Individual Performance, Competence, and Skills-Based Pay PDF

CHAPTER 5 INDIVIDUAL PERFORMANCE-, COMPETENCE- AND SKILLS-BASED PAY 5.1 Definitions of, rea...

CHAPTER 5 INDIVIDUAL PERFORMANCE-, COMPETENCE- AND SKILLS-BASED PAY 5.1 Definitions of, reasons for, and objectives of performance-related pay Performance-related pay (PRP) is pay that varies depending on individual, team or organisation performance. This section focuses on individual PRP, while the next section focuses on team rewards (variable pay and choosing the right incentive scheme). High performance is a standard we strive for in all of life’s activities. It implies doing a difficult thing well, whether personal or professional, and it often commands admiration and reaps rewards. PRP which applies to individuals is associated with salary structures, grades and a performance and/or competence rating. This differs from incentive schemes, which are team- or organisation-based, as these schemes are normally formula-driven and the payments are once-off. In individual PRP schemes, a managerial rating often translates into the size of a pay increase relative to the “purse” that is available. The differences between team and individual PRP can be summarised as shown in Table 5.1. Table 5.1: Individual PRP versus team PRP Individual PRP Team PRP 1. Usually associated with managerial assessment 1. Typically formula driven of performance and/or competence 2. Payment is often in the form of a pay increase 2. Payments are usually once-off and are not Copyright © 2019. Knowledge Resources. All rights reserved. and is pensionable pensionable 3. Payments are mostly annual 3. Payments can vary from monthly to every three years Companies implement PRP for a variety of different reasons, but the most common objectives are to strengthen the relationship between performance and reward, drive organisation strategy implementation to individual level, retain top performers by rewarding them for sustained superior performance, send a clear message to non-performers (which is usually accompanied by counselling and/or training), instil a performance culture into the organisation, facilitate and necessitate performance contracting, resulting in performance reviews and assessments, link the 67 Bussin, Mark. Remuneration Handbook : Fourth Updated Edition, Knowledge Resources, 2019. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/nmmu/detail.action?docID=5987178. Created from nmmu on 2023-08-02 16:36:44.  The Remuneration Handbook for Africa onerous salary and wage bill to the fortunes of the business, and differentiate reward levels in a defensible manner. Research conducted by several major international organisations shows that those organisations that have well-developed PRP and performance management systems outperform their competitors on almost every measure. 5.2 The mechanics of PRP PRP is mostly driven by a performance management system, where a higher performance appraisal score leads to a bigger increase. 5.2.1 Categories of performance management systems The main categories of performance management systems are summarised in Table 5.2. There are, of course, many others, some of which form subsets of these main categories. Table 5.2: Main categories of performance management systems Type of system Brief description Traditional Usually have 10 to 20 pre-determined factors which are generic and apply to all positions. These are rated by the manager on a rating scale, for example, 1 to 5 or 1 to 10. Output driven Individual outputs or outcomes are agreed on each year and are position- specific. Rating is usually on a “hit-or-miss” basis, whether the outcome has been achieved or not, and is typically rated by the customer (internal or external). 360° Also has pre-determined factors which are generic and apply to all positions. The rating, however, is done by subordinates, peers and managers. These systems are often computer-based to cope with the administrative requirements of several raters. Copyright © 2019. Knowledge Resources. All rights reserved. Balanced Scorecard Measures are devised typically for companies or SBUs, under the four main headings of financial, customers, learning and growth, and internal business processes. These can then be cascaded down to departments and individuals. 5.2.2 Application of reward or merit matrices Once we have scores for each individual, or for the team (typically at lower levels), reward or merit matrices are applied to the scores. An example of a one-dimensional matrix is shown in Table 5.3. 68 Bussin, Mark. Remuneration Handbook : Fourth Updated Edition, Knowledge Resources, 2019. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/nmmu/detail.action?docID=5987178. Created from nmmu on 2023-08-02 16:36:44.  Chapter 5: Individual performance-, competence- and skills-based pay Table 5.3: One-dimensional merit matrix Scale Performance description Reward implication point 5 Far exceeds job requirements. The employee’s Deserving of a special reward or performance is visibly outstanding on a sustained merit increase. basis and far exceeds the requirements set. Tangible evidence exists of the employee’s ongoing achievements. 