Alternatives to Traditional Pay Structures

Skill-based Pay Broadbanding Alternative Structures are more flexible than traditional pay structures and encourage employees to assume different roles without triggering compensation increases or decreases

MGMT 4030 - Managing Employee Reward Systems

Skill-based Pay
Definition: Pay is based on the mastery of a series of skill-blocks or competencies that makes the person more valuable to the employer. Features of Skill-based Pay Different skill levels can be identified Vertical skills or horizontal skills Monetary pay differential associated with each skill level above base rate. Certification of skill must be demonstrated by employee.
MGMT 4030 - Managing Employee Reward Systems

Skill-based Pay
Features of Skill-based Pay (continued) Fits well with self-managed team culture and organizations that emphasize learning skills. Also fits with high employee involvement concept because pay rates are fully disclosed and can be influenced by employees willingness to learn new skills. Challenges to using Skill-based Pay Over time many employees reach the top of the pay scale. May be expensive. Employee skills must be fully utilized - not always possible.
MGMT 4030 - Managing Employee Reward Systems

Skill-based Pay

$$

IV III II I

Basic
MGMT 4030 - Managing Employee Reward Systems

Advanced Skill level

Broadbanding
Definition: Collapse several pay grades into wide pay bands to give managers greater flexibility to move employees horizontally in their careers so as to broaden their skills and competencies. Collapse narrow salary grades into wide bands.
20 grades reduced to 4 to 5 bands. 40-60% ranges increased to 100-250%

Facilitate Lateral career moves

Enhanced flexibility for transfers Cross-functional teams with fluid duties

Increased emphasis on market pricing jobs.

MGMT 4030 - Managing Employee Reward Systems

Broadbanding (continued)
Decreased emphasis on job evaluation Eliminates excessive job titles More flexible pay decisions
Few control points such as midpoints or salary caps. More pay opportunities based on skills

MGMT 4030 - Managing Employee Reward Systems

Broadbanding

Technical Band 160%

IV 40%

$85K

Salary grades III for Engineers

II 40% 40%

40%

$35K
MGMT 4030 - Managing Employee Reward Systems