Milkovich/Newman: Compensation, Ninth Edition

Chapter 6 Person-Based
Structures

McGraw-Hill/Irwin Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
 Two kinds of work
Routine Work: Work which is transactional in
nature.
Example: When an investment banker analyses
routine financial statements (balance sheets)
Tacit Work: element of work which is complex
in nature.
Example: When an investment banker has to use
analytical and problem solving skills to make
good investment recommendations

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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
Avoids bottle necks
Avoids idling

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What is a Skill-Based Structure?

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.

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Purpose of the Skill-Based Structure

Supports strategy and objectives

Supports work flow
Fair to employees
Motivates behavior toward
organization objectives

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Supports the Strategy and Objectives
The skills on which to base a structure need to be directly
related to the organizations objectives and strategy.

Supports Work Flow

The skill-based plan focuses on rewarding multi-skilled
employees. One of the main advantages of this plan is that it
facilitates matching people to a changing work flow.

Example: A multinational hotel moves more of its employees to

the hotel reception between 2pm to 5pm because that is peak
check-in time, and shifts them to food and beverage service area
because most of the guests are either dining at that time or
ordering room service.

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Is Fair to Employees
Employees like the potential of higher pay that comes with
learning. By encouraging employees to take charge of their
own development, skill-based plans may give them more
control over their work lives.

However, there might be problems

If there is biasness regarding which employee gets first

chance at new training opportunities.

When employees complain that they have to substitute

in the place of their colleagues who are gone for training

Because the court has not yet ruled on the legality of

having two people do the same work but for different pay
because of skill differences.
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Motivates Behavior Toward Organization
Objectives
The fluid and flexible work assignments that skill-based
plans permit encourage employees to take responsibility
for complete work process and results with less direction
from supervisors.

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Advantages of Skill-based plans
Well accepted by employees

It is easy to see the connection between the plan, the

work, and the size of the paycheck.

Provides strong motivation for individuals to increase

their skills

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Disadvantages of Skill-based plans
Becomes expensive as more and more employees become
better skilled and higher paid

Wage might become higher than competitors who are not

using skill-based plans

Might lead to higher labor costs unless the company is

allowed to reduce number of workers to only retain highly
skilled workers

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What Is Skill Analysis?

Systematic process
of identifying and
collecting
information about
skills required to
perform work in an
organization.

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It begins with an analysis of skills,
which is similar to the task
statements in a job analysis.

Related skills can be grouped into

skill blocks

Skill blocks can be arranged by

levels into a skill structure
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Skill Analysis Questions
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?

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Exhibit 6.3: Determining the
Internal Skill-Based Structure

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Illustration of depth and breadth of
skills
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How To Skill Analysis (cont.)
Guidance from the research on skill-based plans
Design of certification process crucial in perception
of fairness
Alignment with organizations strategy
May be best for short-term initiatives

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Person-Based Structures: Competencies
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?
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Exhibit 6.5: Determining the Internal
Competency-Based Structure

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Terms in Competency Analysis
Core competencies
Related to mission statements expressing
organizations philosophy, values, business
strategies, and plans
Competency sets
Translate each core competency into action
Competency indicators
Observable behaviors that indicate the level of
competency within each set
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Exhibit 6.6: TRW Human Resources Competencies

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Defining Competencies
Organizationsseem to be moving away from the
vagueness of self-concepts, traits, and motives
Greateremphasis 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
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Purpose of the Competency-Based
Structure

Organization strategy
Work flow
Fair to employees
Motivates behavior
toward organization
objectives

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Exhibit 6.8: Frito-Lay Managerial
Competencies

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How To Competency Analysis
Objective

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

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Exhibit 6. 9: 3M Leadership Competencies

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Exhibit 6.10: Behavioral Anchors for
Global-Perspective Competency

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Exhibit 6.11: The Top 20 Competencies

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How To Competency Analysis
(cont.)
Whom to involve?
Competencies are derived from executive
leaderships beliefs about strategic organizational
intent
Establish certification methods
Resulting structure
Designed with relatively few levels
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

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Exhibit 6.13: Toy Companys Structure
Based on Competencies

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

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Evidence on Usefulness of Results
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
Degree to which evaluation achieves desired results
Validity of job evaluation is measured in two ways

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Evidence on Usefulness of Results
(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
Formal appeals process
Employee attitude surveys

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

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Recommendations to Ensure Job
Evaluation Plans Are Bias Free
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
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
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Exhibit 6.14: Contrasting Approaches

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