4 Exceeds job requirements. The employee’s Should receive an above-average performance exceeds the requirements set. Tangible increase. evidence exists of the employee’s achievements. 3 Meets job requirements. The employee’s performance Deserving of the percentage meets the requirements set. increment top management sets for the organisation in general. 2 Meets some job requirements. Requires further Should receive a restricted increase, development. The employee’s performance does not lower than the average increase. yet meet all of the requirements set. Some evidence exists of the employee’s competence. 1 Below job requirements. The employee’s performance An increase should not be given, or is below the standard requirements set. Little or no only a very small one. evidence exists of the employee’s competence. Naturally, it could be very costly to the organisation if nearly all employees scored a five. For this to be the case, there would probably be an unusual circumstance surrounding this level of all-round outstanding performance. It would be more usual for the scores to be more evenly distributed among the five point scales. Table 5.4 serves only as a guideline to be used by management in respect of how many people should fall into each category. Top management may allow deviations from this in line with exceptional or unusual circumstances, especially if a specific department has done particularly well. This may or may not be the case for each department. Copyright © 2019. Knowledge Resources. All rights reserved. 69 Bussin, Mark. Remuneration Handbook : Fourth Updated Edition, Knowledge Resources, 2019. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/nmmu/detail.action?docID=5987178. Created from nmmu on 2023-08-02 16:36:44.  The Remuneration Handbook for Africa Table 5.4: Total performance rating distributions Description Desired distribution Far exceeds job requirements (5) Less than 10% Exceeds job requirements (4) Around 20% Meets job requirements (3) Around 40% Meets some job requirements (2) Around 20% Below job requirements (1) Less than 10% It cannot be over-stressed that this is merely management information, and is to be used as a guideline to managing raters who are considered to be more or less lenient. If one is using software, the actual distribution is calculated for the organisation and this can be compared to the desired distribution. It is then possible to identify different types of raters by specific departments. 5.2.3 Annual salary adjustments The suggested steps and considerations in this procedure are the following: KPAs are weighted for their level of priority. Individual ratings are completed for all employees at least two months before the increment date. A summary of rating scores is prepared (at least one month before the increment date). A salary increase percentage is determined for the organisation as a whole. This percentage is allocated to the staff who meet the requirements set and who fall in the middle of the salary range for their grades. Suitable higher and lower percentages are calculated for employees who exceed requirements and are undergoing development to ensure that sufficient differentiation as well as the desired total salary cost increase is achieved. Lower increases will apply in the case of employees who have not met job requirements. Copyright © 2019. Knowledge Resources. All rights reserved. Flexibility will be allowed by top management in determining final increments, especially in cases of very high and very low ratings, as well as in allowing for rounding off of salary figures. Closing of salary anomalies and gaps will be built into final increments after due consultation with departmental heads. Adjustments will not be finalised without reference to salary survey data and discussion with the departmental heads. The following is a guideline as to how the procedure could be followed, assuming an overall organisational salary increase percentage of six to eight per cent. 70 Bussin, Mark. Remuneration Handbook : Fourth Updated Edition, Knowledge Resources, 2019. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/nmmu/detail.action?docID=5987178. Created from nmmu on 2023-08-02 16:36:44.  Chapter 5: Individual performance-, competence- and skills-based pay Scale point Percentage increase 5 8% and above 4 6 to 8% 3 4 to 6% 2 0 to 4% 1 0% The following remuneration review guidelines are suggested to assist with the implementation of the review: In addition to the above salary adjustment guidelines, it is important to remember that there may be a market premium on certain scarce skills in a particular area as well as on high- performing equity appointments. Employees who are not considered for salary increases, such as new appointments, should not be included in the review base. Employees who as a result of performance will not be awarded an increase must, however, be included. Earnings on equity dimensions must be monitored to ensure that an earnings gap, if any, is addressed and not widened. It is suggested that department heads complete a compa-ratio analysis (see the definition of “compa-ratio” below) before and after the review, by race and gender. It is