Compensation Managment/Person-Focused Pay Structures

1Abstract
Employee compensation is determined by their expertise, abilities, and level of proficiency in
those areas under a person-focused pay structure. Under this strategy, the employee’s
remuneration is defined by their competencies, and abilities, as opposed to their present role or
past professional experience with the company. The strategy is frequently used in organizations
where employees require a certain level of ability or expertise to carry out their tasks effectively.
In situations when work performance demands a high level of skill and specialized expertise, a
person-focused system of compensation may serve as a useful tool for both motivating and
retaining current employees as well as attracting new talent. Any incentive system has
advantages and disadvantages. For the person-focused compensation program to be implemented
and work effectively all considerations should be tabled before proceeding. The strategy must,
above all, be in line with the objectives core values, and mission of the company.
Keywords: person-focused pay strategy, pay scheme, skills, compensation, knowledge,
competencies, productivity
2
Introduction
Self-improvement and material prosperity have become everyday concerns with many
individuals. These are made possible by the advancement of information-sharing systems
fostering further development of abilities and competencies, which serve as the foundation for
long-term growth and the sole means of survival in a fiercely competitive world. Employers
recognize that having knowledgeable and driven employees is essential to reaching company
objectives. It is for this reason that they value highly qualified and driven personnel. As a result,
several businesses have invested heavily in employee compensation by implementing personfocused pay plans (Ceri-Booms, 2020). These programs pay workers according to their unique
abilities and proficiencies essential to their line of work.
The fundamental idea is that the performance of the company and the intended results are
directly impacted by an employee’s skill set (He et al., 2021). There are three primary types of
person-focused compensation programs: competency-based compensation, which honors and
rewards employees for successfully utilizing newly acquired expertise in their roles; pay-forknowledge, which compensates staff members for completing particular training modules
pertinent to their roles; and skill-based compensation, which encourages staff members to pursue
new skills.
Person-focused salary structures are creative compensation approaches that encourage
employees to broaden their abilities and enhance their job-related knowledge. These incentive
schemes can be focused on both upward and lateral skill growth (Badrolhisam, et al., 2019).
They signify a change from traditional job-based remuneration systems to ones that emphasize
personal development and flexibility.
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Literature Review
According to Hur (2022), few companies have combined these person-centered strategies
with traditional incentive pay plans with success, rewarding staff members with bonuses when
they successfully use their new skills on the job. This hybrid model encourages employees to
acquire new skills and information pertinent to their positions while also compensating them for
improving their current skill set. Companies may be able to increase worker productivity,
enhance general performance, and promote a continual skill-development culture by putting such
programs into place. This method acknowledges that an employee’s worth to the company goes
beyond the scope of their present position and includes their potential for advancement and
creativity.
Person-focused pay systems have been around for a while but concerns about rising labor
costs have prevented them from being widely adopted. Recent patterns, however, suggest that
corporate perceptions of these novel pay schemes are changing. Person-focused compensation
plans are becoming more common in a variety of industries as more businesses realize the
possible advantages of putting them into place (Abdulsalam et al., 2021). The change is a
reflection of a growing appreciation for the contributions that knowledgeable, flexible workers
provide to the company. Businesses that use these pay structures frequently cite benefits like
increased hiring efficiency and better productivity.
More specifically, these companies typically draw people who are driven to learn new
skills and improve their current ones constantly. The symbiotic connection that may be created
when employee ambitions and company goals coincide can promote a culture of ongoing
learning and growth (Iqbal et al., 2019). Therefore, companies that adopt person-focused
compensation plans may find themselves in a better position to handle the demands of a
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constantly changing market, thanks to a workforce that is highly qualified and genuinely driven
to advance the firm.
According to He et al. (2021), there are various strong arguments in favor of adopting
person-focused remuneration schemes, especially in light of the quick improvements in
technology. The fact that some talents are no longer necessary in today’s workplace is a major
argument in favor of putting these plans into action. Numerous jobs and duties have undergone
major changes because of the evolution of technology and employment needs. Many jobs in this
new environment require the upgrading of current knowledge and abilities or the learning of new
competencies to stay relevant.
Technology and digitalization have had a significant influence on industries such as
automobiles. Computational diagnostic techniques have essentially supplanted mechanics’
intuitive judgments based on sensory and kinesthetic experience. This change highlights the
necessity for employees to adjust and pick up new technological abilities to stay relevant in their
positions (Badrolhisam et al., 2019). Technological improvements are causing revolutionary
shifts in other professions as well. To analyze and display complicated financial information; for
example, accountants today rely more and more on sophisticated data analysis tools. The way
that job requirements have evolved underscores how crucial it is for modern workers to always
be learning new skills and being flexible.
These developments indicate that both companies and employees are starting to find
person-focused payment arrangements more appealing. These kinds of pay structures can aid
companies in luring and keeping bright employees who are eager to learn and advance their
careers. Furthermore, these plans may be an effective instrument for employee motivation,
pushing staff members to consistently improve their skills and keep a competitive advantage in
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their industries. Organizations may cultivate a culture of ongoing learning and flexibility by
tying remuneration to skill development. This will put them in a better position to prosper in a
business environment that is always changing.
After graduating from college, Susan Jackson has been in the technology and
manufacturing sector contributing to the profession for the last eight years. Throughout that
time, Jackson has had positions with three distinct companies. Over time, she has been
discouraged by the lack of opportunities and advancement she has had since starting her
professional job. Her knowledge and experience have allowed her to acquire a wide range of
abilities and capabilities that are useful in the profession. Jackson has chosen to search for a new
employment opportunity. Her expectation is that it would enable her to apply the knowledge she
has acquired over her lifetime.
