INSTITUE OF

ADMINISTRATIVE SCIENCES

UNIVERSITY OF THE PUNJAB

Performance Compensation Management

Assignment 1

Chapter no 5

INCENTIVE PAY
SUBMITTED TO:

Ma’am Rabia Nawaz

SUBMITTED BY:

HAFIZ SUBHAN 85 SS F18 MHRM

SUBMISSION DATE: Aug 14, 2020

Chapter 5
Person-focused pay plans

SUMMARY
Person-focused pay programs represent important innovations in the compensation field. Person
focused pay systems imply that employees must move away from viewing pay as an entitlement.
Instead, these systems treat compensation as a reward earned for acquiring and implementing
job-relevant knowledge and skills. Advocates of person-focused pay programs offer two key
reasons that firms seeking competitive advantage should adopt this form of compensation:
Technological innovation and increased global competition.

Rewards employees for acquiring job- related

Competencies
Knowledge
Skills
Two main types

Pay for knowledge

Skill-based pay
Person-focused pay plans rewards employees for acquiring job-related competencies,
knowledge, and skills. There are two types of competency-based pay programs such as

 Pay for knowledge: managerial, service, or professional workers for successfully learning
specific curricula
 Skill based pay: used mostly for employees who do physical work, increases these
workers’ pay as they master new skills

Reward employees for improving or acquiring new skills/knowledge

 Horizontal skills: skills at the same level of responsibility or difficulty

For Example: clerical employees of a retail store trained to perform record-keeping tasks
  Employee attendance records
 Schedule salesperson’s work shifts
 Master the use of office supplies for reordering

Person focused pay systems reward employees for acquiring horizontal skills, vertical skills, and
greater depth of knowledge or skills. Horizontal skills represent similar skills. Clerical
employees of a retail store trained to perform record-keeping tasks can be given as an example of
horizontal skills.

 Vertical skills: skills that are traditionally considered supervisory

Scheduling, coordinating, training, leading others
Depth of skills: level of expertise or specialization an employee possesses
HR professionals specialize in compensation:
Job evaluation
Salary survey analysis
Market pay system designs
Incentive (merit) pay system design
Vertical skills are those skills that are traditionally considered supervisory like
scheduling, coordinating, training, and leading others. Depth of skills refers to level of
expertise or specialization an employee possesses. For instance, HR professional
specializing in compensation should be taking courses on job evaluation; salary survey
analysis, market pay system designs, and incentive (merit) pay system design.

Advantages

 Leads to enhanced job performance

 Leads to reduced staffing
 Leads to greater flexibility
 Improves quality
 Increases productivity levels
These programs can lead to enhanced job performance with better quality work and more
productive workers. This type of pay systems can lead to reduced staffing and greater flexibility
by developing employees' vertical and horizontal skills.

Disadvantages

 Can increase hourly labor costs

 Can increase training costs
 Can increase overhead costs
 May not mesh well with existing incentive pay systems

This type of programs can increase hourly labor costs, training costs, and overhead costs.
Moreover, they may not mesh well with existing incentive pay programs.

In addition, companies have the concern that they may be training employees who will choose to
leave for higher paying jobs at competitor companies.

-THE END-