Job-based Vs Person-based Pay Structures

Job-based Vs Person-based Pay Structures

Salary Formula 5A

Job Based Pay Structures

A job based pay structure is a structure of salary payments that is built on compensable factors determined by the job. In other words the salary for a job is determined by its responsibilities, and sometimes its work conditions.

The advantages are:

  • It is based on a hierarchical organizational structure, which is the organizational structure for most organizations.
  • It is simpler than a person based system as more work is required to define knowledge, skills and competencies required for a person based pay structure.
  • Most companies’ pay structures are job based pay structures. This means comparison is possible between companies.
  • The hierarchical order of the job structure created the illusion that there are some career paths and possibilities for promotions.

The disadvantages are:

  • It reinforces hierarchy and bureaucracy. It is less compatible with team based structures and incentives.
  • The hierarchical organizational structure that it is based on has fundamental weakness.
  • The job holder may not be competent in the job.
  • The job at the top is over paid and the job at the bottom is too paid low. It increases the overall business operating costs.
  • It encourages compromise of honesty in job descriptions and job valuations.
  • It does not reward employees directly for their knowledge, abilities and individual strengths.
  • It does not encourage development of a flexible organizational structure in terms of flatter structure; T-shaped employees and job rotation.
  • Some job evaluation systems take short cuts by using a generic set of compensable factors or develop the pay structure by using job classification.

Person Based Pay Structures

Like a job based structure, developing a person based pay structure also requires an understanding of the tasks and responsibilities of jobs in a business. Similarly the development of the structure requires job analysis and job descriptions. The difference is that it compensates the job incumbent (person) in terms of his knowledge, competencies and skills. These are called competency-based pay structure, skills-based pay structure or knowledge based pay structure.

A study made by Murray and Gerhart (1998) found that in a person based pay structure, although hourly wages increased, however product quality (scrap percentage), productivity (labour hours per part) improved and overall labor costs decreased (The Oxford Handbook of Human Resource Management By Peter F. Boxall, John Purcell, Patrick M. Wright).

Advantages and Disadvantages of Skills-Based Pay Structures

There are very few person based pay structures, so information on it is mostly academic information. Below are the academic rather than market place explanations.Skills-based pay has the following advantages and potential disadvantages (Ledford 1989)

Salary Formula 5B

Salary Formula 5C

Salary Formula 5D

Salary Formula 5E

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