A person-focused compensation program could be able to ease Jackson’s frustrations in
this particular instance. Employers who implement person-focused compensation programs
choose and compensate staff members according to their competency, knowledge, and abilities
(Abdulsalam et al., 2021). Employers who use this particular type of compensation plan hire
people with specialized knowledge and abilities because they believe they will increase
production and profitability for the company.
The compensation structure described in Abdulsalam et al. (2021) greatly improves
stability and work satisfaction. It does this by fostering engaging work environments, including
specialized duties, and offering extensive internal and external learning and development
opportunities. This cultivates motivated individuals who are ready to participate.
According to Badrolhisam et al. (2019), the implementation of a compensation plan such
as the one outlined in this article improves job stability by enabling employees to carry out a
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variety of jobs based on their unique skill sets. Additionally, Hur (2022), mentioned that
businesses try to keep workers who improve their abilities since they find them more appealing
as prospects. According to Iqbal et al. (2019), person-focused compensation schemes have a
measurable effect on work performance. These systems have the power to affect an individual’s
production in terms of both amount and quality. Workers under such a pay plan, where the focus
is on individual achievement, typically demonstrate higher levels of productivity.
On the other hand, Abdulsalam et al. (2021) argue that companies that adopt personfocused pay plans would prefer smaller workforces. This enables workers with different skill sets
to handle unplanned absences from work, family vacations, medical appointments, or even
training workshops. Abdulsalam et al. (2021) emphasize that these systems’ adaptability also
includes meeting the demands of the workforce inside organizations. According to Malik, this
flexibility enables businesses to react quickly to unanticipated changes in demand (2018).
Although there are advantages to person-focused compensation systems, management
and staff may encounter difficulties with them. The potential for outside influences to affect an
individual’s performance is one major problem. For example, tasks frequently call for teamwork
and depend on the efficiency of the entire group to be completed (Ceri-Booms, 2020). However,
there may be a disconnect if individual performance is assessed to determine remuneration. Even
with the best efforts of each member, the effectiveness of the entire team may suffer if one expert
in a professional group performs poorly. This emphasizes how important it is to properly
customize person-focused compensation plans to meet the unique requirements of various job
processes.
The disparity in experience between recently hired staff members and seasoned pros
presents another difficulty (Ceri-Booms,2020). Employees with less experience may not be as
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motivated financially at the start of their careers because professionals with greater expertise
tend to perform better than their less experienced peers. This may impede the advancement and
development of employees as well as lead to pay discrepancies.
Abdulsalam et al., (22021). points out that these strategies might result in higher expenses
for hourly wages, training, and administration—a fact that is especially evident in the early
phases of a business. There is a chance that employees may become demotivated if they are not
compensated as much for learning a new talent as they would be for their present skill set.
Employee skill improvement and growth might be hampered by this. Moreover, Aquila & Rice
(2017) stress the necessity of costly, well-organized training courses. Person-focused
compensation systems sometimes call for a large training expenditure in addition to pay raises
for staff members who pass the program. The financial burden is increased when basic salary and
benefits are required to be paid for by employers while workers attend training during regular
business hours.
Conclusion
Person-focused compensation systems can greatly increase employee engagement and
organizational efficiency, which will eventually contribute to a business’s competitive advantage,
even though outside influences like the disparity in expertise can present problems. Employers
depend on their staff to accomplish objectives and execute their jobs well. This calls for drawing
in and keeping people with the requisite training and experience. Employee incentives derive
from person-focused pay systems, which link pay to each worker’s performance and production.
When top performers receive commensurate rewards, work satisfaction and retention rise, which
eventually builds an organization’s profitability and professional stability. Organizations must
thoroughly consider the advantages and disadvantages of person-focused compensation plans
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before implementing them. A comprehensive evaluation is required to establish whether
implementing such an approach is appropriate for the organization’s unique objectives and goals.
In the end, person-focused payment systems may be strategically applied for the benefit of both
individuals and corporations.
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References
Abdulsalam, D., Maltarich, M. A., Nyberg, A. J., Reilly, G., & Martin, M. (2021). Individualized
pay-for-performance arrangements: Peer reactions and consequences. Journal of Applied
Psychology, 106(8), 1202.
Badrolhisam, N. I., Achim, N., & Zulkipli, N. (2019). Employee career decision making: the
influence of salary and benefits, work environment and job security. Journal of
Academia, 7, 41-50.
Ceri-Booms, M. (2020). Context and person-oriented leader in teams: a meta-analytical review.
Team Performance Management: An International Journal, 26(1/2), 91-121.
He, W., Li, S. L., Feng, J., Zhang, G., & Sturman, M. C. (2021). When does pay for performance
motivate employee-helping behavior? The contextual influence of performance
subjectivity. Academy of Management Journal, 64(1), 293-326.
Hur, H. (2022). Job security matters: A systematic review and meta-analysis of the relationship
between job security and work attitudes.Journal of Management & Organization,
28(5), 925-955. https://doi.org/10.1017/jmo.2019.3
Iqbal, S., Tian, H., Akhtar, S., & Sohu, J. (2019). Impacts of performance-based pay on
employee productivity; mediated by employee training. International Journal of
Research and Review, 6(10), 235-241.