6-1

Chapter
6

Person-Based Structures

McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

 6-2

Learning Objectives
After studying Chapter 6, students should be able to:
1. Discuss the differences and similarities between
job-based plans, skill-based plans, and
competency-based plans.
2. Discuss the advantages and disadvantages of
employee involvement in the evaluation of work.
3. Explain the procedures necessary in order to
administer a job-based or skill/competency-based
plan.
4. Discuss the criteria used to evaluate the usefulness
of the job-based or skill/competency – based plan.
McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
 6-3

Many Ways to Create Internal Structure

Business and Work-
Related Internal Structure

Person-based

Job-based Skill Competencies

(Chapter 6) (Chapter 6)
PURPOSE

Collect, summarize Job analysis Skill analysis Core

(Chapter 4)
work information Job descriptions competencies

Determine what to Job evaluation: Skill blocks Competency

value classes or (Chapter 5) sets
compensable factors

Assess value Factor degrees and Certification Behavioral

weighting (Chapter 5) process descriptors

Translate into Job-based structure Person-based Person-based

structure structure structure
(Chapter 5)
McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
 6-4

Skill-based structures link pay to the depth or breadth of

the skills, abilities, and knowledge a person acquires that is
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.
In contrast, a job-based plan pays employees for the job to
which they are assigned, regardless of the skills they
possess.

McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

 6-5

Types of Skill Plans

! Specialist: In Depth

! Generalist / Multiskill-Based:
Multiskill-Based:
Breadth

McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

 6-6

Purpose of the Skill-Based Structure

! Support Work Flow

! Fair to Employees

! Directs Behavior Toward

Organization Objectives

McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

 6-7

Skill analysis is a
systematic process to
identify and collect
information about skills
required to perform work
in an organization.

McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

 6-8

Determining the Internal

Skill-Based Structure

Internal Skill Skill-based

alignment Skill analysis Skill blocks certification structure

Work relationships
within the
organization Basic
Basic Decisions
Decisions
•• What
What is
is the
the objective
objective of
of the
the plan?
plan?
•• What
What information
information should
should bebe collected?
collected?
•• What
What methods
methods should
should be
be used
used to
to determine
determine
and
and certify
certify skills?
skills?
•• Who
Who should
should be be involved?
involved?
•• How
How useful
useful are
are the
the results
results for
for pay
pay purposes?
purposes?

McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

 6-9

SKILL CATEGORY
Grouping of related skill blocks of varying skill levels that
represent all activities of a single job family or steps in a
process; for example, production technician.

SKILL BLOCK
Grouping of skills, activities, or behaviors; for
example, bearing housing assembly.

SKILL

Smallest unit of analysis, a

specific statement of what
a person does; for
example, inspect oil levels
and all filters.

McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

 6 - 10

How is SBP Different From a

Job-Based Pay System?
! Skill or skill units, rather than jobs are
compensable.
! Mastery of skill units is measured and certified.
! Pay changes do not necessarily accompany job
changes.
! There is little emphasis on seniority in pay
determination.

McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

 6 - 11

Why Use a Skill-Based Pay System?

From the firm’s perspective, SBP can:
! Encourage employee flexibility

! Reinforce a high-involvement organization

design
! Support the compensation strategy in ways that
hold down costs

McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

 6 - 12

Effects of a Skill-Based System

! higher productivity
! lower costs
! higher quality
! lower staffing levels
! lower absenteeism
! lower turnover
! improved relations with
labor union

McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

 6 - 13

Disadvantages of Skill-Based Pay

! Average pay of employees likely higher

! Excessive labor costs, if productivity increases don’t

offset additional costs
! SBP systems more complex

! SBP systems require a major investment in training

McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

 6 - 14

Determining the Internal

Competency-Based Structure

Internal Core Competency Behavioral Competency –

alignment competencies sets descriptors based structure

Work relationships
within the
organization Basic
Basic Decisions
Decisions
•• What
What is
is the
the objective
objective of
of the
the plan?
plan?
•• What
What information
information should
should bebe collected?
collected?
•• What
What methods
methods should
should bebe used
used to
to determine
determine
and
and certify
certify competencies?
competencies?
•• Who
Who should
should be be involved?
involved?
•• How
How useful
useful are
are the
the results
results for
for pay
pay purposes?
purposes?

McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

 6 - 15

Purpose of the
Competency-Based Structure
! Support Work Flow

! Fair to Employees

! Directs Behavior Toward

Organization Objectives

McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

 6 - 16

So, What’s a Competency?

! Demonstrable characteristics of the person,

including knowledge, skills, and behaviors, that
enable performance.
! Competencies are independent of a job or
position.
! An employee can transport them from one job to
another.

McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

 6 - 17

CORE COMPETENCY
Taken from mission statement; for example, “business
awareness.”

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

COMPETENCY
INDICATORS

Observable behaviors that indicate the

level of competency within a
competency set. For example,
“identifies opportunities for savings.”

McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

 6 - 18

The Top Twenty Competencies

1.
1. Achievement orientation 11.
11. Developing others
2.
2. Concern of quality 12. Team leadership
12.
3.
3. Initiative
13.
13. Technical expertise
4.
4. Interpersonal understanding
14.
14. Information seeking
5.
5. Customer -service
Customer-service
orientation 15.
15. Analytical thinking
6.
6. Influence and impact 16.
16. Conceptual thinking
7.
7. Organization awareness Self-control
17.
17. Self-control
8.
8. Networking
18.
18. Self-confidence
Self-confidence
9.
9. Directiveness
19.
19. Business orientation
10.
10. Teamwork & cooperation
20.
20. Flexibility
McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
 6 - 19

How well do they Reliability of Job

achieve their Evaluation
objectives Techniques

Criteria for Evaluating

the Usefulness of
Pay Structures

Acceptability Validity /
Usefulness

McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

 6 - 20

Illustrations of Audit Indexes

A. Overall indicators.
1. Ratio of number of current descriptions to numbers
of employees.
2. Number of job descriptions evaluated last year and
previous year.
3. Number of jobs evaluated per unit.
a) Newly created jobs
b) Re-evaluation of existing jobs

McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

 6 - 21

Illustrations of Audit Indexes (continued)

B. Timeliness of job descriptions and
evaluations.
1. Percent of total jobs with current descriptions.
2. Percentage of evaluation requests returned within 7
working days, within 14 working days.
3. Percentage of re-evaluation requests returned with
changed (unchanged) evaluations.

McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

 6 - 22

Illustrations of Audit Indexes (continued)

C. Workability and acceptability of job evaluation.
1. Percentage of employees (managers) surveyed who
know the purposes of job evaluation.
2. The number of employees who appeal their job’s
evaluation rating.
3. The number of employees who receive explanations
of the results of their re-evaluation requests.

McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

 6 - 23

Recommendations to Ensure that Job

Evaluation Plans are Bias Free
1. Define the compensable factors and scales to include
the content of jobs held predominantly by women.
2. 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?
3. 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.

McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.


Contrasting Approaches (1 of 2)
Job-Based
What is valued Compensable factors
Quantify the value Factor degree weights
Mechanisms to Assign points that reflect
translate into pay criterion pay structure
Pay structure Based on job
performed/market
Pay increases Promotion
Managers’ focus Link employees to work
Promotion and
placement
Cost control via pay for
job and budget increase
McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Skill-Based
Skill blocks
Skill levels
Certification and price
skills in external market
Based on skills certified/
market
Skill acquisition
Utilize skills efficiently
Provide training
Control costs via
training, certification, and
work assignments
6 - 24
Competency-Based
Competencies
Competency levels
Certification and price
competencies in external
market
Based on competency
developed / market
Competency
development
Be sure competencies
add value
Provide competency –
developing opportunities
Control costs via
certification, and work
assignments
 6 - 25
Contrasting Approaches (2 of 2)
Job-Based Skill-Based Competency-Based

Employee focus Seek promotions to Seek skills Seek competencies

earn more pay
Procedures Job analysis Skill analysis Competency analysis
Job evaluation Skill certification Competency
certification
Advantages Clear expectations Continuous learning Continuous learning
Sense of progress Flexibility Flexibility
Pay based on value of Reduced work force Lateral movement
work performed
Limitations Potential bureaucracy Potential bureaucracy Potential bureaucracy
Potential inflexibility Requires cost controls Requires cost controls

McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

 6 - 26

Summary
! The importance placed on internal alignment in the pay
structures is a basic strategic issue.
! The premise underlying internal alignment is that internal
pay structures need to be aligned with the organization’s
business strategy and values, the design of the work flow,
and a concern for the treatment of employees.
! The work relationships within a single organization are an
important part of internal alignment. Structures that are
acceptable to the stakeholders affect satisfaction with pay, the
willingness to seek and accept promotions to more
responsible jobs, and the effort to keep learning and
undertake additional training.

McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

 6 - 27

Summary (continued)
! The techniques for establishing internally aligned structures
include job analysis, job evaluation, and person-based
approaches for skill/competency-based plans.
! These techniques can aid in achieving the objectives of the
pay system when they are properly designed and managed.
! Without them, the pay objectives of improving
competitiveness and fairness are more difficult to achieve.

McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

 6 - 28

Review Questions
1. What are the pros and cons of having employees
involved in compensation decisions? What forms can
employee involvement take?
2. Why does the process used in the design of the internal
pay structure matter? Distinguish between the process
used to design and administer the structure and the
techniques or mechanics used.
3. If you were managing employee compensation, how
would you recommend that your company evaluate the
usefulness of its job-based or person-based plans?

McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

 6 - 29

Review Questions (continued)

4. Based on the research on job evaluation, what are the

sources of possible gender bias in skill/competency-
based plans?
5. How can a manager ensure that job-based or
skill/competency-based plans support a customer-
centered strategy?
6. How would you decide to use job-based or person-
based structures?

McGraw-Hill/Irwin © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.