (not job); in contrast, a job-based plan pays employees for the job to which they are assigned, regardless of the skills they possess
Presumption is workers with more “skill” or “knowledge” will be more effective (e.g., teacher education)
Bottom image is very important: Breadth and Depth
look at image - depth or specialists and breadth or generalists
on quiz
BENEFITS of Skill-Based Pay Plans
- Easy structure to understand and communicate; clear connection between skill plan, work and pay
- Well-accepted by employees
- Alignment with organization’s strategy: good in “cost cutter” environment, where margins are thing and there is a focus on doing more with less or where labor is a smaller share of the overall cost (chemical and food processing)
- Strong motivation (pay) for individuals to increase their skills and for learning (benefit to employees)
- Greater adaptability to changing workflow needs – to the employer, it allows deploying skills where needed
- Increased effectiveness of teams
- Enhanced capability to work self-managed
- Tends to drive higher quality
- Short-term solution/special business circumstance: many companies abandon after the workforce becomes skilled
on average skill based pay systems
do not survive long term
DOWNSIDES of Skill-Based Pay
- Higher average labor cost because employees can get paid more by acquiring skills, pay rates in skill-based pay environments may be higher than competitors unless there is improvement in efficiency/productivity
- Requires investment in training/certification process: crucial in perception of fairness; how determine who can receive training? seniority, performance?
- Topping out: encourages employees to gain skills, so often employees complete all training and wondered what was next
- Jack of all trades OR master of none? Research shows there is an optimal # of skills any individual can possess and beyond that productivity returns are less than pay increases
Person-Base Structures: Competency-Based Analysis:
Competencies
Competencies can be everything and nothing…
While skills-based structures focus on tasks, competencies look at the knowledge and behaviors that must be present to be successful in a role (or core competencies)
The are a collection of observable behaviors that require no inference, assumption or interpretation – you know it when you see it
Example: business acumen is a combination of organizational understanding, cost management, 3rd party relationships, ability to identify business opportunities
Challenges with Competencies
While competencies help us define subtle and often important skills, behaviors and capabilities that are critical in successfully performing many of today’s jobs, they are:
Inherently fuzzy – they relate to individual characteristics of personality traits, motivation and ability
Vague and subjective and may be risky foundation for pay systems
Assumptions with Competency-Based Plans
Pay based on relevant skills & competencies
Certification method – challenging because it’s very difficult to objectively certify whether a person possesses a competency
Underlying assumption is that those with higher level competencies will perform better
Research is thin as to whether a higher level of competencies increases organizational performance
Job or Person-Based?
In practice most companies consider both job and person factors
- The person influences the job content in professional and management positions
- Skill-based pay is better fit for manufacturing, although this is changing too as these jobs become less routine
