Pay Structure

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HRM – 300

The decision of which internal pay structure to use and the process used to design it matters greatly to an organization. “Research suggests that attending to the fairness of the design process and the approach chosen, is likely to achieve employee and management commitment, trust, and acceptance of the results” (Milkovich, Newman, & Gerhart 2011, pg.150). There are two types of approaches; job-based and person-based (which is split between skills and competency). Job-based is a “system that focuses on jobs as the basic unit of analysis to determine the pay structure” (Milkovich, Newman, & Gerhart 2011, pg. 658). To be able to “measure” a value for each position, a proper job evaluation or analysis needs to be performed. Each position must be “rated” by using the right method to be determined by the organization (ranking, classification, or point method). Once measured, positions can be placed in a pay scale based on how they were rated and then compensated accordingly. “Person-based structure shifts the focus to the employee; the skills, knowledge, or competencies the employee possesses, whether or not they are used in an employee’s particular job” (Milkovich, Newman, & Gerhart 2011, pg. 662). When developing a person-based structure, it needs to adhere to the organization’s strategy, provide a higher quality of work flow, meaning higher productivity, and it also needs to be fair to the employees.

Employees are sometimes involved in the compensation decisions which provide both pros and cons to the situation. When employees are involved, they are more aware of the structure and have a better understanding of how their performance can affect their pay. With skill-based pay, employees are eager to learn in order to increase their pay rate. This offers more flexibility for employers to place the employees in positions where production is currently in higher demand. However, with so much eagerness to learn to become higher paid...
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