Designing Pay for Knowledge

Program
Dr.B.Sammaiah

1
 Pay for Knowledge
Competency based pay - where the company
pays for the employee’s range, depth and types of
skills and knowledge, rather than for the job title
he or she holds
Skill based pay - is tied to skills, abilities &
knowledge that an employee possesses
 Skill & Competency Analysis
Skill Analysis: Systematic process to identify skills to
perform work:
What does the employee know
Skills: basic unit of knowledge & expertise
Competency Analysis: Systematic process to
identify competencies required for success
What can the employee do
Competencies: basic units of knowledge & abilities

3
 Skill or Competency Evaluation
Determine the skill blocks that are valued: skill or skill
units, rather than jobs
Quantify the value
Develop certification procedures
Mastery of skill units is measured and certified
Pay changes do not necessarily accompany job changes
There is little emphasis on seniority in pay determination

4
 Designing Skill Based Pay
Establishing skill blocks
Transition matters
Skills assessment;
Aligning pay with knowledge structure;
Access to training
Training and certification
In-house or outsourcing training
 Expertise, timeliness;
 Size of employee population to be trained;
 Sensitivity or proprietary nature

Certification and recertification

 Steps in Developing Competency
Based Compensation System
1. Developing a Competency model
2. Competency Mapping
3. Linking Competencies to Compensating factors
4. Designing compensation on the basis of actual
competencies

6
Developing Competency Model
Competency model identifies various competencies
required for performing a job
Describe competencies in form of indicators
Each competency can be quantified on a scale based
on its relative importance with respect to each job
Serves as a reference for all competency management
activities in organization

7
 Competency Mapping and Gap Analysis
Design structured questionnaire for employee and
his immediate superior
Ask employee to rate his/her own competency level
in the questionnaire
Ask immediate superior to rate the competency level
of the employee
Compute weighted average rating to get final score
70% weight may be given to superior’s rating & 30%
to employee’s rating
Analyse Gap in each competency level of the
employee
8
 Gap Analysis Using Competency Mapping

Competency Criticality Employee Gap

Rating Rating
Production 5 2.24 2.76
Technical 4 2.1 1.9
Quality 5 2.31 2.69
Cost 5 2.24 2.76
Organising 3.7 2.1 1.6
Achievement 4 1.82 2.18
Communication 3.2 1.89 1.31
Maintenance 3.7 2.1 1.6
Safety 2 2.1
Discipline 4.6 2.1 2.5
Attitude 5 1.75 3.25
Reliability 5 2.1 2.9
Leadership 4.3 2.1 2.2
Interpersonal 4.6 1.82 2.78
Processing 4.7 2.38 2.32 9
 Compensation Factor
Compensation Factor is the weighted average of
competency ratings of an employee
Compensation factor used
- to design compensation strategies
- to fine tune the policy and adjust for internal and
external equities

10
 Computing Compensation Factor F
Let us assume
CR = Criticality Rating for each competency
Cp = Summation of Criticality Ratings of all
Competencies = ΣCR
ER = Employee Rating
WR = Weighted Rating = CR*ER
Compensation Factor, F = Σ(CR*ER)/Cp

11
 Compensation Factor Computation for Employees
Competency CR ER1 WR1 ER2 WR2 ER3 WR3 ER4 WR4 ER5 WR5
Production 5 2.24 11.2 3.46 17.3 2.9 14.5 3.61 18.05 2.83 14.15
Technical 4 2.1 10.5 3.39 16.95 3.55 17.75 3.76 18.8 3.39 16.95
Quality 5 2.31 11.55 3.31 16.55 2.58 12.9 3.3 16.5 2.31 11.55
Cost 5 2.24 11.2 3.6 18 2.85 14.25 3.65 18.25 2.74 13.7
Organising 3.7 2.1 10.5 3.09 15.45 3.25 16.25 3.15 15.75 3.01 15.05
Achievement 4 1.82 9.1 3.28 16.4 2.94 14.7 2.82 14.1 3.18 15.9
Communication 3.2 1.89 9.45 3.15 15.75 2.76 13.8 3.8 19 2.66 13.3
Maintenance 3.7 2.1 10.5 3.16 15.8 2.85 14.25 3.3 16.5 2.7 13.5
Safety 2 2.1 10.5 3.51 17.55 3.7 18.5 3.09 15.45 3.36 16.8
Discipline 4.6 2.1 10.5 3.46 17.3 3.2 16 3.18 15.9 3.46 17.3
Attitude 5 1.75 8.75 3.74 18.7 3.41 17.05 3.71 18.55 3.6 18
Reliability 5 2.1 10.5 3.51 17.55 2.88 14.4 3.3 16.5 3.6 18
Leadership 4.3 2.1 10.5 3.3 16.5 3.09 15.45 3.51 17.55 2.69 13.45
Interpersonal 4.6 1.82 9.1 3.9 19.5 3.09 15.45 3.6 18 3.39 16.95
Processing 4.7 2.38 11.9 3.61 18.05 3.12 15.6 3.48 17.4 3.47 17.35
Cp 63.8 F 2.441 4.034 3.618 4.017 3.636
CR = Criticality Rating, ER = Employee Rating, WR = Weighted Rating
= (CR * ER), F= Compensation Factor = Summation of (CR*ER)/Cp
12
 Determination of Basic Based on Percentage
Increment on Basic
Emp. No. Basic F F*10 Incr. New Basic
[Incr.= (F*10)%*8500]
E1 8500 2.44 24.41 2075 10575
E2 8000 4.03 40.34 3227 11227
E3 8500 3.62 36.18 3075 11575
E4 8500 4.02 40.17 3414 11914
E5 8500 3.64 36.36 3091 11591

13
 Determination of Basic Based on Fixed
Increment Value
Emp. Basic F F*Incr. New
Basic
No. (Incr. = 500)
E1 8500 2.44 1221 9721
E2 8000 4.03 2017 10017
E3 8500 3.62 1809 10309
E4 8500 4.02 2009 10509
E5 8500 3.64 1818 10318

14