Topic 7 - Capability-Based Pay Flashcards
Do all employees in the same job receive the same pay?
No, not every employee in the same job is paid the same amount. Variability in pay can occur based on individual factors.
What paradigm is introduced when discussing variability in pay among employees?
The discussion shifts from a job-based pay paradigm to a skill or competency-based paradigm.
What is Capability-based Pay?
Capability-based Pay is a reward system that varies compensation based on the individual employee’s skills, competencies, and capabilities.
How does an Integrated Reward Structure account for pay variability?
An Integrated Reward Structure acknowledges that even within jobs and pay grades, individual employees can be paid differently based on their capabilities.
Capability-based pay is:
When a reward system explicitly attempts to vary rewards based upon the capabilities of the employee
When a reward system explicitly attempts to vary rewards based upon an employee’s ability to add value to the organization
When a reward system explicitly attempts to vary rewards based upon the market trends
When a reward system explicitly attempts to vary rewards based upon the capabilities of the organization
When a reward system explicitly attempts to vary rewards based upon the capabilities of the employee
True or False. The capability-based approach makes a surprisingly similar assumption to the job-based approach about how rewards should be determined.
False
How does the Capability-based Approach differ from the Job-based Approach?
The Capability-based Approach assumes that rewards should be based on the individual’s characteristics, such as knowledge, skills, experience, or competencies, rather than the job itself.
In an Individual-based system, how might employees in the same job be paid differently?
Employees with higher qualifications, like an MBA, may be paid more than less qualified employees, even if they perform the same work.
Why might an organization pay more to highly qualified employees in a Capability-based rewards system?
Paying more to qualified employees can increase retention, encourage others to gain skills, and ensure the company has experienced managers available when needed.
What is the core assumption behind a capability-based rewards system?
The assumption is that higher levels of skills and experience add value, and investing in highly qualified employees benefits the organization in terms of retention and growth.
What is one benefit of incorporating Individual-based pay into a Total Reward system?
It allows the organization to build its capacity by incentivizing employees to increase their skills.
How does Individual-based pay create a culture of learning?
It encourages employees to see themselves as capable of changing work roles and gives them a better understanding of their coworkers’ tasks.
How does Individual-based pay contribute to workforce flexibility?
Employees with varied skills can easily be reassigned to different jobs, ensuring that staffing needs are met across the organization.
What is one operational benefit of a more flexible workforce due to capability-based pay?
It allows employees to switch between tasks as needed, ensuring full engagement and efficient use of resources during busy or slow times.
What is a potential downside to capability-based pay?
Wages and salaries may rise, increasing per-employee labor costs.
Why might higher wages under capability-based pay not be entirely negative?
The increased wages are offset by higher employee performance and the potential for completing more work with fewer employees.
What should an organization consider when using capability-based pay?
The organization should evaluate if the productivity gains from higher-skilled employees outweigh the increased wage costs.
Which of the following is not a reason a corporation would want to incorporate individual-based pay into its Total Reward system?
Allows the organization to build its capacity
Demonstrates good faith in the employees
Builds a more flexible workforce
Creates a culture of learning
Demonstrates good faith in the employees
What is the most obvious downside to a capability-based pay?
Wages and salaries paid to employees will level off
There are no downsides
Wages and salaries paid to employees will rise
Wages and salaries paid to employees will decrease
Wages and salaries paid to employees will rise
True or False. An organization does not need to investigate if the increases in productivity offset the higher wage rates.
False
The assumption of the value of carrying and growing capacity lies at the heart of justifying a ______________________.
capability-based rewards system
performance-based rewards system
opportunity-based rewards system
none of the above
capability-based rewards system
True or False. In the individual-based pay system, a company would want to hire and retain a better qualified employee.
True
Within _______________ value is assumed to derive from the characteristics of the person holding the job, and therefore pay should be driven by the knowledge, skills, experience, or competencies of that individual.
Group-based systems
Market-based systems
Government systems
Individual-based systems
Individual-based systems
What is the goal of individual-based pay in organizations?
To reward employees based on characteristics that create value for the organization, predicting future performance based on proven capabilities.
What are the three broad types of capability-based pay approaches?
Skill-based pay, competency-based pay, and experience- or seniority-based pay.
How does skill-based pay work?
Employees are paid based on the number of job-related skills they possess, with those having more skills receiving higher pay.
Where is skill-based pay most commonly used?
In manufacturing industries or blue-collar work settings.
What does competency-based pay focus on?
It rewards employees based on their competencies, which are configurations of knowledge, skills, and traits that drive performance.
What types of jobs typically use competency-based pay?
Professional-level jobs.
What is the assumption behind experience or seniority-based pay?
The assumption is that the more experience or seniority an employee has, the higher their future performance will be.
How do organizations typically apply experience or seniority-based pay?
It is often used informally in salary negotiations, with more experienced employees receiving higher salaries.
In which industry is skill-based pay most often used?
Automotive industry
Education industry
Bio-Pharmaceutical industry
Manufacturing industry
Manufacturing industry
According to the reading, as recruited employees negotiate for higher salaries, they are more likely to receive such salaries if they have ______________________________.
