McGraw-Hill/IrwinMcGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

Milkovich/Newman: Compensation, Ninth EditionMilkovich/Newman: Compensation, Ninth Edition

Chapter 6Chapter 6Person-Based Person-Based

StructuresStructures

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Chapter TopicsChapter Topics Person-Based Structures: Skill PlansPerson-Based Structures: Skill Plans ““How to”: Skill AnalysisHow to”: Skill Analysis Person-Based Structures: CompetenciesPerson-Based Structures: Competencies ““How to”: Competency AnalysisHow to”: Competency Analysis One More Time: Internal Alignment Reflected One More Time: Internal Alignment Reflected

in Structuresin Structures Administering the PlanAdministering the Plan

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Chapter Topics (cont.)Chapter Topics (cont.) Evidence of Usefulness of ResultsEvidence of Usefulness of Results Bias in Internal StructuresBias in Internal Structures The Perfect StructureThe Perfect Structure Your Turn: Climb the Legal LadderYour Turn: Climb the Legal Ladder

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Exhibit 6.1: Many Ways to Create Internal StructureExhibit 6.1: Many Ways to Create Internal Structure

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Person-Based Structures: Skill PlansPerson-Based Structures: Skill Plans Advantage of a skill-based plan is that people Advantage of a skill-based plan is that people

can be deployed in a way that better matches the can be deployed in a way that better matches the flow of workflow of work– Avoids bottle necksAvoids bottle necks

– Avoids idlingAvoids idling

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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.

What is a Skill-Based Structure? What is a Skill-Based Structure?

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Types of Skill PlansTypes of Skill Plans Skill plans can focus on Skill plans can focus on

– Depth basedDepth based SpecialistSpecialist

– Breadth based:Breadth based: Generalist/ multiskilled basedGeneralist/ multiskilled based

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Exhibit 6.2: Skill Ladder at Balzer Tool Exhibit 6.2: Skill Ladder at Balzer Tool CoatingCoating

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Purpose of the Skill-Based StructurePurpose of the Skill-Based Structure

Supports strategy and objectivesSupports strategy and objectives

Supports work flowSupports work flow

Fair to employeesFair to employees

Motivates behavior toward Motivates behavior toward organization objectivesorganization objectives

Supports strategy and objectivesSupports strategy and objectives

Supports work flowSupports work flow

Fair to employeesFair to employees

Motivates behavior toward Motivates behavior toward organization objectivesorganization objectives

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““How To” – Skill AnalysisHow To” – Skill Analysis To build a structure, a process is needed to To build a structure, a process is needed to

describe, certify, and value the skillsdescribe, certify, and value the skills

– What is the objective of the plan?What is the objective of the plan?

– What information should be collected?What information should be collected?

– What methods should be used?What methods should be used?

– Who should be involved?Who should be involved?

– How useful are the results for pay purposes?How useful are the results for pay purposes?

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Exhibit 6.3: Determining theExhibit 6.3: Determining theInternal Skill-Based StructureInternal Skill-Based Structure

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Systematic process of

identifying and collecting

information about skills required to

perform work in an organization.

What Is Skill Analysis?What Is Skill Analysis?

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““How To” – Skill Analysis (cont.)How To” – Skill Analysis (cont.) What information to collect? What information to collect?

– Foundation skillsFoundation skills– Core electivesCore electives– Optional electivesOptional electives

Whom to involve?Whom to involve?– Employees and managersEmployees and managers

Establish certification methodsEstablish certification methods– Peer review, on-the-job demonstrations, or tests, or Peer review, on-the-job demonstrations, or tests, or

formal testsformal tests

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““How To” – Skill Analysis (cont.)How To” – Skill Analysis (cont.) Guidance from the research on skill-based plansGuidance from the research on skill-based plans

– Design of certification process crucial in perception Design of certification process crucial in perception of fairnessof fairness

– Alignment with organization’s strategyAlignment with organization’s strategy

– May be best for short-term initiativesMay be best for short-term initiatives

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Exhibit 6.4: FMC’s Technician Skill-Based StructureExhibit 6.4: FMC’s Technician Skill-Based Structure

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Person-Based Structures: CompetenciesPerson-Based Structures: Competencies Several perspectives on what competencies are Several perspectives on what competencies are

and what they are meant to accomplishand what they are meant to accomplish– Skill that can be learned and developed or a trait that Skill that can be learned and developed or a trait that

includes attitudes and motives?includes attitudes and motives?

