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CHAPTER SIX
PERSON-BASED STRUCTURES
Overview
This is the final chapter of Part Two: Internal Alignment: Determining the Structure. This
section of the book examined pay structures within an organization. The premise underlying
internal alignment is that internal pay structures need to be aligned with the organization’s
business strategy and objectives, the design of the work flow, a concern for the fair treatment of
employees, and the intent of motivating employees. The work relationships within a single
organization are an important part of internal alignment.
Two approaches to building a person-based structure are discussed:
• Skill-based
• Competency-based
No matter the basis for the structure, the major decisions focus on the ways to
• Collect and summarize information about work
• Determine what is of value to the organization
• Quantify that value
Learning Objectives:
• Understand the similarities and differences between skill plans and competencies in
person-based structures.
• Define skill-based pay plan structures, their purpose, the process, and the outcomes.
Chapter Six: Person-Based Structures 6 – 2
Lecture Outline: Overview of Major Topics
I. Person-Based Structures: Skill Plans
A. Types of Skill Plans
B. Purpose of the Skill-Based Structure
II. “How–to”: Skill Analysis
A. What Information to Collect?
B. Whom to Involve?
C. Establish Certification Methods
D. Outcomes of Skill-Based Pay Plans: Guidance from Research and Experience
III. Person-Based Structures: Competencies
A. Defining Competencies
B. Purpose of the Competency-Based Structure
IV. “How–to”: Competency Analysis
A. Objective
B. What Information to Collect?
C. Whom to Involve?
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Lecture Outline: Summary of Key Chapter Points
The logic underlying job-based pay structures flows from scientific management, championed by
Frederick Taylor in the early 20th century. Work was broken into a series of steps and analyzed
so that the “one best way,” the most efficient way to perform every element of the job, could be
More complex work requires pay systems that support continuous learning, improvement, and
flexibility. Person-based structures hold out that promise.
Exhibit 6.1 points out the similarities in the logic underlying job-based versus people-based
approaches. No matter the basis for the structure, a way is needed to:
2. Determine what is of value to the organization
4. Translate that value into an internal structure
I. Person-Based Structures: Skill Plans
• The majority of applications of skill-based pay have been in manufacturing, where the
work often involves teams, multiskills, and flexibility.
Definition: Skill-based structures link pay to the depth or breadth of the skills,
abilities, and knowledge a person acquires that are relevant to the work. Structures
A. Types of Skill Plans
• Skill plans can focus on depth and/or breadth.
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o Specialist: Depth—pay is based on the knowledge of the individual doing the
job rather than on job content or output. Example: teacher.
o Generalist/Multiskill Based: Breadth—Employees in a multiskill system earn
pay increases by acquiring new knowledge, but the knowledge is specific to a
range of related jobs.
▪ Pay increases come with certification of new skills, rather than with job
assignments.
▪ Employees can then be assigned to any of the jobs for which they are
certified, based on the flow of work.
o Responsibilities assigned to an employee in a multiskill system can change
drastically over a short period of time, whereas the basic responsibilities of
specialists do not vary on a day-to-day basis.
B. Purpose of the Skill-Based Structure
Supports the Strategy and Objectives
o The skills on which to base a structure need to be directly related to the
Supports Work Flow
o The link here is clearer.
o One of the main advantages of skill-based plans is that it facilitates matching
people to a changing workflow.
Is Fair to Employees
o Employees like the potential of higher pay that comes with learning.
o By encouraging employees to take charge of their own development, skill-based
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o Additionally, the courts have not yet been asked to rule on the legality of having
two people do the same tasks but for different (skill-based) pay.
Motivates Behavior Toward Organization Objectives
o Person-based plans have the potential to clarify new standards and behavioral
expectations.
o The fluid work assignments that skill-based plans permit encourage employees
to take responsibility for the complete work process and its results, with less
direction from supervisors.
II. “How to”: Skill Analysis
• Exhibit 6.3 depicts the process for determining a skill-based structure.
o It begins with an analysis of skills, which is similar to the task statements in a job
analysis.
• Exhibit 6.3 also identifies the major skill analysis decisions that are exactly the same
decisions as in job analysis:
1. What is the objective of the plan?
2. What information should be collected?
Definition: Skill analysis is a systematic process of identifying and collecting
information about skills required to perform work in an organization.
A. What Information to Collect?
• There is far less uniformity in the use of terms in person-based plans than there
is in job-based plans.
Chapter Six: Person-Based Structures 6 – 6
optional electives.
o To reach Technician I, and 114% of entry level pay, 40 core elective points
must be certified, in addition to the foundation competencies.
B. Whom to Involve?
• Employee involvement is almost built into skill-based plans.
C. Establish Certification Methods
• Organizations may use peer review, on-the-job demonstrations, or tests to
certify that employees possess skills and are able to apply them.
• Newer skill-based applications appear to be moving away from an on-demand
D. Outcomes of Skill-Based Pay Plans: Guidance from Research and Experience
• Skill-based plans are generally well accepted by employees because it is easy to
see the connection between the plan, the work, and the size of the paycheck.
• Consequently, the plans provide strong motivation for individuals to increase
their skills. “Learn to earn” is a popular slogan used with these plans.
