COMPENSATION

MANAGEMENT
Brief Notes for Students
HRSB 353

Chapter 6: Person-Based
Structures
LEARNING OBJECTIVES
1. Discuss the differences and similarities
between job-based plans, skill-based
plans, and competency-based plans.
2. Discuss the advantages and
disadvantages of employee
involvement in the evaluation of work.
3. Explain the procedures necessary in
order to administer a job-based or
skill/competency-based plan.
4. Discuss the criteria used to evaluate
the usefulness of the job-based or
skill/competency – based plan.
Many Ways to Create Internal
Structure
Skill-based structures link pay to the depth or
breadth of the skills, abilities, and knowledge a
person acquires that is relevant to the work.
Structures based on skill, pay individuals for all the
skills for which they have been certified regardless
of whether the work they are doing requires all or
just a few of those particular skills.
In contrast, a job-based plan pays employees for
the job to which they are assigned, regardless of
the skills they possess.
Types of Skill Plans

 Specialist: In Depth (law,

finance, welding, doctor)

 Generalist / Multiskill-Based:
Breadth (knowledge in all
phases of operations
including marketing, finance,
and HR)
 Purpose of the Skill-Based Structure

 Support Work Flow

 Supports the strategy and
objectives
 Fair to Employees
 Directs Behavior Toward
Organization Objectives
Skill analysis is a
systematic process to
identify and collect
information about skills
required to perform work
in an organization.
 Determining the Internal
Skill-Based Structure

Internal Skill Skill-based

Skill analysis Skill blocks
alignment certification structure

Work relationships within the

organization
Basic Decisions
• What is the objective of the plan?
• What information should be collected?
• What methods should be used to determine
and certify skills?
• Who should be involved?
• How useful are the results for pay purposes?
SKILL CATEGORY

SKILL BLOCK
Grouping of skills, activities, or behaviors; for
example, bearing housing assembly.

SKILL
Smallest unit of analysis, a
specific statement of what
a person does; for
example, inspect oil levels
and all filters.
How is SBP Different From a
Job-Based Pay System?
Skill or skill units, rather than jobs are
compensable.
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.
Why Use a Skill-Based Pay System?
From the firm’s perspective, SBP
can:
Encourage employee flexibility
Reinforce a high-involvement
organization design
Support the compensation strategy in
ways that hold down costs
Effects of a Skill-Based System
 higher productivity
 lower costs
 higher quality
 lower staffing levels
 lower absenteeism
 lower turnover
 improved relations with labor union
Disadvantages of Skill-Based Pay
 Average pay of employees likely higher
 Excessive labor costs, if productivity
increases don’t offset additional costs
 SBP systems more complex
 SBP systems require a major investment
in training
 Determining the Internal
Competency-Based Structure

Internal Core Competency Behavioral Competency –

alignment competencies sets descriptors based structure

Work relationships
within the
organization Basic Decisions
• What is the objective of the plan?
• What information should be collected?
• What methods should be used to determine
and certify competencies?
• Who should be involved?
• How useful are the results for pay purposes?
Purpose of the
Competency-Based Structure
 Support Work Flow
 Organization Strategy
 Fair to Employees
 Directs Behavior Toward
Organization Objectives
So, What’s a Competency?
Demonstrable characteristics of the
person, including knowledge, skills,
and behaviors, self-concepts, traits,
and motives.
Competencies are independent of a
job or position.
An employee can transport them from
one job to another.
CORE COMPETENCY
Taken from mission statement; for example, “business
awareness.”
COMPETENCY SETS
Grouping of factors that translate core competency
into observable behavior; for example, cost
management, business understanding.

COMPETENCY
INDICATORS
Observable behaviors that indicate the
level of competency within a
competency set. For example,
“identifies opportunities for savings.”
 The Top Twenty Competencies
1. Achievement orientation 11. Developing others
2. Concern of quality 12. Team leadership
3. Initiative
13. Technical expertise
4. Interpersonal
understanding 14. Information seeking

5. Customer-service 15. Analytical thinking

orientation 16. Conceptual thinking
6. Influence and impact
17. Self-control
7. Organization awareness
18. Self-confidence
8. Networking
9. Directiveness 19. Business orientation

10. Teamwork & cooperation 20. Flexibility

The Great Eight Competencies
1. Leading and Deciding
2. Supporting and Cooperating
3. Interacting and Presenting
4. Analyzing and Interpreting
5. Creating and Conceptualizing
6. Organizing and Executing
7. Adapting and Coping
8. Enterprising and Performing
How well do they Reliability of Job
achieve their Evaluation
objectives Techniques

Criteria for Evaluating

the Usefulness of
Pay Structures

Acceptability Validity /
Usefulness
Recommendations to Ensure that
Job Evaluation Plans are Bias Free
1. Define the compensable factors and scales
to include the content of jobs held
predominantly by women.
2. Ensure that factor weights are not
consistently biased against jobs held
predominantly by women. Are factors usually
associated with these jobs always given less
weight?
3. Apply the plan in as bias free a manner as
feasible. Ensure that the job descriptions are
bias free, exclude incumbent names from the
job evaluation process, and train diverse
evaluators
 Contrasting Approaches (1 of 2)

Job-Based

Skill-Based

Competency-Based

What is valued
Compensable factors
Skill blocks
Competencies

Quantify the value

Factor degree weights
Skill levels
Competency levels
Mechanisms to translate into pay
Assign points that reflect criterion pay structure
Certification and price skills in external market
Certification and price competencies in external market
Pay structure
Based on job performed/market
Based on skills certified/ market
Based on competency developed / market
Pay increases
Promotion

Skill acquisition
Competency development
Managers’ focus
Link employees to work
Promotion and placement
Cost control via pay for job and budget increase
Utilize skills efficiently
Provide training
Control costs via training, certification, and work assignments
Be sure competencies add value
Provide competency – developing opportunities
Control costs via certification, and work assignments
Contrasting Approaches (2 of 2)
Summary
 The importance placed on internal alignment in the
pay structures is a basic strategic issue.
 The premise underlying internal alignment is that
internal pay structures need to be aligned with the
organization’s business strategy and values, the
design of the work flow, and a concern for the
treatment of employees.
 The work relationships within a single organization
are an important part of internal alignment.
Structures that are acceptable to the stakeholders
affect satisfaction with pay, the willingness to seek
and accept promotions to more responsible jobs,
and the effort to keep learning and undertake
additional training.
Summary (continued)
 The techniques for establishing internally
aligned structures include job analysis, job
evaluation, and person-based approaches for
skill/competency-based plans.
 These techniques can aid in achieving the
objectives of the pay system when they are
properly designed and managed.
 Without them, the pay objectives of improving
competitiveness and fairness are more difficult
to achieve.
Review Questions
1. What are the pros and cons of having
employees involved in compensation
decisions? What forms can employee
involvement take?
2. Why does the process used in the design of
the internal pay structure matter? Distinguish
between the process used to design and
administer the structure and the techniques
or mechanics used.
3. If you were managing employee
compensation, how would you recommend
that your company evaluate the usefulness of
its job-based or person-based plans?
Review Questions (continued)
4. Based on the research on job evaluation,
what are the sources of possible gender
bias in skill/competency-based plans?
5. How can a manager ensure that job-
based or skill/competency-based plans
support a customer-centered strategy?
6. How would you decide to use job-based
or person-based structures?