WEEK 3: INTERNAL ALIGNMENT

OBJECTIVES – WEEK 31. Explain why internal alignment is important, and how to

evaluate it.2. Discuss the three (3) key factors that define internal pay

structures.3. Discuss the pros and cons of egalitarian and hierarchical

structures and how they relate to strategy.4. Discuss the impact of internal pay structures on efficiency,

fairness, and compliance in the pay system.5. Explain the importance of job analysis, its uses, and its

relationship to internal alignment.6. Discuss the key difference(s) between job-based, skill-based

and competency-based pay structures.7. Describe the key criteria to judge job analysis.

WHAT SHAPES INTERNAL STRUCTURES?WHAT SHAPES INTERNAL STRUCTURES?

EXTERNAL FACTORS: Stakeholders

Culture & Customs Economic Pressures Government

ORGANIZATION FACTORS:

Technology

Strategy

Human Capital

H.R. Policy

Employee Acceptance

Cost Implications

INTERNAL STRUCTURE:

Levels

Differentials

Criteria

DEFINITIONInternal alignment, often called internal

equity, refers to the pay relationships among different jobs/skills/competencies within a single organization.

3 componentsLevels – flat or lots of stepsDifferentials – big steps in payCriteria – jobs/skills/competencies – basis for

levels - merit, seniority implications

DIRECT HR PAY STRUCTURE CONSEQUENCES

An internally aligned structure should encourage people to:

Undertake trainingIncrease experienceReduce turnoverFacilitate career progressionFacilitate performanceReduce grievancesReduce stoppages

STRUCTURES VARY AMONG ORGANIZATIONS - 3 FACTORS

An internal pay structure can be defined by Number of levels of workPay differentials between the levelsCriteria or basis used to determine

those levels and differentials

ORGANISATIONAL LEVELS E.G. MINISTRY OF BUSINESS, INNOVATION AND EMPLOYMENT

CEO

DCE DCE DCE

GM

Policy manager

Team leader

Senior advisor

Advisors

Team leader Principle

advisor

Policy manager

GM

Office of CEO

DIFFERENTIALS

The pay differences among levelsPay is determined by:

Knowledge/ skills involvedWorking conditionsValued addition to the company

Few and small differentials (levels) usually means pay compression

CRITERIA: CONTENT AND VALUEContent – the work performed in a job

and how it gets doneStructure 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 objectivesUse value – the value of goods or services an

employee produces in a jobExchange value – whatever wage the

employer and employee agrees on for a job

CRITERIA: JOB- OR PERSON-BASED STRUCTURES

Job-based structures relies on the work content – tasks, behaviors, responsibilities

Person-based structure shifts the focus to the employeeSkills, knowledge, or competencies the employee

possessesWhether or not they are used in the particular job

WHAT SHAPES INTERNAL STRUCTURES? EXTERNAL AND ORGANIZATION FACTORS

Internal labor markets Rules and procedures that

Determine pay for different jobs within a single organization

Allocate employees among those different jobs

Employee acceptance Sources of fairness: Procedural, and distributive justice

Pay structures change ‘Change-and-congeal” process

STRATEGIC CHOICES IN DESIGNINGINTERNAL STRUCTURES

Egalitarian versus hierarchical

Tailored versus loosely coupledTailored

Well designed jobs with detailed steps or tasks

Very small pay differentials among jobsLoosely coupled

Requires constant innovation

GUIDANCE FROM THE EVIDENCE

Many levels Large differentials Person or jobSupports: Close fit Individual performers Performance Opportunity for

promotion

Few levels Small differentials Person or jobSupports: Loose fit Teams Equal treatment Co-operation

Hierarchical Egalitarian

RESEARCH EVIDENCE: TOURNAMENT THEORY Motivation and performance

All players will play better in the first tournament, where the prize differentials are larger

Greater difference between an employee’s salary and the boss’s, harder he/she will work

Several studies have given rise to “winner-takes-all”

Does not directly address turnover

(MORE) GUIDANCE FROM THE EVIDENCE

Impact of internal structures depends on context in which they operate

More hierarchical structures are related to greater performance when the work flow depends on individual contributors

High performers quit less under more hierarchical systems when: Pay is based on performance rather than seniority When people have knowledge of the structure

STOCKTAKE

Internal alignment counts because it affects the incentives and sense of fairness of staff

These in turn affect organisational outcomes – such as strategy, workflow, and staff behaviours

HR behaviours include turnover, willingness to develop, and to take grievances , steal and other acts of organisational deviance

Alignment decisions concern: hierarchy/egalitarian person or job based systems

MANAGING INTERNAL ALIGNMENT: INTRO TO JOB ANALYSISUnderstand the role of job analysis in

remuneration & performance management

Understand methodologies for job analysis and job evaluation

Critique the value of job analysis

DETERMINING THE INTERNAL JOB STRUCTURE

Job Analysis A Prelude to Other HRM Functions

Recruitment &Selection Decisions

Performance Management

Job Evaluation—Wage and Salary

Decisions(Remuneration)

TrainingRequirements

Job Description&

Person Specification

Job Analysis

© Stephen Blumenfeld

WHAT DOES A CI LOOK LIKE?

Example of a critical incident (from www):if a retail assistant comments on the

customer’s appearance and the customer leaves the store angry, the behaviour of the assistant may be judged as ineffective in a fashion company.

A good CI reflects:A behaviourA consequenceA qualitative impact (good or bad)

THE POLITICS & CRITERIA OF JOB ANALYSIS

Is it: Valid - Reliable – do actors and methods

converge? Acceptable - Who does it and how? Top

management and union support is criticalUseful - Does precision create rigidity?

Does it inform HR processes? Does one approach fit all purposes? Why not done more?

SUMMARY & CONCJA identifies the content of jobs that

support other HR functions, including rem and performance management

Several methods exist - usually a mixed approach is more valid

Support and engagement seems as important as methodological precision. Is it a social or mathematical process?