10 20 40 sO 70 Welcome to Asession on Defining internal Alignment What is meant by internal alignment? Internal consistency, often called internal equity, refers to the pay relationships among ferent jobs/ skills/ competencies within a single organization. The relationships form a pay structure that should support the organization strategy, support the work flow, be fair to employee, and motivate behavior toward organization objectives. What are the issue addressed in internal alignment? What are the issue addressed in internal alignment? "Internal alignment addresses the relationships inside the organization "Internal alignment addresses the logic underlying relationship between pay and responsibilities ‘It addresses how the responsibilities and pay of different categories of persons employed in the organization What is meant by pay structure? pay structure refers to the array of pay rates for different work or skills within a single ‘organization. It focuses attention on the number of levels, differentials in pay between levels, and the criteria used to determine those differences describing pay structure. What are the objectives of internal realignment? * Supporting organization strategy = Supporting work flow * Supporting fairness * Motivating behavior What is meant by organization strategy? Fundamentally, organizations exist for a purpose (profit, not for profit, government agencies, and so on). The organization's strategy tells how it plans to achieve its purpose. Internal structures that are aligned with a strategy help achieve it. It is to be noted that internal pay structure may have been aligned with the business strategy of a firm, but the employee dissatisfaction may raise concerns about its fairness to employees. What is meant by 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. Two approaches are pursued in a pharmaceutical company: + Traditional approach: hawking a specific drug and giving out free samples + Nontraditional approach: cross functional team responsible for a distinct area that provides a relationship building approach to selling products.8C] What is meant by fairness in pay structure? , : i be fair if it is based on the work * An internally aligned pay structure is deemed to i Work and the skills required to perform the work and if people have an opportunity to be involved in some way in determining the pay structure. 91} Justice and Equity theory 107) What are the main sources of fairness? Historically, equity theory focused on distributive justice or the perceived fairness of the amount and allocation of rewards among individuals, Equity theory also takes into account Procedural justice the perceived faimess of the process used to determine the distribution of rewards, Increasingly equity is thought of from the standpoint of organizational justice, which is defined as an overall perception of what is fair in the workplace. A recent addition to research on organizational justice is interactional justice, which is an individual's perception of the degree to which one is treated with dignity, concern, and respect. 11.4) What is meant by procedural and distributive justice? Applied to internal structures, procedural justice addresses how design and administration decisions are made and whether procedures are applied in a consistent manner. Distributive justice addresses whether the actual internal pay differences ‘among employees are reasonable, 12) When are pay procedures more likely to be perceived as fair? * Pay procedures are more likely to be perceived as fair: "If they are consistently applied to all employee ‘If employees participated in the process “If appeals procedures are included ‘"If the data used are accurate 13 How does pay structure help motivate behavior? Pay increases for promotions * Bigger title * More challenging work The structure ought to make clear the relationship between each job and the organization's objectives, 14171 How can define internal pay structure? An internal pay structure can be defined by: = Number of levels of work (more hierarchical with multiple levels; others compressed with16 vo wo wo ao 2a 5/25/2014 few levels) “The pay differentials between the levels "The criter i 4 * Used fo determine those levels and differentials at Is meant by the term pay differenthats? ‘The pay differences amon 1g levels are ref knowledge or skills is perfor pia to as differentials, Work that requires more value is usually paid more. med under unpleasant working condition, and adds more ‘What are he criteria used to levels and differentials? Content and value *Job and person based structures What is meant by content and value? * Content refers to the work performed in a job and how it gets done (tasks, behaviors, knowledge required, etc), while value refers to the worth of the work: its relative contribution to the organization objectives. * A structure based on content typically ranks jobs based on skills required, complexity of tasks and responsibilities. What is meant by value? * Value refers to the worth of the work: its relative contribution to the organization objectives, A structure based on the value of the work focuses on the relative contribution of the skills, tasks, and responsibilities of a job to the organization's goals. ‘What are the concept used in measuring value? the concept use value and exchange value are used in measuring the value. = Use value reflects the value of goods and services an employee produces in a job, while exchange value is whatever wage the employer and employee agree on for a job. What are the concept used in measuring value? «The exchange value varies. Although for promotions, IBM treats some jobs as being at tie same level in the structure, but the competitive practices and markets yields different pay rates. 