recommended that the salaries of employees are positioned across the full spectrum of the salary scale. Employees who are below a compa-ratio of 75 and above a compa-ratio of 125 should be listed separately and commented on. 5.2.4 Definition of compa-ratio (CR) “Compa-ratio” is an abbreviation of “comparative ratio”. The compa-ratio shows the relative position of the employee in the pay range. For example, if the employee is earning R8 000 and the midpoint is R10 000, the compa-ratio is 80 (the salary is divided by the midpoint of the range and multiplied by 100). Copyright © 2019. Knowledge Resources. All rights reserved. Industry guidelines or norms indicate that an 80 compa-ratio is low and that there is a risk of losing the employee. Above 120 compa-ratios typically indicate that the employee has a scarce skill and is remunerated above the norm or that the person has consistently been an excellent performer over many years. 5.2.5 More sophisticated merit matrices A more sophisticated merit matrix has two dimensions. It shows not only the performance score, but also where an individual lies on the salary range or compa-ratio. Table 5.5 is an example of a two-dimensional performance matrix. The percentage increase to be granted is reflected in the middle of the matrix. 71 Bussin, Mark. Remuneration Handbook : Fourth Updated Edition, Knowledge Resources, 2019. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/nmmu/detail.action?docID=5987178. Created from nmmu on 2023-08-02 16:36:44.  The Remuneration Handbook for Africa Table 5.5: Two-dimensional merit matrix Performance score 1 2 3 4 5 90th percentile 0% 0% 4% 8% 12% (CR 125) Upper quartile 14% 0% 2% 6% 10% (CR 120) Median 0% 4% 8% 12% 16% (CR 100) Lower quartile 0% 6% 10% 14% 20% (CR 80) A matrix like this accelerates pay increases for top performers who are being paid at the bottom of the pay scale (or have a compa-ratio lower than 100), and decelerates poor performers’ pay increases if they are at the top of the pay scale (or have a compa-ratio over 100). There is an ongoing debate about whether or not to link performance management systems (especially 360-degree) to reward. Common reasons to avoid the link to pay and for first implementing a developmental-only process are set out in Table 5.6. Table 5.6: Reasons to avoid linking performance management systems to reward New rules Receiving feedback from multiple sources changes the rules for success. It takes employees a while to get used to the “new rules”. Competencies The competencies used for 360-degree feedback are new and different from classic evaluation criteria. Employees need the opportunity to become familiar with these new expectations before they impact performance and pay decisions. Training Participants need to be trained in performance-appraisal systems. A one-time use of 360-degree feedback as a developmental process gives everyone training in providing feedback as well as receiving it from others. Copyright © 2019. Knowledge Resources. All rights reserved. Experience Using 360-degree feedback for development only gives everyone experiential learning in the process. Experience is likely to reduce participant anxiety substantially. Refinement A first project never seems to be perfect. Participant assessment from an initial process can yield insight into which design features to change or refine. Low risk Receiving feedback from multiple sources when the results do not impact on pay lowers employee perceptions of the “riskiness” of the new process. Validation Process validation occurs when value and credibility are established among participating employees. Gaming When participating employees have less at stake, they are more likely to provide honest feedback without trying to “beat” the system in their favour. 72 Bussin, Mark. Remuneration Handbook : Fourth Updated Edition, Knowledge Resources, 2019. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/nmmu/detail.action?docID=5987178. Created from nmmu on 2023-08-02 16:36:44.  Chapter 5: Individual performance-, competence- and skills-based pay The most common practice is therefore to implement performance management that focuses on development first, and then link it to pay. 5.3 Critical success factors for PRP Strengthening the link between performance and pay is a world trend. Some of the critical success factors discussed below are obvious, but serve as a useful checklist. 5.3.1 Readiness The following questions must be asked to ensure that the organisation is ready to implement PRP: Will it fit our culture and support the organisation? Are the top executives, and especially the CEO, driving it? Has enough time been allowed for thorough communication and training on the new system? Are employees receptive to the process? Will managers “own” the process? Are employees receptive to the process? Will line managers “own” the process? Are there enough resources (HR and/or consultants) to implement and do the training? 