STRATEGIC COMPENSATION A Human Resource Management Approach Chapter

STRATEGIC COMPENSATION A Human Resource Management Approach Chapter 6 Person-Focused Pay 1 Prentice Hall, Inc. © 2006 Prepared by David Oakes

Person - Focused Plans Ø Rewards employees for acquiring job - related ² Competencies ² Knowledge ² Skills Ø 2 main types Pay - for - knowledge ² Skill - based pay ² Prentice Hall, Inc. © 2006 2

Competency - Based Pay Programs Ø Pay - for - knowledge Ø Skills - based Ø A combination of both 3 Prentice Hall, Inc. © 2006

Pay Programs Ø Rewards employees for improving or acquiring new skills / knowledge Ø Horizontal ² Those at same level of responsibility or difficulty Ø Vertical ² Those at a higher level of responsibility or difficulty Ø Depth ² Level of expertise or specialization 4 Prentice Hall, Inc. © 2006

Competencies Ø Uniquely combined characteristics of the person that enables employees to fulfill job requirements well Ø Core competencies are derived from company’s strategic statements 5 Prentice Hall, Inc. © 2006

Vertical Skills Programs Ø Works well for work teams ² Service industry ² Manufacturing industry Ø Employees ² Learn functional skills ² Perform managerial tasks 6 Prentice Hall, Inc. © 2006

Pay - For - Knowledge Plans Ø Reasons for adoption ² Removes entitlement label ² Connects pay to job-related abilities ² Increases employee autonomy ² Technological innovations ² Increased global competition 7 Prentice Hall, Inc. © 2006

Pay-for-Knowledge Models Ø Stair - step Ø Skill - block Ø Job - point accrual Ø Cross - departmental 8 Prentice Hall, Inc. © 2006

Stair - Step Model Ø Jobs from same job family Ø Jobs differ in complexity Ø Higher the step, greater the skills Ø Companies use separate models Ø Models designed to match jobs 9 Prentice Hall, Inc. © 2006

Skill – Block Model Ø Applies to jobs in same job family Ø Employees expected to progress to increasingly complex jobs Ø Skills may not build on each other Ø Emphasizes horizontal & vertical skills 10 Prentice Hall, Inc. © 2006

Job - Point Accrual Model Ø Applies to jobs from different job families Ø Creates organizational flexibility Ø Points assigned to skills Ø Higher the number of points, the higher the core compensation level 11 Prentice Hall, Inc. © 2006

Cross - Departmental Model Ø Employees develop skills usable in other departments Ø Helps manage sporadic, short – term staffing shortages Ø Helps meet seasonal fluctuations 12 Prentice Hall, Inc. © 2006

Person - Focused Pay Ø Compensates employees for flexibility Ø Compensated for potential contributions ² Based on skills & knowledge Ø Used for jobs not easily assessed ² For skills and knowledge 13 Prentice Hall, Inc. © 2006

Job - Based Pay Ø Compensates employees for current jobs Ø Pay limits set for each job Ø Evaluations based on job descriptions & objectives Ø 2 main types ² Merit pay ² Incentive pay 14 Prentice Hall, Inc. © 2006

Employee Advantages Ø Can provide job enrichment Ø Can provide job security Ø Can make jobs more intrinsically motivating Ø Can make jobs more interesting Ø Increases employees’ flexibility 15 Prentice Hall, Inc. © 2006

Job Characteristics Theory Employees more motivated to perform jobs that contain Ø Skill variety Ø Task identity Ø Autonomy Ø Feedback 16 Prentice Hall, Inc. © 2006

Core Characteristics Ø Skill variety ² Requires using different abilities Ø Task identity ² Enables employees to do entire job Ø Autonomy ² Allows employees to choose Ø Feedback ² Provides clear communications 17 Prentice Hall, Inc. © 2006

Advantages To Employers Ø Leads to enhanced job performance Ø Leads to reduced staffing Ø Leads to greater flexibility Ø Improves quality Ø Increases productivity levels 18 Prentice Hall, Inc. © 2006

Disadvantages Ø Can increase hourly labor costs Ø Can increase training costs Ø Can increase overhead costs Ø May not mesh well with existing incentive pay systems 19 Prentice Hall, Inc. © 2006

Lowest - Cost Competitive Strategy Ø Lowers output costs per employee Ø Training should improve productivity Ø Improves product & service quality Ø Long - term gains should outweigh short - term costs 20 Prentice Hall, Inc. © 2006

Differentiation Competitive Strategy Ø Requires employees who are ² Creative ² Open - minded ² Risk - takers Ø Requires long - term focus Ø Pay - for - knowledge effective with work teams 21 Prentice Hall, Inc. © 2006