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Part One : Internal Alignment - Determining the Structure

Part One : Internal Alignment - Determining the Structure. Part One. Chapters 3 - 6. Chapter 3: Defining Internal Alignment Chapter 4: Job Analysis Chapter 5: Evaluating Work: Job Evaluation Chapter 6: Person-Based Structures. Chapter. 3. Defining Internal Alignment.

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Part One : Internal Alignment - Determining the Structure

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  1. Part One: Internal Alignment - Determining the Structure Part One Chapters 3 - 6 Chapter 3: Defining InternalAlignment Chapter 4: Job Analysis Chapter 5: Evaluating Work:Job Evaluation Chapter 6: Person-BasedStructures

  2. Chapter 3 Defining InternalAlignment Screen graphics created by: Jana F. Kuzmicki, PhD Troy State University-Florida and Western Region

  3. POLICIES TECHNIQUES OBJECTIVES Work Descriptions Evaluation/analysis certification INTERNALSTRUCTURE ALIGNMENT COMPETITIVENESS CONTRIBUTORS MANAGEMENT Exhibit 1.5: THE PAY MODEL • EFFICIENCY • Performance • Quality • Customers • Stockholders • Costs • FAIRNESS • COMPLIANCE

  4. Learning ObjectivesAfter discussing Chapter 3, students should be able to: • Explain why internal alignment is an important pay policy issue and how to evaluate internal alignment. • Discuss the three (3) key factors that define an internal pay structures. • Identify and describe how external and organization factors shape the design of pay structures. • Discuss the pros and cons of egalitarian and hierarchical structures and how they relate to an organization’s strategy. • Describe the key effects associated with an internally aligned pay structure. • Discuss the impact of internal pay structures on efficiency, fairness, and compliance in the pay system.

  5. Chapter Topics • Compensation Strategy: Internal Alignment • Structures Vary Among Organizations • What Shapes Internal Structures? • Strategic Choices in Designing Internal Structures • What the Research Tells Us • Consequences of Structures

  6. Key Issues Two basic questions lie at the core of compensation management . . . • How is pay determined for the wide variety of work performed in organizations? • Does how much an organization pay for different work make a difference?

  7. Often called internal equity, refers to the relationships between the jobs/skills/competencies within a single organization. The relationships form a pay structure that should support the organization strategy, support the workflow, be fair to employees, and motivate behavior toward organization objectives. What Is Internal Alignment?

  8. What Is Pay Structure? Refers to the array of pay rates for different work or skills within a single organization. The number of levels,differentialsin pay between the levels, and the criteriaused to determine those differences create the structure.

  9. Support organization strategy Support work flow Compensation strategy should . . . Support fairness Motivate behavior Compensation Strategy:Internal Alignment

  10. Internal Alignment Fairness Issues • Procedural justice • Process by which a decision is reached • Distributive justice • Results/outcomes of the process • Pay procedures more likely to be viewed as fair if . . . • They are consistently applied to all employees • Employee participation/representation is allowed • An appeals procedure is available • Data used are accurate

  11. Exhibit 3.1: Engineering Structure at Lockheed Engineer:Limited use of basic principles.Close supervision. Senior Engineer:Full use of standard principlesand concepts. Under general supervision. Systems Engineer:Wide applications of principles and concepts, plus working knowledge of other related disciplines. Under very general direction. Lead Engineer:Applies extensive knowledge as a generalist or specialist. Exercises wide latitude. Advisor Engineer:Applies advanced principles, theories, and concepts. Assignments often self-initiated. Consultant Engineer:Exhibits an exceptional degreeof ingenuity, creativity, and resourcefulness. Actsindependently to uncover and resolve operational problems. Entry Level Recognized Authority

  12. Structures Vary • A internal pay structure is defined by • Number of levels of work • Pay differentials between levels • Criteria used to determine levels and differentials • Content - Work performed in a job and how it gets done • Value - Worth of the work: its relative contribution to objectives • Job- and person-based structures

  13. Structures Vary: Examples • Number of levels of work • Exhibit 3.1: Engineering Structure at Lockheed • Exhibit 3.2: Managerial/Professional Levels at General Electric Plastics (GEP) • Pay differentials between levels • Exhibit 3.3: Engineering Pay Structure at Lockheed Martin • Criteria • Job-based - Exhibit 3.1 • Person-based - Exhibit 3.2

  14. Exhibit 3.2: Managerial/Professional Levels at General Electric Plastics (GEP)

  15. Exhibit 3.3: Engineering Pay Structureat Lockheed Martin

  16. ORGANIZATION FACTORS: Strategy HR policy Technology Employee acceptance Human capital Cost implications INTERNAL STRUCTURE: Levels Differentials Criteria Exhibit 3.4: What Shapes Internal Structures? EXTERNAL FACTORS: Economic pressures Government policies, laws, regulations Stakeholders Cultures and customs

  17. Promote Promote Promote Promote Promote Exhibit 3.5: Illustration of anInternal Labor Market Consultant Engineer Hire Advisor Engineer Lead Engineer Systems Engineer Senior Engineer Hire Engineer Hire

  18. Tailored versus Loosely Coupled Egalitarian versus Hierarchical Strategic Choices in DesigningInternal Structures

  19. Hierarchical Egalitarian Levels Differentials Criteria Supports: ManyFewer Large Small Person or JobPerson or Job Close Fit Loose Fit Individual Performers Teams Performance Equal Treatment Opportunities for Promotion Cooperation Work Organization Fairness Behaviors Exhibit 3.6: Strategic Choice:Hierarchical versus Egalitarian

  20. Structure A Layered Chief Engineer Engineering Manager Consulting Engineer Senior Lead Engineer Lead Engineer Senior Engineer Engineer Engineer Trainee Structure B De-layered Chief Engineer Consulting Engineer Associate Engineer Exhibit 3.7: Which Structure has the Greatest Impact on Performance? On Fairness?

  21. What the Research Tells Us • Equity Theory • Tournament Theory • Institutional Model: Copy Others

  22. Perceived Equity of a Pay Structure MY PAY My qualifications My work performed My product value OTHERS’ PAY Their qualifications Their work performed Their product value

  23. Exhibit 3.8: Some Consequences of anInternally Aligned Structure Undertake training Increase experience Reduce turnover Facilitate career progression Facilitate performance Reduce pay-related grievances Reduce pay-related work stoppages Pay structure

  24. Which Structure Fits Best? • More hierarchical structures are related to greater performance when the work flow depends more on individual contributors • More egalitarian structures are related to greater performance when close collaboration and sharing of knowledge are required • Structures not aligned with the work flow appear to be related to greater turnover

  25. Importance of Internal Structure Consequences of Structures Efficiency: Competitive Advantage Fairness Compliance

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