5.3.2 The system It is necessary to ask the following questions to ensure that the system will handle the pressure and is easy to understand and administer: Do we have a robust system with good measures? Does our system support and drive our business strategy? Has the link to pay been clearly explained? Is the system easily administered? Does the system allow flexibility, especially in the link to reward? Copyright © 2019. Knowledge Resources. All rights reserved. 5.3.3 Support and maintenance It is absolutely essential to be able to answer the following questions regarding support and maintenance in the affirmative: Is there someone who will co-ordinate the implementation and drive it? Can the system be institutionalised, allowing for continuous improvements to be made to the system from year to year? There is no single best system or method, and often we allow the “paper” to hijack the process. It is more important to institutionalise the process and have meaningful performance discussions 73 Bussin, Mark. Remuneration Handbook : Fourth Updated Edition, Knowledge Resources, 2019. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/nmmu/detail.action?docID=5987178. Created from nmmu on 2023-08-02 16:36:44.  The Remuneration Handbook for Africa than to let a statement or score on a piece of paper detract from the performance review. Leaders must not use the paper as a crutch – it is an aid to what we are trying to do. 5.4 Definitions, reasons and objectives of competency-based pay (CBP) Competencies are the combination of observable, measurable skill, knowledge, performance behaviours and personal attributes that contribute to enhanced employee performance and organisational success. A competency-based reward system recognises what people accomplish at work rather than rewarding the acquisition of additional knowledge or skills. Core competencies: Communicate to employees the behaviour patterns that distinguish good from poor performance. Allow the organisation to create a competitive advantage by differentiating itself in the marketplace. Enable the organisation to achieve its goals and objectives. Some major objectives of CBP systems are to: Shift the focus from enhancing pay via job evaluation to application of competence. Emphasise what the organisation is prepared to pay for. Replace with competency milestones the sub-grades that are lost when implementing broad- banding. Lift the skills base of employees in a relatively short space of time (up to three years). Improve the “return on salary spend” by enhancing productivity and quality. Relate pay to demonstrated competence (sometimes translated as improved performance). Add value and predict success. Align reward and core values. Develop a culture of learning, growth and continuous improvement. An organisation should be very clear about why it wants to implement CBP before embarking on the restructuring process. Copyright © 2019. Knowledge Resources. All rights reserved. 5.5 The mechanics of CBP There are numerous variations in the mechanics and application of CBP, however, two main variations have developed and are described below: Organisation-wide generic competencies. Job family-specific competencies. 74 Bussin, Mark. Remuneration Handbook : Fourth Updated Edition, Knowledge Resources, 2019. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/nmmu/detail.action?docID=5987178. Created from nmmu on 2023-08-02 16:36:44.  Chapter 5: Individual performance-, competence- and skills-based pay 5.5.1 Organisation-wide generic competencies Table 5.7 is an example of a typical application. Table 5.7: Sample competency-based survey table Not Least Not a Appropriate A An applicable skilled strength skill level strength exceptional skill N 1 2 3 4 5 6 7 8 9 10 Customer service Business and individual skills Treats customers as business partners Demonstrates broad business knowledge and skills Identifies, understands and responds Acts to add value to the business appropriately to needs of customers Presents ideas simply and clearly Recognises problems and identifies underlying causes Listens actively to internal and external Makes timely decisions customers Solicits and provides constructive, honest Coaches and develops others feedback Keeps others informed Is trustworthy, open and honest Balances requests with business Visualises the present and future, and develops requirements strategies to get there Copyright © 2019. Knowledge Resources. All rights reserved. 75 Bussin, Mark. Remuneration Handbook : Fourth Updated Edition, Knowledge Resources, 2019. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/nmmu/detail.action?docID=5987178. Created from nmmu on 2023-08-02 16:36:44.  The Remuneration Handbook for Africa Teamwork Evaluation scale Supports team goals N Not applicable or not observed 1–2 Least skilled. The individual Puts interest of team ahead of self consistently fails to reach behaviour and Builds consensus and shares relevant skill expectations in this area. information 3–4 Not a strength. The individual meets some behaviour and skill expectations in Recognises and respects the contributions and this area but sometimes falls short. needs of each individual 5–6 Appropriate skill level. This individual Actively seeks involvement or uses input meets the majority of the behaviour from people with different perspectives and skills expectations in this area for Builds and maintains productive working the job. There is generally a positive relationships perspective toward responsibilities. 