8/16/2021 1 Unit 4 PERSON BASED STRUCTURE Instructor Associate Prof Dr Pham Thi Bich Ngoc National Economics University Outline • Person based Pay Competency Based, and Skill Based • Usage of Person b[.]
8/16/2021 Unit 4: PERSON-BASED STRUCTURE Instructor: Associate Prof Dr Pham Thi Bich Ngoc National Economics University Outline • Person-based Pay: Competency-Based, and SkillBased • Usage of Person-based Pay Programs • Reasons to Adopt Person-based Pay Programs • Varieties of Person-based Pay Programs • Contrasting Person-based Pay with Job-Based Pay • Advantages and Disadvantages of Person-based Pay Programs 8/16/2021 Person-Based Pay • Rewards employees for acquiring job related, knowledge, skills, or competencies rather than for demonstrating successful job performance • Skill-Based Pay • Mainly for employees who perform manual labor • Pay increase based on mastery and use of new job skills • Pay-for-Knowledge Plans: • Rewards management, service, or professional employees for increasing and applying job related knowledge • Competencies • An individual’s capability to apply combinations of knowledge and skills consistently over time to perform work successfully in the required work situations Ways to Create Internal Structure 8/16/2021 Skill-Based Structure • Skill-based structures link pay to the depth or breadth of the skills, abilities, and knowledge a person acquires that are 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 • The wage attaches to the person Types of Skill Plans • Skill plans can focus on depth (specialists in corporate law, finance) and/or breadth (generalists with knowledge in all phases of operations including marketing, manufacturing, finance, and human resources) • Specialist: Depth • The pay structures based on their knowledge as measured by education level (for teachers) • Depth of skills or depth of knowledge refers to the level of specialization or expertise an employee brings to a particular job • Generalist/Multiskill Based: Breadth • employees in a multiskill system earn pay increases by acquiring new knowledge, but the knowledge is specific to a range of related jobs • Pay increases come with certification of new skills, rather than with job assignments 8/16/2021 Purpose of the Skill-Based Structure • Supports the organization strategy • Supports work flow • Is fair to employees • Motivate their behavior toward organization objectives Process for determining a skill-based structure 8/16/2021 Process for determining a skill-based structure • Skill analysis is a systematic process of identifying and collecting information about skills required to perform work in an organization • What Information to Collect? • Whom to Involve? • Establish Certification Methods Organizations may use peer review, on-the-job demonstrations, or tests to certify that employees possess skills and are able to apply them FMC’s Technician Skill-Based Structure 10 8/16/2021 Outcomes of Skill-Based Pay Plans • Skill-based plans are generally well accepted by employees because it is easy to see the connection between the plan, the work, and the size of the paycheck →the plans provide strong motivation for individuals to increase their skills • productivity is higher under skill-based pay • Employee flexibility is increase under a skill-based pay plan • Skill-based plans become increasingly expensive as the majority of employees become certified at the highest pay levels • the higher labor costs under skillbased pay (estimated as between 10 and 15 percent) mean that it may be a better fit to companies in industries where labor costs are a small share of total costs, such as paper and forest products, chemicals, and food processing • The bottom line is that skill-based approaches may be only short-term initiatives for specific settings 11 PERSON-BASED STRUCTURES: COMPETENCIES 12 8/16/2021 Advantages of Person-based Pay Programs • Provide job enrichment and job security • Job enrichment refers to a job design approach that creates more intrinsically motivating and interesting work environments • Leads to increased employee commitment, enhanced work motivation, and improved employee satisfaction • Job security is enhanced because workers are more flexible • Employers like because programs can lead to enhanced job performance • Better quality and quantity of work • Can rely on leaner staffing because multiskilled employees are better able to cover for unexpected absenteeism, family or medical leave, and training sessions that take employees away from work • Provide companies with greater flexibility in meeting staffing demands at any particular time 13 Disadvantages of Person-based Pay Programs • Hourly labor costs, training costs, and overhead costs can all increase • May not mesh well with existing incentive pay programs • Employees may not want to learn new skills if increase for new skills is less than incentive award earned for existing skills • Depend in large part on well-designed training programs which may be costly • Companies struggle with determining the monetary value of skill and knowledge sets 14 8/16/2021 Contrasting Approaches 15 Contrasting Person-Focused Pay with Job-Based Pay • Job-Based Pay • Compensates employees for jobs they currently perform • Includes seniority pay, merit pay, and incentive pay • Seniority pay increases employees pay automatically over time • Merit pay awards a permanent addition to base pay, based on performance • Incentive pay provides pay raise amounts based on the attainment of predefined work goals 16 8/16/2021 Contrasting Person-Focused Pay with Job-Based Pay • Person-based Pay • Compensates employees for developing the flexibility and skills to perform a number of jobs effectively • Rewards employees on their potential to make positive contributions to the workplace, based on the successful acquisition of work-related skills or knowledge • Person-focused pay plans apply in limited contexts, because not all jobs can be assessed based on skill or knowledge 17 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