Internal AlignmentInternal Alignment

Dr. Jeanne MichalskiDr. Jeanne Michalski

Hay Group/Fortune Magazine Hay Group/Fortune Magazine StudyStudy

Most admired companies (MAC)Most admired companies (MAC) Survey of C-suite executives, directors and Survey of C-suite executives, directors and

industry analystsindustry analysts Focus on HOW these companies achieved Focus on HOW these companies achieved

better return on their investment for their better return on their investment for their reward programsreward programs

Researched how MACs design, execute, Researched how MACs design, execute, and evaluate their rewards programsand evaluate their rewards programs

Found 6 areas where MACs excelFound 6 areas where MACs excel

Six Areas of Excellence in Six Areas of Excellence in Reward Program EffectivenessReward Program Effectiveness

Focus on excellent executionFocus on excellent execution Align reward programs with organization Align reward programs with organization

goals, strategy and culturegoals, strategy and culture Promote a total reward view – leveraging Promote a total reward view – leveraging

intangible rewardsintangible rewards Develop talent from within resulting in Develop talent from within resulting in

lower base salarieslower base salaries Leverage manager’s skills in Leverage manager’s skills in

implementationimplementation Reinforce HR’s role to help managers put Reinforce HR’s role to help managers put

reward programs in actionreward programs in action

How important is design?How important is design?

Impressive design is not why rewards Impressive design is not why rewards programs generally work wellprograms generally work well

Key is how well the reward program is put Key is how well the reward program is put into action and sustained by the into action and sustained by the organizationorganization

Reward programs that align with business Reward programs that align with business goals and are well communicated create a goals and are well communicated create a line of sight between pay and performance line of sight between pay and performance in the minds of the employeein the minds of the employee

Compensation Strategy:Compensation Strategy:Internal AlignmentInternal Alignment

Supports organization strategySupports organization strategy Supports work flowSupports work flow

Work flow – process by which goods and Work flow – process by which goods and services are delivered to the customerservices are delivered to the customer

Motivates behaviorMotivates behavior Line-of-sightLine-of-sight Structure must be fair to employeesStructure must be fair to employees

Design of Work SystemsDesign of Work Systems

Job Specialization Job Specialization Based on Frederick Taylor’s Scientific ManagementBased 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 Resulted in high efficiency, quickly achieved job

competency, low training costs, but also created competency, low training costs, but also created monotonous jobs.monotonous jobs.

OROR Job EnhancementJob Enhancement

Started with Hawthorne ExperimentsStarted with Hawthorne Experiments Increasing the amount of responsibility for quality and Increasing the amount of responsibility for quality and

productivity that employees have for their own work.productivity that employees have for their own work.

Job DesignJob Design

Job Enrichment (Herzberg)Job Enrichment (Herzberg) ““Vertical Enrichment” of jobsVertical Enrichment” of jobs Increasing duties and responsibilitiesIncreasing duties and responsibilities

Job Characteristics Model (Hackman & Job Characteristics Model (Hackman & Oldham)Oldham)

Five characteristics of motivating jobsFive characteristics of motivating jobs

Job Enrichment FactorsJob Enrichment Factors Increasing the level of difficulty and responsibility Increasing the level of difficulty and responsibility

of the jobof the job Allowing employees to retain more authority and Allowing employees to retain more authority and

control over work outcomescontrol over work outcomes Providing unit or individual job performance Providing unit or individual job performance

reports directly to employeesreports directly to employees Adding new tasks to the job that require training Adding new tasks to the job that require training

and growthand growth Assigning individuals specific tasks, enabling Assigning individuals specific tasks, enabling

them to use their particular competencies or skillsthem to use their particular competencies or skills

Job CharacteristicsJob Characteristics

Job Characteristics ModelJob Characteristics Model(Hackman and Oldham)(Hackman and Oldham)

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

Five Core Job CharacteristicsFive Core Job Characteristics

Skill varietySkill variety

Task identityTask identity

Task significanceTask significance

AutonomyAutonomy

FeedbackFeedback

Five Core Job CharacteristicsFive Core Job Characteristics Skill varietySkill variety

The extent to which the work The extent to which the work allows an employee to use a allows an employee to use a variety of acquired skills.variety of acquired skills.

Task identityTask identity The extent to which work allows The extent to which work allows an employee to complete a whole an employee to complete a whole or identifiable piece of work.or identifiable piece of work.

Task significanceTask significance The extent to which the The extent to which the employee perceives that his/her employee perceives that his/her work is important and meaningful work is important and meaningful to those in the organization or to to those in the organization or to those outside the organization.those outside the organization.

AutonomyAutonomy The extent to which the The extent to which the employee is able to work and employee is able to work and determine work procedure at determine work procedure at her/his own discretion.her/his own discretion.

FeedbackFeedback The extent to which the work The extent to which the work allows the employee to gain allows the employee to gain a sense of how well job a sense of how well job responsibilities are being responsibilities are being met.met.