7–8 A strength. This individual meets most Treats others, such as protected-group and exceeds some of the behaviour and members, fairly skill expectations in this area. 9–10 An exceptional skill. This individual consistently exceeds behaviour and skill expectations in this area. 5.5.2 Job family-specific competencies These are normally written up for each job family to show career progression or milestones. They often replace sub-grades that are lost in the broad-banding process. This type of competency process is more strongly associated with broad-banding than the organisation-wide generic competencies. Table 5.8 shows a typical application. Each broad-band typically has the descriptions shown in the table. Table 5.8: Typical contribution milestones in a broad-band Milestone 4 Shapes Provides strategic leadership Promotes growth and development Copyright © 2019. Knowledge Resources. All rights reserved. Identifies and sponsors others Milestone 3 Guides Shares own expertise Develops, mentors and coaches Deals with those outside the organisation Milestone 2 Applies Demonstrates full competence/mastery in area of own work Makes significant contribution to work team Is independent, a problem-solver and/or decision-maker, works without significant direction Milestone 1 Learns Learns activities or tasks associated with own work/role Learns to work and co-operate with colleagues Depends on others for instructions, guidance and direction 76 Bussin, Mark. Remuneration Handbook : Fourth Updated Edition, Knowledge Resources, 2019. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/nmmu/detail.action?docID=5987178. Created from nmmu on 2023-08-02 16:36:44.  Chapter 5: Individual performance-, competence- and skills-based pay 5.5.3 Link to pay In both cases, as one scores higher and moves through the milestones, the pay increases. In the organisation-wide example, pay is typically tied to once-off bonuses, while in the job family example, pay is linked to and included in guaranteed remuneration. 5.6 Competency-based reward systems For the most part, using competencies in reward systems is a fairly new practice, and some novel approaches have emerged. In fact, it is virtually impossible to summarise the variety of approaches currently being utilised or pilot-tested. It is possible, however, to identify how the approaches vary and the series of choices we face in developing a CBP system. 5.6.1 Determining the starting point for the pay decision As in the design of any remuneration system, an organisation must first identify what it fundamentally wants to remunerate – the job, the role, the person or a combination thereof. Job: This is the narrowly-defined, relatively static cluster of duties and responsibilities in which the individual is employed (for example, remuneration analyst, senior remuneration analyst, recruiter, and senior recruiter). Role: This is a more dynamic cluster of frequently changing duties and responsibilities requiring broadly similar types of knowledge, skills, and abilities (for example, HR professional). Person: This refers to the cluster of attributes possessed by the individual, regardless of position assignment. Recently, a number of organisations and consulting organisations have positioned competencies as an approach to paying for the person rather than the job. While competency-based systems can be an effective mechanism for managing person-based pay, most systems still maintain the job as the fundamental basis for defining value. Competencies displayed together with actual performance Copyright © 2019. Knowledge Resources. All rights reserved. against objectives are often used as a way of determining the individual’s value in the job. 5.6.2 What should the pay structure look like? In today’s environment, more and more organisations are looking to broad-bands as the vehicle for managing pay. However, we have found competency-based systems that utilise traditional ranges, wide ranges, and broad-bands, which are defined respectively as follows: Traditional ranges: A large number of grades (approximately 18) with relatively narrow spreads from minimum to maximum (e.g. 40 per cent to 60 per cent) Wide ranges: A somewhat smaller number of grades or bands (11 to 15) with range spreads of 70 per cent to 100 per cent 77 Bussin, Mark. Remuneration Handbook : Fourth Updated Edition, Knowledge Resources, 2019. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/nmmu/detail.action?docID=5987178. Created from nmmu on 2023-08-02 16:36:44.  The Remuneration Handbook for Africa Broad-bands: Typically four to eight bands representing significant career changes, with range spreads in excess of 100 per cent at the top end Nothing about CBP would necessarily dictate one approach over another. One must consider how work is organised, the hierarchical structure of jobs within the organisation, the nature of career development, and other factors. 