Defining Internal Alignment.pptx

Defining Internal Alignmernt

1. Defining Internal Alignment 1

2. Internal Alignment Often called internal equity, refers to the pay relationships among different jobs/skills/competencies within a single organization. 2

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4. Pay Structure Refers to the array of pay rates for different work or skills within a single organization. 4

5. Compensation Strategy: Internal Alignment Compensation Strategy should……. Supports Organization Strategy Supports Workflow Motivates Behavior 5

6. Compensation Strategy: Internal Alignment cont. Support Organization Strategy The organization’s strategy tells us how it plans to achieve its purpose. Internal structures that are aligned with a strategy help achieve it. Supports Workflow Work flow refers to the process by which goods and services are delivered to the customer. The pay structure ought to support the efficient flow of that work and the design of the organization. Motivates Behavior Internal pay structures influence employees’ behaviour. The challenge is to design the structures so they direct people’s efforts toward organization objectives. 6

7. Structures Vary Among Organizations An internal pay structure can be defined by: -Number of levels of work -Pay differentials between the levels - Criteria or basis used to determine those levels and differentials 7

8. Structures Vary Among Organizations cont. LEVELS Pay structure is hierarchical in nature, based on: -Number of levels -Reporting relationships 8

9. Exhibit 3.2: Career Bands at GE Healthcare 9

10. Structures Vary Among Organizations cont. DIFFENTIALS Pay differences between the levels are called differentials. Differentials should be based on some measure of the differences in the value of the work to the organization. 10

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12. Structures Vary Among Organizations cont. CRITERIA: Content and Value Content – the work performed in a job and how it gets done -Structure ranks jobs on – skills required, complexity of tasks, problem solving, and/or responsibility Value – the worth of the work; its relative contribution to the organization objectives -Structure focuses on – relative contribution of these skills, tasks, and responsibilities to the organization's goals -Can include external market value 12

13. Use Value and Exchange Value Use value – the value of goods or services an employee produces in a job Exchange value – whatever wage the employer and employee agrees on for a job Difference between exchange value and use value surfaces when one firm acquires another 13

14. Job- and Person-Based Structures Job-based structures relies on the work content – tasks, behaviors, responsibilities Person-based structure shifts the focus to the employee Skills, knowledge, or competencies the employee possesses Whether or not they are used in the particular job In reality, both job-and-person-based structures are included 14

15. Factors Influencing Internal Pay Structures Societal factors Economic factors Organizational Factors 15

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17. STRATEGIC CHOICES IN DESIGNING INTERNAL STRUCTURES Fitting or tailoring the pay structure to be internally aligned involves two strategic choices -How tailored to organization design and work flow to make the structure -How to distribute pay throughout the levels in the structure 17

18. TAILORED VERSUS LOOSELY COUPLED Tailored -Well designed jobs with detailed steps or tasks -Very small pay differentials among jobs Loosely coupled -Jobs are flexible, adaptable and changing -Requires constant innovation -Pay structures are more loosely linked to the organization to provide flexibility 18

19. EGALITARIAN VERSUS HIERARCHICAL Egalitarian structures send the message that all employees are valued equally Advantage Fewer levels and smaller differentials between adjacent levels and between highest- and lowest-paid workers Disadvantage ‘ Averagism ’ brings to light that equal treatment can mean more knowledgeable employees feel underpaid Hierarchical structures send the message that the organization values the differences in work content, individual skills, and contributions to the organization. -Multiple levels include detailed descriptions of work done at each level. -Outlined responsibility for each 19

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23. CONSEQUENCES OF STRUCTURES Importance of internal alignment Efficiency -Pay structures imply future returns Fairness -Proponents say fair differentials motivate -Other say only small differential incite cooperation Compliance -Comply with regulation of the country 23