mngt 441 chap003 9e
DESCRIPTION
Mngt 441 chap003 9e NewmanTRANSCRIPT
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Milkovich/Newman: Compensation, Ninth Edition
McGraw-Hill/Irwin Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 3Defining Internal
AlignmentNote: first of four chapters related
to FastCat Phase I project
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Compensation Strategy:Internal Alignment
Issues in a strategic approach to pay
Setting objectives
Internal alignment
Addresses relationships inside the organization
The relationships form a pay structure that should:
Support the organization strategy
Support the work flow Motivate behavior toward organization objectives
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Internal alignment, often called
internal equity, refers to the pay
relationships among different
jobs/skills/competencies within a
single organization.
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Pay structure refers to the array of
pay rates for different work or skillswithin a single organization.
Thenumber of levels, the
differentialsin pay between the
levels, and thecriteriaused todetermine those differences describe
the structure.
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Compensation Strategy:Internal Alignment (cont.)
Supports organization strategy
Supports work flow
Work flowprocess by which goods and servicesare delivered to the customer
Motivates behavior
Line-of-sight
Structure must be fair to employees
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Differentials
The pay differences among levels
Pay is determined by:
Knowledge/ skills involved
Working conditions
Value added to the company
Intention of these differentials:To motivate people to strive for promotion to a
higher-paying level
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Criteria: Content and Value
Content the work performed in a job and howit gets done
Structure ranks jobs on skills required, complexityof tasks, problem solving, and/or responsibility
Value the worth of the work; its relativecontribution to the organization objectives
Structure focuses on relative contribution of these
skills, tasks, and responsibilities to the organization'sgoals
Can include external market value
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Job- and Person-Based Structures
Job-basedstructure relies on the work contenttasks, behaviors, responsibilities
Person-basedstructure shifts the focus to the
employeeSkills, knowledge, or competencies the employee
possesses
Whether or not they are used in the particular jobNote the difference, in that both structures may
incorporate skill
Job-based: skills required to perform job
Person-based: skills possessed by person
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Exhibit 3.1: Engineering Structure atLockheed Martin
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Exhibit 3.2: Managerial/ProfessionalLevels At General Electric Plastics
(GEP)
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Exhibit 3.3: Exploring Pay Structure atLockheed Martin
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Exhibit: 3.4: What Shapes Internal Structures?
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What Shapes Internal Structures?Combining External and Organization Factors
Internal labor markets Rules and procedures that
Determine pay for different jobs within a single organization
External factors dominant influence on pay for entry-level; org factors forsubsequent positions
Employee acceptance Sources of fairness: Procedural, and distributive justice
Procedural justice involves process by which decision is reached
Distributive justice involves outcomes of process
Pay procedures more likely to be viewed as fair if
They are consistently applied to all Ees
Ee participation is provided
Appeals procedure is available
Data used are accurate
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Exhibit 3.5: Illustration of anInternal Labor Market
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Strategic Choices in DesigningInternal Structures
Tailored versus loosely coupled
Tailored
Well designed jobs with detailed steps or tasks
Very small pay differentials among jobs
Loosely coupled
Where business strategy requires constant innovation
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Strategic Choices in DesigningInternal Structures (cont.)
Egalitarian versus hierarchical
Egalitarian structures send the message that allemployees are valued equally
Advantages
Fewer levels and smaller differentials between adjacentlevels and between highest- and lowest-paid workers
Disadvantages
Averagism brings to light that equal treatment can meanmore knowledgeable employees feel underpaid
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Exhibit 3.6: Strategic Choice:Hierarchical versus Egalitarian
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Exhibit 3.7: Which Structure Has theGreatest Impact on Performance? on
Fairness?
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Equity theory: Fairness
Research suggests that employees judge fairness bymultiple comparisons
Comparing to jobs similar to their own
Comparing their job to others at the same employer
Comparing their jobs pay against external pay levels
Guidance from the Evidence
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Guidance from the Evidence (cont.)
Tournament theory: Motivation and performance
Structures w/ greater differentials btwn lower levelsand top levels have more positive effect on
motivation and performance than smallerdifferentials
Within limits, the bigger the prize for getting to nextlevel the greater the motivational impact of structure
Research supporting hierarchical structures typicallyinvolves situations where need for cooperationamong individuals is low
Does not directly address turnover
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Exhibit 3.8: Some Consequences of anInternally Aligned Structure
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(More) Guidance from the Evidence
Impact of internal structures depends on contextin which they operate
More hierarchical structures are related to
greater performance when the work flowdepends on individual contributors
High performers quit less under morehierarchical systems when:
Pay is based on performance rather than seniority
When people have knowledge of the structure
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(More) Guidance from the Evidence(cont.)
When close collaboration and sharing ofknowledge are required, more egalitarianstructures are related to greater performance
Impact of any internal structure on organizationperformance is affected by other dimensions ofthe pay model
Pay levels (competitiveness)
Employee performance (contributions)Employee knowledge of the pay structure
(management)