5.6.3 Which pay decisions should competencies influence? Competencies can influence pay decisions through a number of mechanisms: Pay opportunity by influencing the grade or band to which the individual, role, or job is assigned. Pay increase decisions by influencing the overall performance assessment. Incentive pay decisions by either determining or influencing the incentive payment calculation. While the use of competencies to influence pay decisions is becoming more widespread, we have yet to find many programmes where pay decisions are determined exclusively by competencies. More often than not, competencies are used together with other factors to determine appropriate pay. 5.6.4 Should we reward competency level or competency growth? To the extent that the decision is made to use competencies to influence the base pay decision, organisations must decide whether to reward for competency level or competency growth. In one method of paying for competency level, a target or standard level of competency is established for an individual, role, or job. The individual’s actual competencies are assessed relative to this standard, and a gap is determined. An individual whose competency level is lower than the target level should be paid less than the target rate of pay for the job. By contrast, an individual whose competency level is higher than the target level should be paid more. Successfully implementing this approach requires: Copyright © 2019. Knowledge Resources. All rights reserved. A fairly high level of precision in the assessment tool to differentiate level differences. A high level of trust in the evaluators/assessors. Patience, since experience suggests that changes in competency level require significant development time. Another method of paying for competency level is simply to use competencies to place individuals into a zone of a pay range. For example, the individuals who are highest in competencies would be paid at the top of the range. With respect to rewarding the competency growth, we have found that organisations base their salary increase decisions on either change in level of competency over a specified period of 78 Bussin, Mark. Remuneration Handbook : Fourth Updated Edition, Knowledge Resources, 2019. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/nmmu/detail.action?docID=5987178. Created from nmmu on 2023-08-02 16:36:44.  Chapter 5: Individual performance-, competence- and skills-based pay time, or achievement of some specific competency development goal. This requires a detailed and regular competency assessment approach which is often discarded due to its labour intensity. It is further important to only link pay decisions to competencies displayed and not acquired. 5.6.5 How should the organisation provide rewards for results? Organisations paying for competencies are sometimes concerned that individuals will lose their focus on results or performance, but it’s not an either/or proposition. Many organisations reward both competencies and results, although the mechanisms for doing this vary from organisation to organisation. Some organisations choose to determine salary increases using both results or performance and competency growth, as illustrated in Table 5.9. In this case, individuals can receive large salary increases only by increasing their competencies and delivering results. Failure to succeed in one or the other area would result in a smaller increase. Table 5.9: Rewarding results and competency growth Rewarding results and competency growth Performance Competency growth Below Meets Exceeds Exceeds 3% 12% 15% Meets 3% 6% 9% Below 0% 0% 0% Competencies are relatively enduring and, once acquired, are unlikely to disappear or lose value. Many have said it makes sense to reward competency development with a form of remuneration that is likewise enduring – base pay. By contrast, results have a temporary quality. Exceptional results in one quarter could be followed by average results the next, therefore, it makes sense to reward results with a temporary, non-enduring form of remuneration – a bonus. 5.7 Comparison of mechanics of PRP and CBP Copyright © 2019. Knowledge Resources. All rights reserved. Table 5.10 shows comparisons between “pure” versions (not combinations) of PRP and CBP to assist in selecting the most appropriate system. One is not “better” than the other; they achieve different things. 79 Bussin, Mark. Remuneration Handbook : Fourth Updated Edition, Knowledge Resources, 2019. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/nmmu/detail.action?docID=5987178. Created from nmmu on 2023-08-02 16:36:44.  The Remuneration Handbook for Africa Table 5.10: Comparison of mechanics of PRP and CBP Performance-related pay Competency-based pay 1. What work is done (results). 1. How work is done (behaviour). 2. Looks backwards (pays for results already 2. Looks forwards (competency predicts success). achieved). 3. Pay decisions are usually made by comparing 3. Pay decisions are based on assessing results against targets. competencies displayed. 4. Targets may change from year to year. 4. Competence profiles often stay the same for many years. 