Managing Employee Performance and Reward Concepts, Practices, Strategies 2nd edition

1. Managing Employee Performance and Reward Concepts, Practices, Strategies 2nd edition

2. Person-based base pay • Skill-based base pay: • Job family structures • Skill sets and skill-based pay progression • Competency-based base pay: • Broad-banded structures • Competency-based/related pay progression • Strategic alignment with base pay options

3. Options Structures Evaluation techniques Modes of pay progression Position-based systems: 1. Pay spines/ladders 2. Narrow grades • Job-based/position-based pay Market surveys and/or job evaluation Seniority and/or ‘merit’ based increments and promotion Person-based systems: • Skill-based pay Broad grades/job families Skill assessment Skill sets • Competency-based/related pay Broad bands Competency assessment Competency zones/levels Options for base pay

4. Skill-based pay: from narrow grades to broad grades

5. Vertical skills: • Office management • Task scheduling • Team leadership • Depth skills: • Office finance and accounting • Electronic records management • Spreadsheet software • Breadth skills: • Client reception • File management • Inquiry processing • Word-processing • Memos, letters and forms • Invoicing • Minute-taking • Equipment purchase Skills analysis: skill dimensions for an administrative support role

6. Set 3 (vertical skills) Administrative support broad grade Office management $48,000 Team leadership Set 2 (breadth/depth skills) Work scheduling Invoicing and purchasing $41,000 Computer records management Set 1 (breadth skills) Office accounting Minute-taking $35,000 Producing memos, letters and forms Word-processing Training entry point Broad grade entry point $30,000 Skill-based pay progression in a broad graded structure 1. ‘Stair-step’ model: sequential skill sets for an administrative support role

7. +$2,500 + $2,500 +$2,500 +$2,500 Office communication Document production Office finance Record-keeping • Staff inquiries and/ or Forms and/ or Invoicing and/ or Staff attendance and leave • External inquiries Memos and letters Equipment purchase File management Broad grade entry point/minimum = $30,000 • Client reception Word-processing Petty cash Minute-taking Skill-based pay progression in a broad graded structure 2. Non-sequential (breadth) skill sets for an administrative support role

8. Skill-based pay Advantages: • Allows organisations to ensure employees have the appropriate type and level of skills before they are assigned to a position • Facilitates functional flexibility through multiskilling and teamworking • Facilitates systematic organisational learning and continuous improvement • Encourages strategically aligned skill development • Multiskilling allows rapid response to technological and product market change • Encourages a participative work culture by allowing for the devolution of decision-making tasks to line employees • Supports skill-based career paths for blue- and pink-collar workers

9. Skill-based pay Disadvantages: • Rewards skill accumulation rather than skill application • Training bottlenecks • Increased training costs • ‘Topping out’ • Skill obsolescence

10. Fully broad-banded pay structure: example

11. Modified broad-banding – with market-based zones or ranges • Broad-banding with pay zones Broad-banding/broad-grades with internal pay ranges

12. Developing a competency-based pay system (within a broad-banded structure) Main steps: 1. Competency analysis (as for competency-based performance management) • Determine the organisation’s ‘core competencies’ • Determine which roles will be covered by the system • Identify a sample of superior performers in each of these roles • Collect data on what characteristics distinguish superior performers from average performers in each role (i.e. ‘differentiating competencies’) • Develop behavioural descriptors and the overall competency model • Test the model to ensure the chosen competencies do predict superior performance

13. Developing a competency-based pay system (within a broad-banded structure) 2. Configuring competency levels • Life-cycle model: ‘learning’, ‘applying’, ‘guiding’, ‘shaping’ (typically three or four levels) 3. Pricing bands and zones • The major challenge! • Benchmark jobs and ‘high/low’ market pricing 4. Assessing and rewarding individuals for competencies • Behavioural observation and assessment • Assessment centres

14. Example of competency-based progression in a broad band • Combination of core and role competency assessment determines each individual’s pay level in the broad band • Multi-source competency assessment (e.g. supervisor, two peers, two subordinates) • Decline in competency profile may result in reduction in base salary (or freeze)

15. Example of competency-based progression in a broad band

16. Pay for competencies plus results (= competency-related or ‘contribution-based’ pay) in a modified broad-banded structure

17. Competency-based/related pay (with broad-banding) Advantages: • Encourages career development within role • Seeks to establish a guaranteed link between base pay and high-performance capability • Has universal application since ‘core competencies’ are applicable to every job and every employee in the organisation • Unlike skill-based pay, not just applicable to routine (manual, technical and administrative) work • Allows scope to reward knowledge workers without the need for promotion to management level

18. Competency-based/related pay (with broad-banding) Disadvantages: • Absence of conceptual clarity. What are ‘competencies’? • Distinction between ‘core’ and ‘role’ competencies unclear • Emphasis on ‘soft’ competencies as opposed to ‘hard’ technical skills may result in invalid assessment • Are high-performance competencies appropriate for routine non-managerial and manual work? • Competencies do not equal results; may be little more than a circuitous way of paying for individual performance • Excessive emphasis on individual (cf. group) contribution • Can degenerate into a system for assessing personality and rewarding personality traits • Problem of pricing competencies – no agreed or reliable way to price them • Must be developed in conjunction with a broad-banded structure and consequently involves radical organisational change

19. Pay scales and narrow grades Strategy: Cost defender Structure: Mechanistic Culture: Traditional; unionised Roles: Line- and middle-level positions Broad grades and skill-based progression Strategy: Quality defender; analyser Structure: Semi-organic Culture: Semi-high involvement; some unionisation Roles: Process; technical; maintenance; administrative Broad bands and competency-based (or -related) progression Strategy: Prospector Structure: Organic Culture: High involvement; non-unionised Roles: Service work; knowledge work; managerial roles ‘Strategic alignment’ base pay options