Job Characteristics ModelJob Characteristics Model Job Job

CharacteristicCharacteristicss

Skill varietySkill variety Task Task

identityidentity Task Task

significancesignificance AutonomyAutonomy FeedbackFeedback

PsychologicalPsychologicalStatesStates

MeaningfulneMeaningfulness of the work ss of the work performedperformed

Responsibility Responsibility for work for work outcomesoutcomes

Knowledge of Knowledge of the results of the results of the work the work performed.performed.

• JobJobOutcomesOutcomes Improved Improved

work work performanceperformance

Increased Increased Internal Internal motivationmotivation

Lower Lower absenteeism absenteeism and turnoverand turnover

Job Characteristics and Job Characteristics and Reengineering at GTEReengineering at GTE

Job Enrichment Components

Pre Post

Feedback 5.13 5.39*

Autonomy 5.04 6.00*

Task Identity 5.24 5.47*

Skill Variety 5.44 5.89*

Task Significance

5.67 6.10*

Overall Job Enrichment

5.46 5.90*

* Indicates a statistically significant difference between ratings of job before and after Process Re-engineering

Job Characteristics Survey Job Characteristics Survey ItemsItems

I have autonomy in my job. That is my job permits I have autonomy in my job. That is my job permits me to decide me to decide on my own on my own how to go about doing the how to go about doing the work.work.

My job involves doing a My job involves doing a whole and identifiable piece whole and identifiable piece of work.of work. That is, the job is a complete piece of work That is, the job is a complete piece of work that has an obvious beginning and end.that has an obvious beginning and end.

There is There is varietyvariety in my job. That is, the job requires in my job. That is, the job requires me to do many things at work, using a variety of my me to do many things at work, using a variety of my skills and talents.skills and talents.

In general, my job is In general, my job is significant or importantsignificant or important. That is, . That is, the results of my work are likely to significantly affect the results of my work are likely to significantly affect the lives and wellbeing of other people.the lives and wellbeing of other people.

Managers or co-workers Managers or co-workers let me know well I am doing let me know well I am doing my job.my job.

Next Logical Analysis?Next Logical Analysis?

Multiple Pay StructuresMultiple Pay Structures

Factors to ConsiderFactors to Consider Job DiversityJob Diversity Grading ProcedureGrading Procedure Internal Equity vs. External CompetitivenessInternal Equity vs. External Competitiveness Company Culture – different pay targets based Company Culture – different pay targets based

on type of work, clerical, managerial, executiveon type of work, clerical, managerial, executive Company Business Goals and PhilosophyCompany Business Goals and Philosophy

Job DiversityJob Diversity

Jobs can vary by Functional Area and Jobs can vary by Functional Area and extent to which one functional area has extent to which one functional area has “hot skills”“hot skills”

Jobs can vary by level GE’s Jobs can vary by level GE’s managerial/Professional levels or managerial/Professional levels or Lockheed Martin’s engineering levelsLockheed Martin’s engineering levels

May have one structure for administrative May have one structure for administrative support and another for support and another for supervisory/professional levelssupervisory/professional levels

Grading ProcedureGrading Procedure

Examples of structure difference due to Examples of structure difference due to grading procedures:grading procedures:

Union-negotiated production jobs may be in an Union-negotiated production jobs may be in an automatic step-rate structureautomatic step-rate structure

Hourly office jobs may be evaluated using a Hourly office jobs may be evaluated using a point-factor planpoint-factor plan

Management jobs may be evaluated using a Management jobs may be evaluated using a market-driven approachmarket-driven approach

Business GoalsBusiness Goals

Compensation PhilosophyCompensation Philosophy GeographyGeography Business UnitsBusiness Units Career development and promotional Career development and promotional

opportunitiesopportunities

Class DiscussionClass Discussion

Company has recently merged independent Company has recently merged independent business units who operated in different business units who operated in different geographic regions of the country.geographic regions of the country.

Past practice was to set salary levels and pay Past practice was to set salary levels and pay structure against regional market prices.structure against regional market prices.

Should the newly combined organization Should the newly combined organization establish a national pay structure or continue establish a national pay structure or continue regional differences?regional differences?

What are the pitfalls of each of these What are the pitfalls of each of these approaches?approaches?

Example of StructuresExample of Structures

Salary

Band

Minimum

Midpoint

Maximum

5 $43,200 $57,000 $72,000

6 $48,700 $65,000 $81,200

7 $55,000 $73,400 $91,700

Salary

Band

Minimum

Midpoint

Maximum

5 $40,600 $54,100 $67,600

6 $46,300 $61,700 $77,200

7 $52,300 $69,700 $87,100

Salary

Band

Minimum

Midpoint

Maximum

5 $46,200 $61,600 $77,000

6 $52,700 $70,200 $87,800

7 $59,500 $79,300 $99,100

Salary

Band

Minimum

Midpoint

Maximum

5 $43,200 $57,000 $72,000

6 $48,700 $65,000 $81,200

7 $55,000 $73,400 $91,700

MidwesternMidwestern SouthSouth

CaliforniaCalifornia NationalNational