5. Facilitates integration of individual, team and 5. Facilitates integration of core, generic and organisation objectives. individual competence. Source: Armstrong & Murlis1 Both of these approaches require human assessment. This in turn places incredible pressure on the need for robust systems and defensible assessment techniques – especially if it is linked to pay. 5.8 Skills-based pay 5.8.1 Understanding the definitions, reasons and objectives Skills-based pay (SBP) is often used interchangeably with competence-based pay, but there are some crucial differences. Skill is often described as the part of the iceberg you can see, even though it forms part of competence. It is therefore easier to assess and link to rewards as it is more tangible and often related to a demonstrable technical skill. More often than not, it is applied to manual workers, artisans and clerical workers. SBP is not a new concept and has been used in the trades and accounting, engineering and legal professions for decades. Wherever there is a progression of skill acquisition related to an increase in pay, this is a form of SBP. Copyright © 2019. Knowledge Resources. All rights reserved. 5.9 The mechanics of skills-based pay There are two main forms of SBP, namely, acquiring points which add up to form pay bands and moving through skill blocks or modules or clusters of skills (often associated with broad-banding). 5.9.1 Points model In the points model, all the tasks or skills that need doing are assigned points. These points often differ depending on how easy or difficult the tasks are, for example, easy = 1 point, difficult = 5 points. As one acquires points, one earns more money: 80 Bussin, Mark. Remuneration Handbook : Fourth Updated Edition, Knowledge Resources, 2019. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/nmmu/detail.action?docID=5987178. Created from nmmu on 2023-08-02 16:36:44.  Chapter 5: Individual performance-, competence- and skills-based pay Starting salary = R 5 000 1 to 10 points = plus 10% 11 to 20 points = plus 10% 21 to 30 points = plus 10% 31 to 40 points = plus 10% The salary for a person who possesses all the skills required for that particular part of the value chain can sometimes be around 50 to 100 per cent of starting salary. These models require one to move through skill blocks or clusters often associated with broad-banding, as shown in Figure 5.1: Progression Rands A B C Skill block progression Figure 5.1: Skills block progression The job grades forming the broad-bands provide for internal and external equity benchmarking. This provides a means of comparison between departments. Extensive training is usually required for SBP and, if possible, there should be accreditation, enabling portability of skills. 5.10 Critical success factors: integration of PRP, CBP and SBP Copyright © 2019. Knowledge Resources. All rights reserved. These are all such intricate programmes that there are many critical success factors. One way of describing these is that there should be an evolution towards them and it requires many interfaces, for example, with leadership style, work design and team roles. Tables 5.11 and 5.14 (adapted from Productivity Development/CWE) demonstrate this. 81 Bussin, Mark. Remuneration Handbook : Fourth Updated Edition, Knowledge Resources, 2019. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/nmmu/detail.action?docID=5987178. Created from nmmu on 2023-08-02 16:36:44.  The Remuneration Handbook for Africa Table 5.11: High-performance organisation continuum High-performance organisation continuum Traditional Enlightened Multi-skilling Self-sufficient Self-managed Supervisor Supervisor Supervisor Team regularly Self-managed organised requires input, and employees engages in teams responsible provides options make decisions decision-making for work process. but still makes together. with leadership. final decision. Basic skills Employees Team engaged Training training provided. receive some in multi-skilling conducted technical and and continuous regularly. team-skills improvement. training. Supervisor Meaningful Remuneration ultimately coaching and tied directly to responsible for development performance. work. provided. The transition process often takes years. Table 5.12 indicates progress through the years. Table 5.12: The transition process The transition process Design element Day one Day two Day three Team roles Multi-skilling Self-sustaining Self-managed Job or work design Minimum number of job Training for traditional Fully-fledged service classifications. jobs to service associate. associate role. Remuneration Broad pay bands for Team-based component Mature team-based pay each job. introduced. plan. Copyright © 2019. Knowledge Resources. All rights reserved. Variable pay Simple centre-wide Team-based component Mature team-based milestone plan for introduced. component introduced. reaching key targets – quality, time, attendance. Skills Begin cross-training Continue cross-training. Team supports itself in immediately on basic Begin training on all ways. skills. Begin social support skills. skills training in groups. Inform people upon joining about future vision. 82 Bussin, Mark. Remuneration Handbook : Fourth Updated Edition, Knowledge Resources, 2019. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/nmmu/detail.action?docID=5987178. Created from nmmu on 2023-08-02 16:36:44.  