7 «The difference between exchange value and use value surfaces when one firm acquires another. ae What are job based and person based structures ee +A job based structure relies on the work content tasks, behaviors, responsibilities. *A person based structure shifts the focus to the employee: the skills, knowledge, or competencies the employee possesses, whether or not they are used in the employee's particular job. What shapes internal pay structure? + The major factors shaping internal structures may be classified into two categories: :ao “uo 30 2 70 23 1] What is culture and its effect on pay structure? ani + External factors Organizational factors Exhibit 3.4 What are various economic pressures? Economic market forces (Adam smith) = Marxism * Marginal productivity theory Supply and demand for labor Supply and demand for goods and services What are government policies and laws? * Constitution of the country * Minimum wages legislation * Equal employment opportunity law *Government directives Who are external stakeholders influencing pay structure? * Labor unions * Political groups Managerial personnel What is culture and its effect on pay structure? Culture is the mental programing for processing information that people share in common. Shared mind sets may judge what size pay differential is fair. Plato - 4 times Aristotle ~5 time "Franklin Roosevelt proposed a maximum wage: a 100 percent tax on all income above 10 times the minimum wage. * Japan — seniority in internal pay structures * Presently emphasis is laid on performance and downplaying seniority What are the components of organization's human capital and their impact on pay. ‘structure? Human capital the education, experience, knowledge, abilities and skills that people possess is a major influence on internal structures. ‘The stronger the link between the skills and experience a person possesses and organization's objectives, the more pay those skills will command, i5/25/2014 20] What are the changes occurring that affect pay structure? : icture’ Employment of non-employees (outsourcing) Contractor or temporary worker su accountants, MIS, and operation plier (security guards, software engineers, *Delayering. 31) What is meant by internal labor market? + Internal lab aise Te omits refer to the rules and procedures that determine the pay for the ‘obs Jobs within a single organization and allocate employees among those different 320) Exhibit 3.5 What are the strategic choices in designing internal structure? “Tailored verses loosely coupled * Egalitarian versus hierarchical 34 CJ Tailored versus loosely coupled “Tailored structure: A closely tailored structure is one in which jobs are well defined with detailed tasks to follow. This is applicable to a situation of low cost , customer focused strategy. * Loosely coupled structure: A loosely coupled structure is used in an enterprise that requires constant product innovation and short product design to market cycle time and needs to accommodate flexibility Its pay structures are closely linked to the strategy of the organization in order to facilitate constant change. Egalitarian versus hierarchical * Egalitarian structure: An egalitarian structure is characterized by fewer levels, smaller differentials between adjacent level and between the highest and lowest paid workers. An egalitarian structure sends the message that all employees are valued equally. «Hierarchical structure: A hierarchical structure is one that is characterized by larger umber of levels, large pay differentials and focus on individual performance. ‘ 36 (2) Exhibit 3.6: 37 a What are the findings of various research studies on the effects of structures? 38 (2) Exhibit 3.10: s 39(C] What are the findings of various research studies on the effects of structure? Equity theory: Employees judge the equity oftheir pay by comparing the work, qualifications, and pay for jobs similar to their, However, very little research addresses the question of what specific factors influence employees’ perceptions of the equity or fairness of the pay structure , as opposed to the equity or fairness of the amount of pay. Consequently, equity theory could support both egalitarian and hierarchical structure. 40) What are the findings of various research studies on the effects of structure?he pay differential, harde, the greater tl roel the next level of the Tournament theory: The essence of the theory tate 1 people will work, Within limits, the bigger a eo in structure, the greater the motivational impa: 2 enna i ses wit tion i ‘hows that giving larger raises with a promotion effort an ae pee thes Find that performance improves with larger differentials at the top levels of the structure. cts of structure? 4112] What are the findings of various research studies on the effes for getting to the next level, the ‘According to the tournament It then follows that, within limits, the bigger the price jer then employees in layered greater the motivational impact the structure will have. model, employees in de layered structure will work hard structure. ao Institutional model: An institutional model is one that is based on copying what others are doing, The institutional model predicts that very few firms are “first movers", rather, they copy innovative practices after innovators learn whether practices work. The copiers have little concern for best fit, opting instead for best practice. 43[C] What are the consequences of an internally aligned structure? 44.2 Exhibit 3.8 : Consequences of an internally aligned structure Pay structure 45] Which structure fits best in which situation? The situations where a given structure fits best are given below: * More hierarchical structures are related to greater performance when the work flow depends on individual contributions (e.g, consulting and law practices, surgical units, stockbrokers, even university researchers). 461) Which structure fits best in which situation? + More egalitarian structures are related to greater performance when close collaboration » and sharing of knowledge are required (e., firefighting design teams). The competition fostered in the “winner-take-all* tournament hierarchies appears to have negative effects (on performance when the work flow and organization design require teamwork. «Structures that are not aligned with the work flow appear to be related to greater turnover. 47 Thank you for : Attending the session j ,