J7

MHR 6901, Compensation Management 1

Course Learning Outcomes for Unit VII

Upon completion of this unit, students should be able to:

8. Summarize the potential impact of training and development on employee compensation.
8.1 Detail the various types of person-focused pay plans.
8.2 Describe the reasons why companies adopt person-focused pay plans.
8.3 Describe the advantages and disadvantages of person-focused pay plans.

Course/Unit

Learning Outcomes
Learning Activity

8.1
Unit Lesson
Chapter 5
Unit VII Essay

8.2
Unit Lesson
Chapter 5
Unit VII Essay

8.3
Unit Lesson
Chapter 5
Unit VII Essay

Required Unit Resources

Chapter 5: Person-Focused Pay

Unit Lesson

In a previous unit, we talked about merit and incentive pay, which are traditional forms of pay. Now we can
look at another plan, which is called person-focused pay. Person-focused pay programs are new and not
considered a traditional pay system. Person-focused pay plans are designed to reward employees for
acquiring job-related knowledge and skills rather than simply performing a job. Employers may want to adopt
a person-based pay program when it is important to stay current in skills—such as when technology is
changing, and technology is a major part of the organization. Ambitious people thrive in such environments
as they want to stay current in their fields as technology changes. An organization interested in being
competitive in the global environment may also be interested in person-focused pay programs as a
compensation plan of choice.

Person-focused pay plans are referred to as either pay-for-knowledge or skill-based pay plans, both of which
reward employees for acquiring job-related knowledge or skills. Pay-for-knowledge rewards employees for
learning specific curricula or programs. Skill-based pay is pay for specific skills. When a worker masters job-
related skills, he or she is rewarded for obtaining them.

The person-focused pay plans look at horizontal knowledge, vertical knowledge, or the depth of a skill.
Horizontal skills are those skills that are fundamental to the job or are similar skills. Vertical knowledge
refers to those skills traditionally considered as supervisory skills including scheduling, coordinating, training,
and leading. The depth of skills refers to the level of specialization or expertise for a particular job
(Martocchio, 2020).

Central to person-focused pay is the word competency. A competency is a skill that enables an employee to
orchestrate and apply combinations of knowledge and skills consistently over time to perform work
successfully in the required work situations. Foundational competencies represent the competencies that

UNIT VII STUDY GUIDE

Person-Focused Pay Plans

MHR 6901, Compensation Management 2

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provide the foundation for success in school and in the world of work, and industry-related competencies are
specific to an industry or industry sector.

Organizations often establish core competencies for their employees as part of their strategic plans. The
competencies identified as core competencies are essential to the success of an employee performing a
particular job. For example, a core competency for a human resources (HR) manager would be
communication. An HR manager would not be successful without the ability to communicate.

An organization may have several reasons why they would want to adopt a person-focused pay program.
First, this type of pay program would remove the view of pay as an entitlement and establish the view of pay
as a reward for acquiring and implementing job-relevant knowledge and skills. Secondly, technological
innovations are making some jobs obsolete, and this requires workers to gain new and different skills. In
addition, due to increased global competition, companies in the United States must become more productive,
and in order to do this, U.S. workers must become better educated.

There are different types of person-focused plans as discussed below.

 Stair-step model: This includes jobs from the same job family, but the jobs differ in terms of
complexity.

 Skills-block model: This plan also applies to jobs within the same job family but refers to an
employee’s progress to increasingly complex jobs. These skills, however, do not build on each other.
This model requires horizontal and vertical skills.

 Job-point accrual model: This plan encourages employees to develop skills from different job families.
This pay plan allows employees to gain points for developing skills in different job areas. The number
of points earned allows the employee to earn more compensation.

 Cross-departmental model: Employees develop critical skills that can be used in other departments.
This model allows the organization to cover different departments when there are shortages in staff or
to meet seasonal fluctuations for products or services.

When making comparisons to the traditional pay models, we can see that person-focused pay plans use a
market base for skills valuation whereas the traditional or job-based plan uses a market base for job
valuation. In the person-focused pay plan, basic pay increases are awarded on an employee’s acquired skill
set and proficiency while the traditional job-based pay plan increases are based on obtaining a job-defined
goal or seniority. In terms of job promotions, person-focused pay awards a promotion based on a specific skill
set while a job-based plan promotes employees based on exceeding job performance standards.

The key advantages for employees in the person-focused approach include job variety and job enrichment.
The person-focused pay plan provides job enrichment and job security because it creates a more intrinsically
motivating and interesting work environment. The key advantage of the job-related plan is simply getting paid
for job performance. You do a job, and you get paid. Another key advantage of the person-focused pay plan
includes flexibility in work scheduling. For the employers, the person-focused pay plan reduces the need for
staffing. For example, multi-skilled employees can be used in various areas of the organization as personnel
shortages develop across the organization. Additionally, to be globally competitive, employees need leading-
edge skills.

Disadvantages of the person-focused pay plans include a possible increase in hourly labor costs, increased
training costs, and an increase in overhead costs. It may be that the person-focused pay plan may not mesh
well with the existing system, particularly when working in a union environment.

The most important consideration with a person-focused pay plan is allowing the employees the opportunity
to apply the new skills learned in productive ways. Obviously person-focused pay programs are not for every
organization, but the person-focused pay program is an effective compensation strategy if designed and
implemented properly.

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Reference

Martocchio, J. J. (2020). Strategic compensation: A human resource management approach (10th ed.).

Pearson. https://online.vitalsource.com/#/books/9780135201930

Learning Activities (Nongraded)

Nongraded Learning Activities are provided to aid students in their course of study. You do not have to submit
them. If you have questions, contact your instructor for further guidance and information.

Each chapter of your textbook contains a case study related to the main theory or concept within the chapter.
Review the case studies to gain a better understanding of the course materials as they relate to
compensation considerations. Feel free to discuss the chapter case studies with your classmates in the
Student Break Room forum.