• Skill-based plans become increasingly expensive as the majority of employees
become certified at the highest pay levels.
o As a result, the employer may have an average wage higher than
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rate a certain amount of time before they can take the training to move to a
higher rate.
o Motorola abandoned its skill-based plan because at the end of three years,
everyone had topped out (by accumulating the necessary skill blocks).
o In a firm with labor-intensive products, the increased labor costs under skill-
based plans may become a source of competitive disadvantage.
• Early researchers on skill-based plans found that about 60% of the companies in
their original sample were still using skill-based plans seven years later.
o One of the key factors that determined a plan’s success was how well it was
aligned with organization’s strategy.
• It has also been argued that the higher labor costs under skill-based pay
(estimated as between 10 and 15%) mean that it may be a better fit to companies
in industries where labor costs are a small share of total costs, such as paper and
forest products, chemicals, and food processing.
o If labor costs are 15% of total costs and skill-based pay translates into labor
• Another important question is whether a multiskilled “jack-of-all-trades” might
really be the master of none.
o Some research suggests that the greatest impact on results occurs
immediately after just a small amount of increased flexibility. Greater
• The bottom-line is that skill-based approaches may be only short-term
initiatives for specific settings.
III. Person-Based Structures: Competencies
• As with job evaluation, there are several perspectives on what competencies are and
what they are supposed to accomplish.
o Are they a skill that can be learned and developed, or, are they a trait that includes
attitudes and motives?
o Do competencies focus on the minimum requirements that the organization needs to
Chapter Six: Person-Based Structures 6 – 8
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stay in business, or do they focus on outstanding performance?
o Are they characteristics of the organization or of the employee?
• Unfortunately, the answer to all of these questions is “yes.” A lack of consensus means
that competencies can be a number of things; consequently, they stand in danger of
becoming nothing.
• The top part of Exhibit 6.5 shows the process of using competencies to address the need
for internal alignment by creating a competency-based structure.
• All approaches to creating a structure begin by looking at the work performed in the
organization.
• While skill- and job-based systems hone in on information about specific tasks,
competencies take the opposite approach.
o They try to abstract the underlying, broadly applicable knowledge, skills, and
• Competency sets translate each core competency into action.
o For example, for the core competency of business awareness, competency sets
might be related to organizational understanding, cost management, third-party
relations, and ability to identify business opportunities.
• Competency indicators are the observable behaviors that indicate the level of
competency within each set. These indicators may be used for staffing and evaluation
as well as for pay purposes.
o TRW’s competency model for its human resource management department, shown
in Exhibit 6.6, includes the four core competencies considered critical to success.
o The competency indicators anchor the degree of a competency required at each level of
complexity of the work.
A. Defining Competencies
• Early conceptions of competencies focused on five areas:
1. Skills (demonstration of expertise)
3. Self-concepts (attitudes, values, self-image)
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4. Traits (general disposition to behave in a certain way)
5. Motives (recurrent thoughts that drive behaviors)
• As experience with competencies has grown, organizations seem to be moving
away from the vagueness of self-concepts, traits, and motives.
B. Purpose of the Competency-Based Structure
Organization Strategy
o The main appeal of competencies is the direct link to the organization’s
strategy.
o The process of identifying competencies starts with the company leadership
deciding what will spell success for the company.
▪ Frito Lay used competency-based structures for over 10 years and lists
four competencies for managerial work, shown in Exhibit 6.8.
▪ At the first level, exhibiting the competency affects the team.
▪ At the next level, it has an impact across teams.
▪ At the highest level, it has an impact on the entire location.
Work Flow
o As you can judge from reading the previous exhibits, competencies are
chosen to ensure that all the critical needs of the organization are met.
Fair to Employees
o Advocates of competencies say that they can empower employees to take
charge of their own development.
o By focusing on optimum performance rather than average performance,
competencies can help employees maintain their marketability.
Motivate Behavior toward Organization Objectives
Chapter Six: Person-Based Structures 6 – 10
o Competencies in effect provide guidelines for behavior and keep people
focused.
o They can also provide a common basis for communicating and working
together.
IV. “How-To”: Competency Analysis
• The bottom part of Exhibit 6.5 shows the basic decisions in creating a competency
based structure. The first decision, and by the far the most important, is to clarify the
objective of the plan.
A. Objective
• One of the pitfalls of competency systems is trying to do too many things with
ill-suited systems
B. What Information to Collect?
• A number of schemes for classifying competencies have been proposed. One of
them uses three groups:
1. Personal characteristics: Employees are expected to come into the
organization with characteristics like personal integrity, maturity of
2. Visionary: These are the highest-level competencies. They might be
expressed as possessing a global perspective, taking the initiative in
3. Organization specific: These are tied specifically to the particular
organization and to the particular function where they are being applied.
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They generally include leadership, customer orientation, functional
expertise, and developing others.
• Because they stem from an organization’s mission or strategy to achieve
C. Whom to Involve?
• Like compensable factors, competencies are derived from the executive
leadership’s beliefs about the organization and its strategic intent.
• However, anecdotal evidence indicates that not all employees understand that
connection.
D. Establish Certification Methods
• The heart of the person-based plan is that employees get paid for relevant skills
or competencies they possess, whether or not those skills are used.
E. Resulting Structure
• Competency-based structures generally are designed with relatively few
levels—four to six—and relatively wide differentials for increased flexibility.
F. Competencies and Employee Selection and Training/Development
• In the case of competencies, there is clear evidence that ability (broadly defined
to include personality traits) is related to general competencies.