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WEEK 3: INTERNAL ALIGNMENT

OBJECTIVES WEEK 3
1. Explain why internal alignment is important, and how to evaluate it. 2. Discuss the three (3) key factors that define internal pay structures. 3. Discuss the pros and cons of egalitarian and hierarchical structures and how they relate to strategy. 4. Discuss the impact of internal pay structures on efficiency, fairness, and compliance in the pay system. 5. Explain the importance of job analysis, its uses, and its relationship to internal alignment. 6. Discuss the key difference(s) between job-based, skill-based and competency-based pay structures. 7. Describe the key criteria to judge job analysis.

WHAT SHAPES INTERNAL STRUCTURES?


EXTERNAL FACTORS: Stakeholders

Culture & Customs

Economic Pressures

Government

ORGANIZATION FACTORS:

Technology
Strategy Human Capital

INTERNAL STRUCTURE: Levels Differentials Criteria

H.R. Policy Employee Acceptance Cost Implications

DEFINITION
Internal

alignment, often called internal equity, refers to the pay relationships among different jobs/skills/competencies within a single organization.

3 components Levels flat or lots of steps Differentials big steps in pay Criteria jobs/skills/competencies basis for levels - merit, seniority implications

DIRECT HR PAY STRUCTURE CONSEQUENCES


An internally aligned structure should encourage people to: Undertake training Increase experience Reduce turnover Facilitate career progression Facilitate performance Reduce grievances Reduce stoppages

STRUCTURES VARY AMONG ORGANIZATIONS - 3


FACTORS
An

internal pay structure can be defined

by Number of levels of work Pay differentials between the levels Criteria or basis used to determine those levels and differentials

ORGANISATIONAL LEVELS E.G. MINISTRY OF BUSINESS, INNOVATION AND EMPLOYMENT


CEO Office of CEO DCE DCE GM Policy manager Team leader Senior advisor Team leader Policy manager DCE

GM

Principle advisor

Advisors

DIFFERENTIALS
The

pay differences among levels Pay is determined by:


Knowledge/ skills involved

Working conditions
Valued addition to the company Few and small differentials (levels)

usually means pay compression

CRITERIA: CONTENT AND VALUE


Content

the work performed in a job and how it gets done


Structure ranks jobs on

skills required, complexity of tasks, problem solving, and/or responsibility

Value

the worth of the work; its relative contribution to the organization objectives
Use value the value of goods or services an

employee produces in a job Exchange value whatever wage the employer and employee agrees on for a job

CRITERIA: JOB- OR PERSON-BASED STRUCTURES


Job-based

structures relies on the work content tasks, behaviors, responsibilities Person-based structure shifts the focus to the employee
Skills, knowledge, or competencies the employee possesses Whether or not they are used in the particular job

WHAT SHAPES INTERNAL STRUCTURES? EXTERNAL AND ORGANIZATION FACTORS


Internal

labor markets

Rules and procedures that Determine pay for different jobs within a single organization Allocate employees among those different jobs

Employee

acceptance

Sources of fairness: Procedural, and distributive justice

Pay

structures change

Change-and-congeal process

STRATEGIC CHOICES IN DESIGNING INTERNAL STRUCTURES


Egalitarian Tailored

versus hierarchical

versus loosely coupled

Tailored

Well designed jobs with detailed steps or tasks Very small pay differentials among jobs

Loosely coupled

Requires constant innovation

GUIDANCE FROM THE EVIDENCE

Hierarchical
Many levels Large differentials Person or job Supports: Close fit Individual performers Performance Opportunity for promotion

Egalitarian
Few levels Small differentials Person or job Supports: Loose fit Teams Equal treatment Co-operation

RESEARCH EVIDENCE: TOURNAMENT THEORY

Motivation and performance


All players will play better in the first

tournament, where the prize differentials are larger salary and the bosss, harder he/she will work takes-all

Greater difference between an employees


Several studies have given rise to winner-

Does not directly address turnover

(MORE) GUIDANCE FROM THE EVIDENCE


Impact

of internal structures depends on context in which they operate More hierarchical structures are related to greater performance when the work flow depends on individual contributors High performers quit less under more hierarchical systems when:

Pay is based on performance rather than seniority When people have knowledge of the structure

STOCKTAKE
Internal

alignment counts because it affects the incentives and sense of fairness of staff

These

in turn affect organisational outcomes such as strategy, workflow, and staff behaviours

HR

behaviours include turnover, willingness to develop, and to take grievances , steal and other acts of organisational deviance Alignment decisions concern:

hierarchy/egalitarian person or job based systems

MANAGING INTERNAL ALIGNMENT: INTRO TO JOB ANALYSIS Understand the role of job analysis in remuneration & performance management
Understand

methodologies for job analysis and job evaluation the value of job analysis

Critique

DETERMINING THE INTERNAL JOB STRUCTURE

Job Analysis A Prelude to Other HRM Functions


Job Analysis

Job Description & Person Specification

Recruitment & Selection Decisions

Performance Management

Job Evaluation Wage and Salary Decisions (Remuneration)

Training Requirements

Stephen Blumenfeld

WHAT DOES A CI

LOOK LIKE?

Example of a critical incident (from www): if a retail assistant comments on the customers appearance and the customer leaves the store angry, the behaviour of the assistant may be judged as ineffective in a fashion company.

A good CI reflects: A behaviour A consequence A qualitative impact (good or bad)

THE POLITICS & CRITERIA OF JOB ANALYSIS


Is it: Valid - Reliable do actors and methods converge? Acceptable - Who does it and how? Top management and union support is critical Useful - Does precision create rigidity? Does it inform HR processes? Does one approach fit all purposes? Why not done more?

SUMMARY & CONC


JA

identifies the content of jobs that support other HR functions, including rem and performance management

Several

methods exist - usually a mixed approach is more valid and engagement seems as important as methodological precision. Is it a social or mathematical process?

Support