Chapter 5: Individual performance-, competence- and skills-based pay The transition process Design element Day one Day two Day three Team roles Multi-skilling Self-sustaining Self-managed Measurement Existing facility-level Transition to Full-blown team level metrics. standardised metrics at measurement managed the team level. system. Management “Team leader” provides Begin transition to Team leader provides system guidance and direction team-based decision- support to self-managed to a specific team. making with support teams. from team leader. The skills requirements, decision-making process and communication style are shown in Table 5.13. Table 5.13: Work-design continuum Dimension Traditional Enlightened Multi-skilling Self- Self- sustaining managed Skill Narrowly- Minimal Emphasis on Multi-skilled Diverse requirements defined back-up skills back-up skills. labour force and multi- and job scope single-skill in support for floor skilled. jobs. of narrowly- operations defined jobs. only. Types of Top-down Minimal input Process Teams Totally supervision decision- to decision improvement involved in team-based and team making. process by teams make the decision- work units involvement lower levels in recommendations making collaborate the hierarchy to management. process. on decisions. Communication Information Some Management Team Team Copyright © 2019. Knowledge Resources. All rights reserved. about the information holds periodic members members business available if “update” gather are provided by any individual meetings. and share responsible management asks the information for sharing on a need-to- manager. as needed. business know basis. information on a scheduled basis. An example of a reward continuum is shown in Table 5.14. It needs to be amended to suit your organisational requirements. 83 Bussin, Mark. Remuneration Handbook : Fourth Updated Edition, Knowledge Resources, 2019. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/nmmu/detail.action?docID=5987178. Created from nmmu on 2023-08-02 16:36:44.  The Remuneration Handbook for Africa Table 5.14: Reward continuum Dimension Traditional Enlightened Multi-skilling Self- Self-managed sustaining Base pay Informational Time-based Merit pay Pay-for- Pay-for- “raises” on general programme skills or skills or individual increases. with pay competencies competencies basis. increases each forms part forms part of year based of pay for pay for entire on personal lower level organisation. performance. employees only. Variable For top For managers In addition, In addition, Across- pay (team executives. and above. for selected for lower level the board component) individual employees. variable pay contributors. programme. Variable pay Discretionary Based only Add Add Completely (individual on personal qualitative qualitative integrate component) quantitative factors related factors related with team results. to final to customer component. success. satisfaction and team success. Recognition Little or no Ad hoc Supervisors Team Teams provide (cash and recognition for recognition may nominate input and recognition noncash) outstanding by top individuals for recognition for own individual management. recognition award process. members. or group awards; final achievements. decision made by senior management. Copyright © 2019. Knowledge Resources. All rights reserved. Many believe that moving along these continua enhances employee engagement. Engaged employees generally perform better and are less likely to leave the organisation. They are also more likely to innovate, which is often what puts great organisations ahead of their competitors. 5.11 Summary PRP is pay that varies depending on individual, team or organisation performance. It is often underpinned by a performance management system and market salary survey data. It usually applies to individuals when it comes to the annual salary adjustment. Organisations work out the incumbent’s compa-ratio and give them a pay increase according to their individual performance and where they are paid relative to the market. CBP is uncommon and usually applies when 84 Bussin, Mark. Remuneration Handbook : Fourth Updated Edition, Knowledge Resources, 2019. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/nmmu/detail.action?docID=5987178. Created from nmmu on 2023-08-02 16:36:44.  Chapter 5: Individual performance-, competence- and skills-based pay there is a 360-degree performance appraisal system in place. SBP is associated with the trade’s engineering and legal profession. The purpose of all three types of pay is to reward the individual for better performance and acquiring skills. Self-evaluation questions 1. What is the difference between individual and team PRP? 2. Describe a common performance-rating scale. 3. What is a compa-ratio? 4. Name two common elements of a merit matrix. 5. Describe what is meant by SBP. 6. What is the difference between PRP and CBP? 5.12 Endnote 1 Armstrong & Murlis, 2004. Copyright © 2019. Knowledge Resources. All rights reserved. 85 Bussin, Mark. Remuneration Handbook : Fourth Updated Edition, Knowledge Resources, 2019. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/nmmu/detail.action?d