Greater work experience
Higher age
More competencies
More education
Greater work experience
In a skill-based pay program:
Wage rates or salaries of are the same across all employees
The wage rate or salary received by the employee does not depend on the skills she possesses
The wage rate or salary received by the employer does not depend on the skills she possesses
The wage rate or salary received by the employee depends upon the skills she possesses
The wage rate or salary received by the employee depends upon the skills she possesses
Competencies are:
Unimportant
Configurations of knowledge, skills, and traits that enable government strategy
Configurations of knowledge, skills, and traits that enable employee performance
Configurations of knowledge, skills, and traits that enable market strategy
Configurations of knowledge, skills, and traits that enable employee performance
Why is strategic measurement important in capability-based pay systems?
Strategic measurement ensures that the criteria for pay differentiation are connected to employee performance, unit outcomes, and organizational goals.
What does reliable measurement mean in the context of capability-based pay?
Reliable measurement means that an employee’s skill, competency, or experience level can be consistently assessed across employees and raters, without variation.
Why is reliability crucial in a capability-based pay system?
Reliability ensures that competencies are measured fairly and consistently, promoting skill and competency development and increasing the system’s credibility.
What does transparent measurement refer to in capability-based pay systems?
Transparent measurement means the criteria and processes for measuring competencies are clear, well-understood, and documented.
Why is transparency particularly important in capability-based pay systems?
Transparency is essential because employees performing the same jobs might receive different pay levels, so they need to understand the basis for those differences.
How does strategic measurement benefit an organization implementing capability-based pay?
It ensures that the skills and competencies rewarded are truly valuable for employee performance and beneficial to the organization’s success.
What are the key factors that should be considered when implementing a measurement system for capability-based pay?
The system must be strategic, reliable, and transparent to ensure fair and consistent compensation based on individual capabilities.
Strategic measurement means:
The ability to provide specific goals for your employees
The definitions of criteria are all conceptually and empirically connected to employee, unit, and organizational outcomes
The ability to provide goals and aspirations for your organization
The definitions of criteria are not conceptually and empirically connected to employee, unit, and organizational outcomes
The definitions of criteria are all conceptually and empirically connected to employee, unit, and organizational outcomes
Reliable measurement means:
An employee’s measurement to show in performance management
The ability to express your burden of proof
An employee’s level of skill, competency, or experience can be measured consistently across employees and raters
An employee’s ability to actively recruit based on the reliability of potential employees
An employee’s level of skill, competency, or experience can be measured consistently across employees and raters
Transparent measurement means:
The ability to conduct a 360 degree feedback survey
The information employees need in order to understand management
The criteria for establishing a reward system should be easily understood and the processes for implementing the system should also be well documented and followed
None of the above
The criteria for establishing a reward system should be easily understood and the processes for implementing the system should also be well documented and followed
True or False. Competencies should be measured consistently across employees and raters.
True
Which of the following measurements is more successful than the others?
Each has its own unique strengths
Strategic Measurement
Transparent Management
Reliable Measurement
Each has its own unique strengths
What is the first step in developing a capability-based pay system?
The first step is to define the skill or competency sets that create value for the organization based on job analysis and strategic utility.
What should be the basis for selecting skills and competencies in a capability-based pay system?
Skills and competencies should be based on what drives employee performance and should align with the organization’s current and future strategy.
Why is it important to keep the number of skills and competencies manageable in a capability-based pay system?
A manageable number ensures that the system remains efficient and effective, preventing it from becoming unwieldy as the number of competencies increases.
What is the second step in the capability-based pay development process?
The second step is to establish level definitions for each skill or competency to ensure consistent and reliable measurement across employees.
What is an example of how proficiency might be assessed in a skill-based pay system?
Proficiency could be assessed by having employees perform tasks and rating their performance on a scale from no proficiency to high proficiency.
How does competency-based pay differ from skill-based pay in terms of assessment?
Competency-based pay typically evaluates an employee’s work history and performance over time, rather than a specific task or short-term assessment.
What is the third step in the capability-based pay development process?
The third step is to select information sources, typically using the employee’s immediate supervisor, and potentially a panel of reviewers to assess skills or competencies.
Why is using a panel of reviewers beneficial in a capability-based pay system?
A panel increases the reliability of the system by providing a more accurate picture of the employee’s behavior and ensuring consistency across different supervisors.
What is the fourth step in the capability-based pay development process?
The fourth step is to establish control policies, such as eligibility for participation and rules for certifying skills or competencies.
How do frequency policies help manage a capability-based pay system?
Frequency policies regulate how often an employee can certify on new skills or competencies and control costs by limiting the number of certifications an employee can achieve in a given time period.
Why is it important to have clear eligibility rules in a capability-based pay system?
Clear eligibility rules ensure that the number of employees certifying for higher pay is aligned with current and future organizational needs.
What is the fifth step in the capability-based pay development process?
The fifth step is to create a training support structure that enables employees to acquire the skills or competencies needed for the system.
Why is designing a training support system essential in the development of a capability-based pay plan?
A customized training support system ensures that employees have the resources and guidance to acquire the necessary skills or competencies for certification.