– Focus on the minimum requirements that the Focus on the minimum requirements that the organization needs to stay in business or focus on organization needs to stay in business or focus on outstanding performance?outstanding performance?

– Characteristics of the organization or of the Characteristics of the organization or of the employee?employee?

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Exhibit 6.5: Determining the InternalExhibit 6.5: Determining the InternalCompetency-Based StructureCompetency-Based Structure

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Terms in Competency AnalysisTerms in Competency Analysis Core competenciesCore competencies

– Related to mission statements expressing Related to mission statements expressing organization’s philosophy, values, business organization’s philosophy, values, business strategies, and plansstrategies, and plans

Competency setsCompetency sets– Translate each core competency into actionTranslate each core competency into action

Competency indicatorsCompetency indicators– Observable behaviors that indicate the level of Observable behaviors that indicate the level of

competency within each setcompetency within each set

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Competency-Based ApproachesCompetency-Based Approaches

Exhibit 6.6: TRW Human Resources Exhibit 6.6: TRW Human Resources CompetenciesCompetencies

Exhibit 6.7: Sample Behavioral Competency Exhibit 6.7: Sample Behavioral Competency IndicatorsIndicators

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Exhibit 6.6: TRW Human Resources CompetenciesExhibit 6.6: TRW Human Resources Competencies

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Defining CompetenciesDefining Competencies Organizations seem to be moving away from the Organizations seem to be moving away from the

vagueness of self-concepts, traits, and motivesvagueness of self-concepts, traits, and motives Greater emphasis on business-related Greater emphasis on business-related

descriptions of behaviors “that excellent descriptions of behaviors “that excellent performers exhibit much more consistently than performers exhibit much more consistently than average performers”average performers”

Competencies are becoming “a collection of Competencies are becoming “a collection of observable behaviors that require no inference, observable behaviors that require no inference, assumption or interpretation”assumption or interpretation”

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Exhibit 6.7: Sample Behavioral Competency IndicatorsExhibit 6.7: Sample Behavioral Competency Indicators

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Purpose of the Competency-Based Purpose of the Competency-Based StructureStructure

Organization strategyOrganization strategy

Exhibit 6.8: Frito-Lay Exhibit 6.8: Frito-Lay Managerial Managerial CompetenciesCompetencies

Work flowWork flow

Fair to employeesFair to employees

Motivates behavior Motivates behavior toward organization toward organization objectivesobjectives

Organization strategyOrganization strategy

Exhibit 6.8: Frito-Lay Exhibit 6.8: Frito-Lay Managerial Managerial CompetenciesCompetencies

Work flowWork flow

Fair to employeesFair to employees

Motivates behavior Motivates behavior toward organization toward organization objectivesobjectives

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Exhibit 6.8: Frito-Lay Managerial Exhibit 6.8: Frito-Lay Managerial CompetenciesCompetencies

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““How To” – Competency AnalysisHow To” – Competency Analysis ObjectiveObjective What information to collect?What information to collect?

– One scheme to classify competencies includesOne scheme to classify competencies includes Personal characteristicsPersonal characteristics

VisionaryVisionary

Organization specificOrganization specific

– ExamplesExamples Refer Exhibit 6.9, Exhibit 6.10, and Exhibit 6.11Refer Exhibit 6.9, Exhibit 6.10, and Exhibit 6.11

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Exhibit 6. 9: 3M Leadership CompetenciesExhibit 6. 9: 3M Leadership Competencies

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Exhibit 6.10: Behavioral Anchors for Exhibit 6.10: Behavioral Anchors for Global-Perspective CompetencyGlobal-Perspective Competency

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Exhibit 6.11: The Top 20 CompetenciesExhibit 6.11: The Top 20 Competencies

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““How To” – Competency Analysis How To” – Competency Analysis (cont.)(cont.)

