Internal Alignment Dr. Jeanne Michalski

Hay Group/Fortune Magazine Study Most admired companies (MAC)  Survey of C-suite executives, directors and industry analysts  Focus on HOW these companies achieved better return on their investment for their reward programs  Researched how MACs design, execute, and evaluate their rewards programs  Found 6 areas where MACs excel

Six Areas of Excellence in Reward Program Effectiveness  Focus on excellent execution  Align reward programs with organization goals, strategy and culture  Promote a total reward view – leveraging intangible rewards  Develop talent from within resulting in lower base salaries  Leverage manager’s skills in implementation  Reinforce HR’s role to help managers put reward programs in action

How important is design?  Impressive design is not why rewards programs generally work well  Key is how well the reward program is put into action and sustained by the organization  Reward programs that align with business goals and are well communicated create a line of sight between pay and performance in the minds of the employee

Compensation Strategy: Internal Alignment  Supports organization strategy  Supports work flow Work flow – process by which goods and services are delivered to the customer Work flow – process by which goods and services are delivered to the customer  Motivates behavior Line-of-sight Line-of-sight Structure must be fair to employees Structure must be fair to employees

Design of Work Systems  Job Specialization Based on Frederick Taylor’s Scientific Management Based on Frederick Taylor’s Scientific Management Creates jobs with very narrow task (activity) assignments. Creates jobs with very narrow task (activity) assignments. Resulted in high efficiency, quickly achieved job competency, low training costs, but also created monotonous jobs. Resulted in high efficiency, quickly achieved job competency, low training costs, but also created monotonous jobs.OR  Job Enhancement Started with Hawthorne Experiments Started with Hawthorne Experiments Increasing the amount of responsibility for quality and productivity that employees have for their own work. Increasing the amount of responsibility for quality and productivity that employees have for their own work.

Job Design  Job Enrichment (Herzberg) “Vertical Enrichment” of jobs “Vertical Enrichment” of jobs Increasing duties and responsibilities Increasing duties and responsibilities  Job Characteristics Model (Hackman & Oldham) Five characteristics of motivating jobs Five characteristics of motivating jobs

Job Enrichment Factors  Increasing the level of difficulty and responsibility of the job  Allowing employees to retain more authority and control over work outcomes  Providing unit or individual job performance reports directly to employees  Adding new tasks to the job that require training and growth  Assigning individuals specific tasks, enabling them to use their particular competencies or skills

Job Characteristics  Job Characteristics Model (Hackman and Oldham) Job design theory that purports that three psychological states (experiencing meaningfulness of the work performed, responsibility for work outcomes, and knowledge of the results of the work performed) of a jobholder result in improved work performance, internal motivation, and lower absenteeism and turnover. Job design theory that purports that three psychological states (experiencing meaningfulness of the work performed, responsibility for work outcomes, and knowledge of the results of the work performed) of a jobholder result in improved work performance, internal motivation, and lower absenteeism and turnover.

Five Core Job Characteristics  Skill variety  Task identity  Task significance  Autonomy  Feedback

Five Core Job Characteristics  Skill variety The extent to which the work allows an employee to use a variety of acquired skills. The extent to which the work allows an employee to use a variety of acquired skills.  Task identity The extent to which work allows an employee to complete a whole or identifiable piece of work. The extent to which work allows an employee to complete a whole or identifiable piece of work.  Task significance The extent to which the employee perceives that his/her work is important and meaningful to those in the organization or to those outside the organization. The extent to which the employee perceives that his/her work is important and meaningful to those in the organization or to those outside the organization.  Autonomy The extent to which the employee is able to work and determine work procedure at her/his own discretion.  Feedback The extent to which the work allows the employee to gain a sense of how well job responsibilities are being met.

Job Characteristics Model  Job Characteristics Skill variety Skill variety Task identity Task identity Task significance Task significance Autonomy Autonomy Feedback Feedback  Psychological States Meaningfulness of the work performed Meaningfulness of the work performed Responsibility for work outcomes Responsibility for work outcomes Knowledge of the results of the work performed. Knowledge of the results of the work performed. Job OutcomesJob Outcomes  Improved work performance  Increased Internal motivation  Lower absenteeism and turnover

Job Characteristics and Reengineering at GTE Job Enrichment Components PrePost Feedback * Autonomy * Task Identity * Skill Variety * Task Significance * Overall Job Enrichment * * Indicates a statistically significant difference between ratings of job before and after Process Re-engineering

Job Characteristics Survey Items  I have autonomy in my job. That is my job permits me to decide on my own how to go about doing the work.  My job involves doing a whole and identifiable piece of work. That is, the job is a complete piece of work that has an obvious beginning and end.  There is variety in my job. That is, the job requires me to do many things at work, using a variety of my skills and talents.  In general, my job is significant or important. That is, the results of my work are likely to significantly affect the lives and wellbeing of other people.  Managers or co-workers let me know well I am doing my job.

Next Logical Analysis?

Multiple Pay Structures  Factors to Consider Job Diversity Job Diversity Grading Procedure Grading Procedure Internal Equity vs. External Competitiveness Internal Equity vs. External Competitiveness Company Culture – different pay targets based on type of work, clerical, managerial, executive Company Culture – different pay targets based on type of work, clerical, managerial, executive Company Business Goals and Philosophy Company Business Goals and Philosophy

Job Diversity  Jobs can vary by Functional Area and extent to which one functional area has “hot skills”  Jobs can vary by level GE’s managerial/Professional levels or Lockheed Martin’s engineering levels May have one structure for administrative support and another for supervisory/professional levels May have one structure for administrative support and another for supervisory/professional levels

Grading Procedure  Examples of structure difference due to grading procedures: Union-negotiated production jobs may be in an automatic step-rate structure Union-negotiated production jobs may be in an automatic step-rate structure Hourly office jobs may be evaluated using a point- factor plan Hourly office jobs may be evaluated using a point- factor plan Management jobs may be evaluated using a market- driven approach Management jobs may be evaluated using a market- driven approach

Business Goals  Compensation Philosophy  Geography  Business Units  Career development and promotional opportunities

Class Discussion Company has recently merged independent business units who operated in different geographic regions of the country. Company has recently merged independent business units who operated in different geographic regions of the country. Past practice was to set salary levels and pay structure against regional market prices. Past practice was to set salary levels and pay structure against regional market prices. Should the newly combined organization establish a national pay structure or continue regional differences? Should the newly combined organization establish a national pay structure or continue regional differences? What are the pitfalls of each of these approaches? What are the pitfalls of each of these approaches?

Example of Structures Salar y Band Minimu m Midpoin t Maximu m 5$43,200$57,000$72,000 6$48,700$65,000$81,200 7$55,000$73,400$91,700 Salar y Band Minimu m Midpoin t Maximu m 5$40,600$54,100$67,600 6$46,300$61,700$77,200 7$52,300$69,700$87,100 Salar y Band Minimu m Midpoin t Maximu m 5$46,200$61,600$77,000 6$52,700$70,200$87,800 7$59,500$79,300$99,100 Salar y Band Minimu m Midpoin t Maximu m 5$43,200$57,000$72,000 6$48,700$65,000$81,200 7$55,000$73,400$91,700 Midwestern South California National