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Module Objectives

Readings

Activities and Evaluations

Defining Internal Alignment

Compensation Strategy: Internal Equity

An internally consistent pay structure is one that supports the organization’s internal pay structure and
is perceived as equitable when pay rates for different jobs are compared. It is called Internal Equity and
functions to:

1. Support Organization Strategy: Internal job structures need to be aligned in order to accomplish
the goals and objectives set out in the Strategy;

2. Support Workflow: An appropriate number of levels and pay differentials for different work or
skills create a pay structure that supports an efficient work flow

3. Motivate Behaviour: through additional pay for promotions, increased responsibility and more
challenging work. Each job should make clear the relationship between the work and the
organization’s objectives.

Line of Sight enables employees to see their work in relation to others, offering greater transparency.

Structures Vary Between Organizations

An Internal Pay Structure contains:

1. The number of levels of work

2. The pay differentials between the levels

3. The criteria used to determine the levels and differentials

Levels reflect the overall hierarchy of the flow of work in the organization. It is important to note both
the number of levels and the reporting relationships.

Differentials. 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.

Criteria: Content and Value. Work content and value generally form the basis for determining internal
structure. Content refers to the work performed in a job and how it gets done (tasks, behaviour,
knowledge). Value refers to the worth of the work; its relative merit based on the skills required,
complexity of tasks and/or responsibility.
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Job and Person Based Structures: A job based structure looks at work content; tasks, behaviour and
responsibility; a person based structure puts the emphasis on the employee and looks at skills,
knowledge or competencies the employee possesses (more to come on this item; it has major cost
implications!!!!).

Factors that Shape Internal Inequality

External Factors: Economic pressures (supply of labour and MPL); government policies, laws, regulations
(OHRC, Ontario Pay Equity legislation); stakeholders (unions); cultures and customs (mental
programming that form a judgement of what is fair).

Organizational Factors:

 Strategy (the belief that if the pay structure is not aligned with strategy then it is an obstacle to
success);

 Technology (influences the organization design and skill and knowledge to do the work);

 Human Capital (such as education, experience, knowledge, skills and abilities);

 HR Policy (the amount of pay allocated for promotions and the nature of promotions; lateral,
development and greater responsibilities; policies and procedures for internal hiring and
promotions);

 Employee Acceptance (distributive and procedural justice)

o Distributive Justice: the fairness of decision outcomes. For example: whether the
financial resources were divided fairly

o Procedural Fairness: how decisions about compensation are made;

 Cost Implications (the number of levels and the differentials in the structure impact cost)

Strategic Choices in Designing Internal Structures

Tailored vs Loosely Coupled Structure: A Tailored Structure is a pay structure that is well defined with
relatively small differences in pay; A Loosely Coupled Structure occurs when the pay structure for jobs is
flexible, adaptable and changing.

Hierarchical vs Egalitarian: A Hierarchical pay structure has large differentials between levels that are
linked with the organizational chart. An Egalitarian structure operates on the belief that all employees
should be treated equally in terms of pay so fewer levels, less hierarchy and small pay differentials.

Summary
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1. Internal Equity refers to the pay relationships between jobs, skills and competences within a
single organization. The relationships form a structure that supports organizational strategy,
workflow, and motivates employee behaviour.

2. The Three Factors that determine how internal pay structures are designed are:

1. The number of levels of work;

2. The pay differentials between the levels; and

3. The criteria used to determine these levels and differentials.

3. The Factors that Shape Internal Pay Structures are External Factors, such as economic,
governmental and cultural and Organizational Factors such as strategy, human capital, work
design and employee acceptance.

4. The two Strategic Choices involved in designing internal pay structures are tailored vs loosely
coupled and egalitarian vs hierarchical.

5. The three theoretical approaches used to determine which pay structure is best for an
organization include Equity Theory, Tournament Theory and the Institutional Model:

1. Equity Theory focuses on how employees compare their work, qualifications and pay vs
those of others.

2. Tournament theory suggests that the greater the differences between salaries in the
structure the harder employees will work.

3. Institutional theory suggests that organizations need to copy the BEST PRACTICES OF
OTHERS.

Job Analysis

Job Analysis is key to developing job descriptions and job evaluations. The benefit of traditional job
analysis is that it provides the basis for defendable job-related decisions, and establishes a foundation
for career paths. However, the process and results are sometimes considered rigid by today’s more
flexible organizations with fluid work assignments.

Job Analysis has two critical uses:

1. It establishes similarities and differences in the content of jobs.

2. It helps establish an internally fair and aligned job structure.

Major Decisions in Job Analysis ask the following questions:

1. Why perform job analysis?

2. What information is needed?

3. How do you collect the information?

4. Who should be involved?

5. How useful are the results?

Structures Based on Jobs, People or Both

The process begins by looking at the employee at work.

Job-based structures, which are most common, look at the tasks and accountabilities of the job while
skill and competency-based structures look at the person.

Five Process Steps to build job or person-based structures:

1. Collect and summarize information that identifies similarities and differences,

2. Determine what is to be valued about the job,

3. Quantify the relative value,

4. Translate relative value into an internal structure, and

5. Translate relative value of jobs in an internal structure.

Summary

Job Analysis is the systematic process of collecting information about the nature of specific jobs. Job
analysis data are used in virtually every major HR function including recruitment and selection, training,
compensation and others.

There are six steps in the job analysis process:

1. Develop preliminary job information.

2. Conduct an initial tour of the work site.

3. Conduct interviews. Information collected include job identification data, job content data,
information on qualifications to do the job. Job content is the HEART of job analysis and
includes the tasks involved, their purpose, reporting relationships, working conditions, and other
specific job information. Conventional methods of collecting job analysis data such as
questionnaires and interviews are often replaced by online questionnaires because the latter are
more objective and less time consuming.

4. Conduct a second tour of the work site.

5. Consolidate the job information. Job descriptions provide a written summary of a job, including
responsibilities, qualifications, and relationships. Job specifications are the qualifications
required to be hired for a job, and may be included in the job description.
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6. Verify the job description. Job analysis can be judged based on reliability (consistency) of the
information obtained, validity (accuracy) of the information obtained, acceptability of the data
and the process by employees and managers and practicality (usefulness) of the information.

Additional Instructor Comments

Internal Alignment, often called Internal Equity, refers to the pay relationships between
jobs/skills/competencies within a single organization. The relationships form a pay structure that
support the workflow, is fair to employees, and directs their behaviour to organizational goals.

Job Analysis is a comprehensive process while Job Evaluation (covered in Module 6 of the course) is a
comparative process. Job Analysis is done to develop a job description, while Job Evaluation is a
systematic way of determining the value/worth of a job in relation to other jobs in an organization.