Whom to involve?Whom to involve?– Competencies are derived from executive Competencies are derived from executive

leadership’s beliefs about strategic organizational leadership’s beliefs about strategic organizational intent intent

Establish certification methodsEstablish certification methods Resulting structure Resulting structure

– Designed with relatively few levelsDesigned with relatively few levels Guidance from the research on competenciesGuidance from the research on competencies

– Appropriateness to pay for what is believed to be the Appropriateness to pay for what is believed to be the capacity of an individual as against what the capacity of an individual as against what the individual doesindividual does

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Exhibit 6.12: Product Development Competency for Exhibit 6.12: Product Development Competency for Marketing Department at a Toy CompanyMarketing Department at a Toy Company

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Exhibit 6.13: Toy Company’s Structure Exhibit 6.13: Toy Company’s Structure Based on CompetenciesBased on Competencies

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Purpose of job- or person-based planPurpose of job- or person-based plan– Design and manage an internal pay structure to help Design and manage an internal pay structure to help

achieve organizational objectivesachieve organizational objectives Reflects internal alignment policy continuouslyReflects internal alignment policy continuously Supports business operationsSupports business operations

In practice, during evaluation of higher-value, In practice, during evaluation of higher-value, nonroutine work, distinction between job- nonroutine work, distinction between job- versus person-based approaches blursversus person-based approaches blurs

One More Time: Internal Alignment One More Time: Internal Alignment Reflected in StructuresReflected in Structures

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Administering the PlanAdministering the Plan A crucial issue is the fairness of the plans A crucial issue is the fairness of the plans

administrationadministration Sufficient information should be available to Sufficient information should be available to

apply the planapply the plan Communication and employee involvement are Communication and employee involvement are

crucial for acceptance of resulting pay structurescrucial for acceptance of resulting pay structures

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Evidence on Usefulness of ResultsEvidence on Usefulness of Results

Reliability of job evaluation techniquesReliability of job evaluation techniques– Different evaluators produce same resultsDifferent evaluators produce same results

– Can be improved by using evaluators familiar with Can be improved by using evaluators familiar with the work and who are trained in job evaluationthe work and who are trained in job evaluation

ValidityValidity– Degree to which evaluation achieves desired resultsDegree to which evaluation achieves desired results

– Validity of job evaluation is measured in two waysValidity of job evaluation is measured in two ways

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Evidence on Usefulness of Results Evidence on Usefulness of Results (cont.)(cont.)

Validity (cont.)Validity (cont.)– Validity of job evaluation is measured in two waysValidity of job evaluation is measured in two ways

Degree of agreement between rankings; Degree of agreement between rankings; ranking of ranking of benchmarksbenchmarks

‘‘Hit rates’; Hit rates’; pay structure for benchmark jobspay structure for benchmark jobs as criterion as criterion

– Definition of validity needs broadening to include impact in Definition of validity needs broadening to include impact in pay decisionspay decisions

AcceptabilityAcceptability– Formal appeals processFormal appeals process

– Employee attitude surveysEmployee attitude surveys

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Bias in Internal StructuresBias in Internal StructuresGender biasGender bias

– No evidence that job evaluation is susceptible to No evidence that job evaluation is susceptible to gender biasgender bias

– No evidence that job evaluator's gender affects resultsNo evidence that job evaluator's gender affects results

– Compensable factors related to job content – contact Compensable factors related to job content – contact with others and judgment – does reflect biaswith others and judgment – does reflect bias

– Compensable factors related to employee Compensable factors related to employee requirements – education and experience – does not requirements – education and experience – does not reflect biasreflect bias

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Bias in Internal Structures (cont.)Bias in Internal Structures (cont.) Wages criteria biasWages criteria bias

– Job evaluation results may be biased if jobs held Job evaluation results may be biased if jobs held predominantly by women are incorrectly underpaidpredominantly by women are incorrectly underpaid

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Recommendations to Ensure JobRecommendations to Ensure JobEvaluation Plans Are Bias FreeEvaluation Plans Are Bias Free

Define compensable factors and scales to include Define compensable factors and scales to include content of jobs held predominantly by womencontent of jobs held predominantly by women

Ensure factor weights are not consistently biased Ensure factor weights are not consistently biased against jobs held predominantly by womenagainst jobs held predominantly by women

Apply plan in as bias free a manner as feasibleApply plan in as bias free a manner as feasible– Ensure job descriptions are bias freeEnsure job descriptions are bias free– Exclude incumbent names from job evaluation Exclude incumbent names from job evaluation

processprocess– Train diverse evaluatorsTrain diverse evaluators

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Exhibit 6.14: Contrasting ApproachesExhibit 6.14: Contrasting Approaches