HRM textbook

376 PART 4 COMPENSATION
by national standards, still felt underpaid. Some undoubtedly moved to jobs they
hoped would have more challenges. Many also probably felt that the best way to hit it
big in terms of pay was to join a younger faster-growing firm and capitalize on new
stock options.
Most employers therefore use a market-pricing approach. They price professional
jobs in the marketplace as best they can, to establish the values for benchmark jobs.
Then they slot these benchmark jobs and their other professional jobs into a salary
structure. Each professional discipline usually ends up having four to six grade levels,
each with a broad salary range. This helps employers remain competitive when
bidding for professionals who literally have global employment possibilities. 79
CONTEMPORARY TOPICS IN COMPENSATION
How employers pay employees has been evolving. In this final section, we ll look at six
important contemporary compensation topics, competency-based pay, broadbanding,
talent management, comparable worth, board oversight of executive pay, and total
rewards. Chapter 12 then addresses performance-based pay.
5 Explain the difference
between competency-based
and traditional pay plans.
Competency-Based Pay
Employers traditionally base a job s pay rate on the relative worth of the job. The job
evaluation committee compares jobs using compensable factors such as effort and
responsibility. This allows them (1) to compare jobs to one another (as in, based on its
duties, this job seems to require about twice the effort of that one ), and (2) to assign
internally equitable pay rates for each job. Therefore, the pay rate for the job principally
depends on the job itself, not on who is doing it.
For reasons we ll explain shortly, some compensation experts and employers
are moving away from assigning pay rates to jobs based on the jobs numerically
rated, intrinsic duties. Instead, they advocate basing the job s pay rate on the level
of competencies the job demands of those who fill it. 80 Title and tenure have
been replaced with performance and competencies is how one expert puts it. 81
Compensation specialists call this second approach competency-based pay.
WHAT IS COMPETENCY-BASED PAY? In Chapter 4 (Job Analysis), we defined
competencies as observable and measurable behaviors of the person that make
performance possible. To determine what a job s required competencies are, ask,
In order to perform this job competently, the employee should be able to . . . ?
Competencies are most typically skills. Examples of competencies include program
in HTML, produce a lesson plan, and engineer the struts for a bridge.
In brief, competency-based pay means the company pays for the employee s
skills and knowledge, rather than for the title he or she holds. 82 Experts variously call
this competence-, knowledge-, or skill-based pay. With competency-based pay, an
employee in a class I job who could (but may not have to at the moment) do class II
work gets paid as a class II worker, not a class I.
In practice, competency-based pay usually comes down to pay for knowledge or
skill-based pay. 83 Pay-for-knowledge pay plans reward employees for learning
organizationally relevant knowledge for instance, Microsoft pays new programmers
more as they learn the intricacies of Windows. Skill-based pay tends to be used
more for workers with manual jobs thus, carpenters earn more as they become
more proficient at finishing cabinets.
In sum, the biggest difference between traditional and competency-based pay is this:
* Traditional job evaluation ties the worker s pay to the worth of the job based on
the job description and duties. Pay is job oriented.
* Competency-based pay ties the worker s pay to his or her competencies pay is
person oriented. Employees are paid based on what they know or can do even
if (at the moment), they don t have to do it.