Alternatives to Traditional Pay Structures Skillbased Pay Broadbanding

Alternatives to Traditional Pay Structures • Skill-based Pay • Broadbanding • Alternative Structures are more flexible than traditional pay structures and encourage employees to assume different roles without triggering compensation increases or decreases MGMT 4030 - Managing Employee Reward Systems

Skill-based Pay Definition: Pay is based on the mastery of a series of skill-blocks or competencies that makes the person more valuable to the employer. Features of Skill-based Pay • Different skill levels can be identified • Vertical skills or horizontal skills • Monetary pay differential associated with each skill level above base rate. • Certification of skill must be demonstrated by employee. MGMT 4030 - Managing Employee Reward Systems

Skill-based Pay Features of Skill-based Pay (continued) • Fits well with self-managed team culture and organizations that emphasize learning skills. • Also fits with high employee involvement concept because pay rates are fully disclosed and can be influenced by employees’ willingness to learn new skills. Challenges to using Skill-based Pay • Over time many employees reach the top of the pay scale. May be expensive. • Employee skills must be fully utilized - not always possible. MGMT 4030 - Managing Employee Reward Systems

Skill-based Pay $$ IV III II I Basic Advanced Skill level MGMT 4030 - Managing Employee Reward Systems

Broadbanding Definition: Collapse several pay grades into wide pay bands to give managers greater flexibility to move employees horizontally in their careers so as to broaden their skills and competencies. • Collapse narrow salary grades into wide bands. – 20 grades reduced to 4 to 5 bands. – 40 -60% ranges increased to 100 -250% • Facilitate Lateral career moves – Enhanced flexibility for transfers – Cross-functional teams with fluid duties • Increased emphasis on market pricing jobs. MGMT 4030 - Managing Employee Reward Systems

Broadbanding (continued) • Decreased emphasis on job evaluation • Eliminates excessive job titles • More flexible pay decisions – Few control points such as midpoints or salary caps. – More pay opportunities based on skills MGMT 4030 - Managing Employee Reward Systems

Technical Band Broadbanding 160% IV Salary grades III for Engineers 40% 40% II I $85 K 40% $35 K MGMT 4030 - Managing Employee Reward Systems