COMPENSATION

Third Canadian Edition

Milkovich, Newman, Cole

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2010 McGraw Hill Ryerson

Many Ways to Create

Internal Structure
Business and Work-Related
Internal Structure
PURPOSE

Job-based
(Chapters 4-5)

Person-based (Chapter 6)
Skills
Competencies

Collect, summarize
work information

Job analysis
Job descriptions

Skill analysis Core

competencies

Determine what to
value

Job evaluation:
classes or
compensable factors

Skill blocks

Assess value

Factor degrees and

weighting

Certification
process

Translate into
structure

Job-based structure

Person-based Person-based
structure
structure

Competency sets
Competency
indicators

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Skill-Based Pay Structures

link pay to the depth or breadth of the skills, abilities,

and knowledge a person acquires that is relevant to the

work
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
very different approach compared to a job-based plan,
which pays employees for the job to which they are
assigned, regardless of the skills they possess
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Types of Skill-Based
Pay Plans
1. Specialist: In-Depth
1. Generalist / Multiskill-Based:
Breadth

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Purpose of the Skill-Based

Structure
support the strategy and objectives
support work flow
fair to employees
motivate behaviour toward organizational
objectives
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Contrasting Approaches (2 of 2)
Job-Based

Skill-Based

Competency-Based

Employee focus

Seek promotions to earn

more pay

Seek skills

Seek competencies

Procedures

Job analysis
Job evaluation

Skill analysis
Skill certification

Competency analysis
Competency
certification

Advantages

Clear expectations
Sense of progress
Pay based on value of
work performed

Continuous learning
Flexibility
Reduced work force

Continuous learning
Flexibility
Lateral movement

Limitations

Potential bureaucracy
Potential inflexibility

Potential bureaucracy
Requires cost controls

Potential bureaucracy
Requires cost controls
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Skill Analysis
a systematic process to identify and

collect information about skills

required to perform work in an
organization.

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Determining the Internal

Skill-Based Pay Structure
Skill analysis

Skill blocks

Skill
certification

Skill-based
pay structure

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?
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Determining the Internal

Competency-Based Pay Structure
Core
competencies

Competency
sets

Behavioural
descriptors

Competency
based pay structure

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?
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2010 McGraw Hill Ryerson

Competencies
underlying, broadly applicable knowledge,
skills, and behaviours that form the
foundation for successful work performance
(exhibited by excellent performers more
consistently than average performers)

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Competency-Based Pay
Terminology
Taken from mission statement; for example, business
awareness.

CORE
COMPETENCY

COMPETENCY SETS
Grouping of factors that translate core competency
into observable behaviour; for example, cost
management, business understanding.

COMPETENCY
INDICATORS
Observable behaviours that indicate the
level of competency within a
competency set. For example,
identifies opportunities for savings.

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Competency Analysis
a systematic process to identify and
collect information about the
competencies required for successful
work performance
collect information on:
personal characteristics
visionary competencies
organization-specific competencies

establish certification methods

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Top Twenty Competencies

Achievement
Achievement orientation
orientation
Concern
Concern of
of quality
quality
Initiative
Initiative
Interpersonal
Interpersonal

understanding
understanding
Customer
Customer service
service
orientation
orientation
Influence
Influence and
and impact
impact
Organization
Organization awareness
awareness
Networking
Networking
Directiveness
Directiveness
Teamwork
Teamwork & cooperation

Developing
Developing others
others
Team
Team leadership
leadership
Technical
Technical expertise
expertise
Information
Information seeking
seeking
Analytical
Analytical thinking
thinking
Conceptual
Conceptual thinking
thinking
Self-control
Self-control
Self-confidence
Self-confidence
Business
Business orientation
orientation
Flexibility
Flexibility
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2010 McGraw Hill Ryerson

Internal Alignment: Job- or

Person-Based Structures
Purpose of job- or person-based pay plans
Internal pay structure to help achieve
organizational objectives
Aligned with internal alignment policy
Supports business operations
Managing the plan
Manual
Communication to foster employee
acceptance
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Avoiding Bias in
Pay Structures
1.
2.

3.

Define the compensable factors and scales to include

the content of jobs held predominantly by women.
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?
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.
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Contrasting Approaches (1 of 2)
Job-Based

Skill-Based

Competency-Based

What is valued

Compensable factors

Skills

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
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Conclusion
internal pay structures need to be aligned with
the organizations business strategy and
values, the design of the work flow, and a
concern for the treatment of employees
techniques for establishing internally aligned
structures include the job-based approach (job
analysis and job evaluation) and person-based
approaches (skill/competency-based plans)
these techniques can aid in achieving the
objectives of the pay system when they are
properly designed and managed
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2010 McGraw Hill Ryerson