Chapter 5:

Person-Focused Pay

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 Learning Objectives
5-1. Define person-focused pay.
5-2. Describe the usage of person-focused pay.
5-3. Name and explain the reasons companies
adopt person-focused pay programs.
5-4. Summarize the varieties of person-focused
pay programs.
5-5. Contrast person-focused pay with job-based
pay.
5-6. Explain the advantages and disadvantages of
person-focused pay plans.
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LO 5-1
Person-Focused Plans

Rewards employees for acquiring job-

related
 Knowledge
 Skills
Two main types
 Pay-for-knowledge
 Skill-based pay

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LO 5-1
Person-Focused Plans

Pay-for-knowledge: reward managerial,

service, or professional workers for
successfully learning specific curricula
Skills-based: used mostly for employees
who do physical work, increases these
workers’pay as they master new skills

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LO 5-1
Person-Focused Plans
Reward employees for improving or
acquiring new skills/knowledge
Horizontal skills: skills at the same level
of responsibility or difficulty
 Ex: 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
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LO 5-1
Person-Focused Plans
Vertical skills: skills that are traditionally
considered supervisory
 Scheduling, coordinating, training, leading
Depth of skills: level of expertise or
specialization an employee possesses
 Compensation Specialists:
• Job evaluation
• Salary survey analysis
• Market pay system designs
• Incentive (merit) pay system design
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LO 5-1
Vertical Skills

 Works well for work teams

 Service industry
 Manufacturing industry

 Employees
 Learn functional skills
 Perform managerial tasks

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LO 5-1
Competencies

Refer to an individual’s capability to

orchestrate and apply combinations of
knowledge and skills consistently over time
to perform work successfully in the
required work situations
Core competencies are derived from
company’s strategic statements

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LO 5-1
U.S. Department of Labor (DOL)
General Competency Model

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LO 5-1
DOL Competency Model (example):
Renewable Energy

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LO 5-2

Usage of Person-Focused Pay

Most companies that use skilled-based pay
plans employ between 150–2,000 employees
One study found that a skilled-based pay plan
in a manufacturing setting:
 Increased plant productivity by 58%
 Lowered labor cost per part by16%
 Generated favorable quality outcomes (82%
scrap reduction rate)

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LO 5-2

Usage of Person-Focused Pay

Mostly found in continuous process settings, like
manufacturing in which:
 Assembly lines are used
 One employee’s job depends on the work of at least
one other worker
Work well in manufacturing companies that
organize work flow around high-performance
work teams where employees are expected to
perform managerial tasks like:
 Work scheduling
 Budgeting
 Quality control
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LO 5-3
Reasons for Adopting
Person-Focused Pay
Removes entitlement label
Connects pay to job-related abilities
Increases employee autonomy
Jobs require new and different worker skills
Technological innovations
Increased global competition

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LO 5-4
Person-Focused Pay
Program Models

Stair step: The steps represent jobs from a

particular job family that differ in terms of
complexity.

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LO 5-4
Stair-Step Model

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LO 5-4 Stair Step Model

5-16
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LO 5-4
Person-Focused Pay
Program Models

Skill block: Applies to jobs within the same

job family, but skills do not necessarily build
on one another.

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LO 5-4
Skill Block Model

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LO 5-4
Skill Block Model

5-19
LO 5-4
Person-Focused Pay
Program Models

Job-point accrual: encourages

employees to develop skills and learn to
perform jobs from different job families
Cross-departmental: promotes staffing
flexibility by training employees in one
department with critical skills they would
need to perform effectively in other
departments
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LO 5-4
Stair-Step Model

Jobs from same job family

Jobs differ in complexity
Higher the step, greater the skills
Companies use separate models
Models designed to match jobs

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LO 5-4
Skill-Block Model

Applies to jobs in same job family

Employees expected to progress to
increasingly complex jobs
Skills may not build on one another
Emphasizes horizontal and vertical skills

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LO 5-4
Job-Point Accrual Model

Applies to jobs from different job families

Creates organizational flexibility
Points are assigned to various skills
The higher the number of points, the
higher the core compensation level

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LO 5-4
Cross-Departmental Model

Employees develop skills usable in other

departments
Helps manage sporadic, short-term
staffing shortages
Helps meet seasonal fluctuations
 Ex: Holiday shopping rush.

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LO 5-5
Contrasting Person-Focused Pay
with Job-Based Pay

Person-Focused Pay:
Compensates employees for flexibility
Compensated for potential contributions
 Based on skills and knowledge

Used for jobs not easily assessed

 For skills and knowledge

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LO 5-5
Contrasting Person-Focused Pay
with Job-Based Pay

Job-Based Pay:
Compensates employees for current jobs
Pay limits set for each job
Evaluations based on job descriptions and
objectives
Two main types:
 Merit pay
 Incentive pay
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LO 5-5
Contrasting Person-Focused Pay
With Job-Based Pay
Feature Person focused Job based
Pay level Market basis for skill Market basis for job
determination valuation valuation
Base pay Awarded on how much an Awarded on the value of
employee knows or on skill compensable factors
level
Base pay increases Awarded on an employee’s Awarded on attaining job-
gain in knowledge or skills defined goal
Job promotion Awarded on an employee’s Awarded on exceeding
skills base and proficiency on job performance
past work standards
Key advantage to Job variety and enrichment Perform work and receive
employees pay for a defined job
Key advantage to Work scheduling flexibility Easy pay system
employers administration

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LO 5-6
Advantages to Employees

Can provide job enrichment

Can provide job security
Can make jobs more intrinsically
motivating
Can make jobs more interesting
Increases employees’ flexibility

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LO 5-6
Advantages to Employers

Leads to enhanced job performance

Leads to reduced staffing
Leads to greater flexibility
Improves quality
Increases productivity levels

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LO 5-6
Disadvantages

Can increase hourly labor costs

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

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