What is the sixth step in the capability-based pay development process?
The sixth step is to implement the system with intensive communication to answer questions and clarify the new system to employees.
Why should a capability-based pay system be rolled out with a pilot program?
A pilot program allows the organization to test the system, understand its impact, and address any unforeseen issues before the full rollout.
What is the purpose of a Sunset Clause in a capability-based pay system?
A Sunset Clause specifies the temporary nature of the program, allowing the organization to adapt the system based on the results it produces.
How does a limited rollout benefit a capability-based pay system?
A limited rollout allows the organization to assess the effectiveness of the system before expanding to include more skills or competencies.
What is the advantage of having a dynamic capability-based pay system?
A dynamic system can naturally grow and evolve by adding skills or competencies as organizational needs change.
How does a limited rollout contribute to the development of a capability-based pay system?
It allows the organization to learn and improve the system gradually, while also giving employees a chance to understand and adjust to the changes.
Why is intensive communication critical during the implementation of a capability-based pay system?
Intensive communication ensures that employees receive clear and accurate information, preventing misunderstandings or unrealistic expectations about the system.
Which of the following is not a step in creating a capability-based pay structure?
Implementation
Develop protocols
Define competency sets
Create training support structure
Develop protocols
It would be wise to establish a _____________ when developing the information sources.
Group meeting
Panel
Benchmarking study
Pamphlet
Panel
Having a panel increases the reliability of the system as having multiple people viewing the performance creates a more accurate picture of the employee’s behavior.
What are the two key policies that need to be put in place to ensure clarity and cost control in the system?
Eligibility & frequency
Eligibility & demand
Frequency & market trends
Frequency & demand
Eligibility & frequency
True or False. In the development stage it is important to also design a training support system that is customized to the skills or competencies in the system.
True
A pilot program would be implemented with:
Chief Level Officers
A sample size of the employees
The entire organization
None of the above
A sample size of the employees
A sunset clause specifies a program’s temporary nature in order to allow the organization to ____________ the program according to the results it produces.
Shift
Create
Adapt
None of the above
Adapt
The purpose of a pilot program is to better understand:
The design parameters
How the program is received
The impact of the program
All of the above
All of the above
The rollout of capability-based pay systems, like all reward system changes, should be accompanied by:
No communication
Expensive communication
Intensive communication
Expressive communication
Intensive communication
There will be many questions initially, and if those questions are not answered clearly and quickly then the answers employees receive through informal channels may not be accurate.
Intensive communication can be damaging if there is:
Poor participation
Unrealistic expectations
Both A & B
None of the above
Both A & B
True or False. In the development stage it is not important to also design a training support system that is customized to the skills or competencies in the system.
False
It is important to also design a training support system that is customized to the skills or competencies in the system.
Eligibility refers to:
Being able to participate in the system and to certify on each skill or competency
Understanding for participation in the system
Certifying on each skill or competency
The ability to participate in the health insurance program
Being able to participate in the system and to certify on each skill or competency
Generally speaking, the eligibility should be ____________ to ensure that the number of employees certifying is in line with current and future needs for that capability.
Altered
Restricted
Enforced
Changed
Restricted
True or False. Within individual-based systems value is assumed to derive from the characteristics of the person within the job, and therefore pay should be driven by the knowledge, skills, experience, or competencies of that individual.
True
The value in having policies that slow the process of topping out include all except:
Better understand the system implementation
Allow for growth potential
Organization can control costs
Employee development
Employee development
Generally, there is value in having policies that slow the process somewhat to allow the organization to control costs, better understand the system implementation, and allow the growth potential for employees to last longer.
True or False. All capability-based pay systems require sources of skill- or competency-related information.
True
Having a panel ___________the reliability of the system as having multiple people viewing the performance creates a more accurate picture of the employee’s behavior.
Increases
Speeds
Slows
Decreases
Increases
Having a panel:
Helps ensure consistency of standard across employees
increases an employee’s perception of the procedural justice of the system
Both A & B
None of the above
Both A & B
Having a scale that would rank abilities from Unable, Somewhat Able, Able, Very Able, Extremely Able, is an example of:
Likert Scale
Likert Definitions
None of the above
Level definitions
Level definitions
True or False. The first challenge in creating a capability-based pay plan (or “system”) is to define those individual characteristics that create value for the organization.
True
Individual characteristics should be categorized into two categories:
Job analyses, strategic utility
Job analyses, job frequency
Strategic utility, employer frequency
Strategic utility, job frequency
Job analyses, strategic utility
Strategic measurement means that that the definition of criteria are all conceptually and empirically connected to the:
Employee
Unit
Organizational outcomes
All of the above
All of the above
Strategic measurement means that the definition of criteria are all conceptually and empirically connected to employee, unit, and organizational outcomes.
True or False. When a reward system explicitly attempts to vary rewards based upon the capabilities of the employee, it is referred to as capability-based Pay.
True
Reliable measurement means that an employee’s level of skill, competency, or experience can be measured ___________ across employees and raters.
Curatively
Consistently
Capably
Congruently
Consistently
