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Defining Internal Alignment

Chapter. 3. Defining Internal Alignment. 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 pays for different work make a difference?.

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Defining Internal Alignment

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  1. Chapter 3 Defining InternalAlignment

  2. 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 pays for different work make a difference?

  3. 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?

  4. 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.

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

  6. 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

  7. 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

  8. 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

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

  10. Exhibit 3.3: Engineering Pay Structureat Lockheed Martin

  11. 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

  12. 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

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

  14. 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

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