Prentice Hall, Inc. © 2006 6-1 A Human Resource Management Approach STRATEGIC COMPENSATION Prepared...

Prentice Hall, Inc. © 2006

6-1

A Human Resource A Human Resource Management ApproachManagement Approach

STRATEGIC STRATEGIC COMPENSATIONCOMPENSATION

Prepared by David Oakes

Chapter 6Chapter 6

Person-Focused PayPerson-Focused Pay

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6-2

Person - Focused PlansPerson - Focused Plans

Rewards employees for acquiring job - related

Competencies Knowledge Skills

2 main types Pay - for - knowledge Skill - based pay

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6-3

Competency - Based Competency - Based Pay ProgramsPay Programs

Pay - for - knowledge

Skills - based

A combination of both

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6-4

Pay ProgramsPay Programs

Rewards employees for improving or acquiring new skills / knowledge

Horizontal Those at same level of responsibility or difficulty

Vertical Those at a higher level of responsibility or difficulty

Depth Level of expertise or specialization

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6-5

CompetenciesCompetencies

Uniquely combined characteristics of the person that enables employees to fulfill job requirements well

Core competencies are derived from company’s strategic statements

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6-6

Vertical Skills ProgramsVertical Skills Programs

Works well for work teams Service industry Manufacturing industry

Employees Learn functional skills Perform managerial tasks

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6-7

Pay - For - Knowledge Pay - For - Knowledge Plans Plans

Reasons for adoption Removes entitlement label

Connects pay to job-related abilities

Increases employee autonomy

Technological innovations

Increased global competition

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6-8

Pay-for-KnowledgePay-for-KnowledgeModelsModels

Stair - step

Skill - block

Job - point accrual

Cross - departmental

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6-9

Stair - Step ModelStair - 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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6-10

Skill – Block ModelSkill – Block Model

Applies to jobs in same job family

Employees expected to progress to increasingly complex jobs

Skills may not build on each other

Emphasizes horizontal & vertical skills

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6-11

Job - PointJob - Point Accrual Model Accrual Model

Applies to jobs from different job families

Creates organizational flexibility

Points assigned to skills

Higher the number of points, the higher the core compensation level

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6-12

Cross - Departmental Cross - Departmental ModelModel

Employees develop skills usable in other departments

Helps manage sporadic, short – term

staffing shortages

Helps meet seasonal fluctuations

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6-13

Person - Focused PayPerson - Focused Pay

Compensates employees for flexibility

Compensated for potential contributions

Based on skills & knowledge

Used for jobs not easily assessed

For skills and knowledge

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6-14

Job - Based PayJob - Based Pay Compensates employees for current jobs

Pay limits set for each job

Evaluations based on job descriptions & objectives

2 main types Merit pay Incentive pay

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6-15

Employee AdvantagesEmployee Advantages

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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6-16

Job Characteristics TheoryJob Characteristics Theory

Employees more motivated to perform jobs that contain

Skill variety

Task identity

Autonomy

Feedback

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6-17

Core Characteristics Core Characteristics

Skill variety

Requires using different abilities

Task identity Enables employees to do entire job

Autonomy Allows employees to choose

Feedback Provides clear communications

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6-18

Advantages To EmployersAdvantages To Employers

Leads to enhanced job performance

Leads to reduced staffing

Leads to greater flexibility

Improves quality Increases productivity levels

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6-19

DisadvantagesDisadvantages

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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6-20

Lowest - Cost Competitive StrategyLowest - Cost Competitive Strategy

Lowers output costs per employee

Training should improve productivity

Improves product & service quality

Long - term gains should outweigh short - term costs

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6-21

Differentiation Competitive Differentiation Competitive StrategyStrategy

Requires employees who are Creative Open - minded Risk - takers

Requires long - term focus

Pay - for - knowledge effective with work teams