--- date: '2024-01-24' description: internal pay structure, job analysis, pay differentials, and criteria for job-based versus person-based organizational structures. id: Defining Internal Alignment and Job Analysis modified: 2026-06-05 15:08:37 GMT-04:00 tags: - commerce4be3 title: Defining Internal Alignment & Job Analysis created: '2024-01-24' published: '2024-01-24' pageLayout: default slug: thoughts/university/twenty-three-twenty-four/commerce-4be3/Defining-Internal-Alignment-and-Job-Analysis permalink: https://aarnphm.xyz/thoughts/university/twenty-three-twenty-four/commerce-4be3/Defining-Internal-Alignment-and-Job-Analysis.md generator: quartz: v4.6.0 hostedProvider: Cloudflare baseUrl: aarnphm.xyz full: https://aarnphm.xyz/llms-full.txt --- > internal alignment: the pay relationships among jobs, skills, or competencies within one organisation. The course also calls this internal equity. A structure should support the organisation’s strategy and workflow: how work becomes goods or services delivered to customers. Employees need a clear line of sight between their work, the organisation’s objectives, and the basis for pay and **career laddering/progression**. These notes follow [[thoughts/university/twenty-three-twenty-four/commerce-4be3/Defining Internal Alignment.pdf|Defining Internal Alignment & Job Analysis]], especially PDF pages 4–19 and 23–40. ## Internal Pay Structure > the array of pay rates for different work or skills within one organisation. Three choices define it: - the number of levels; - pay differentials between levels; - the criteria used to assign work or people to those levels and determine the differentials. A promotion ladder needs both a pay difference and an explanation of what changes at the next level, such as responsibility or required knowledge. ## differentials > pay differences among levels. The course gives several possible grounds for higher pay: greater skill or knowledge requirements, unpleasant working conditions, and a greater contribution to the organisation’s goals. A differential can also create an incentive to seek promotion. These are proposed reasons to examine against the work and pay rules; a higher rate alone does not establish any of them. ## criteria - **Content**: the work performed and how it is done, including tasks, complexity, problem solving, and responsibility. - **Value**: the contribution that work makes to the organisation’s goals. Job analysis records the work. Job evaluation uses selected criteria to assess its relative value for the pay structure. ## structure. A **job-based structure** attaches pay to the job’s tasks, behaviours, and responsibilities. A **person-based structure** attaches pay to relevant skills, knowledge, or competencies the employee possesses, under the organisation’s rules for recognising and using them. An engineering team or law firm can use either approach, or combine them. The occupation’s name does not tell us whether pay follows the role, the person’s recognised capabilities, or both. ## impact. ### external factors - Economic pressures, including inflation and labour-market conditions. - Government policies, laws, and regulations applicable to the employer and jurisdiction. - Stakeholders, including employees, unions, and boards. - Cultures and customs that shape expectations about pay differences. ### organisation factors - Strategy and the work needed to carry it out. - Technology and the skills required to use it. - Human capital, HR policy, and employee acceptance. - The cost of the structure and of administering it. ## internal labour markets > rules and procedures that determine pay for jobs within an organisation and allocate employees among those jobs. Promotion, transfer, and training rules connect the pay structure to career progression. A higher-paid job creates a reachable next step only when employees can understand and meet its entry requirements. ## Strategy for designing internal structures. The lecture separates two choices (PDF pages 13–14): how closely pay follows the organisation’s jobs and workflow, and how many levels and pay differences it has. | Choice | One end | Other end | | ------------------------- | ----------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------ | | Link to jobs and workflow | **Tailored**: clearly defined tasks and a pay structure tied closely to them. | **Loosely coupled**: broader, changing jobs and a more flexible link between work assignments and pay. | | Levels and differentials | **Egalitarian**: fewer levels and smaller pay differences. | **Hierarchical**: more levels and larger pay differences. | These dimensions can be combined. A tightly specified workflow can use a relatively flat pay structure. The slides use McDonald’s and Walmart to illustrate tailored structures and 3M to illustrate loose coupling; those are teaching examples, rather than a current audit of each company. The course associates smaller differentials with cooperation and larger promotion rewards with individual effort. Apply those claims to the actual workflow: what work requires help from colleagues, how contribution is assessed, and what behaviour the reward encourages. ## Equity theory: fairness Employees compare their perceived outcomes relative to their inputs with a reference person’s ratio:[^adams] $$ \frac{O_{\text{self}}}{I_{\text{self}}} \quad\text{compared with}\quad \frac{O_{\text{other}}}{I_{\text{other}}}. $$ Inputs can include effort, experience, and skill; outcomes can include pay and recognition. Perceived inequity can lead someone to change effort, seek different rewards, change the comparison, or leave. The reference person and the employee’s judgement of the inputs matter. Equal salaries can still feel unfair when contributions are judged unequal. ## Tournament theory A tournament pays according to relative rank. A promotion’s pay increase can motivate employees competing for it because better performance raises the chance of winning. Lazear and Rosen model this incentive through the prize difference, effort costs, and uncertainty in performance.[^tournament] The model provides a reason for a pay gap between ranks. Its conclusions depend on the assumptions about workers and performance measurement. To apply it, identify the prize, who can compete, and how effort affects the chance of winning. ## Institutional theory Pay practices can spread through pressures for legitimacy and conformity. DiMaggio and Powell distinguish three mechanisms:[^institutional] - **Coercive**: requirements or pressure from organisations on which the employer depends, including the state. - **Mimetic**: copying a peer when goals or methods are uncertain. - **Normative**: shared professional training and networks carrying common practices between employers. Calling a structure a “best practice” supplies little evidence about its fit. Check which problem it solved elsewhere and whether the same conditions apply here. Adoption can make an organisation more acceptable to its peers without improving the work. ## Consequences. An internally aligned structure aims for: - **Efficiency**: rewards support useful performance, learning, and career progression within the compensation budget. - **Fairness**: employees can understand and assess the reasons for pay differences. - **Compliance**: pay rules meet the requirements that apply to the employer. These are outcomes to evaluate. A written pay structure by itself supplies no evidence that employees accept it or that performance has improved. ## Job Analysis Job analysis systematically records tasks, duties, responsibilities, required knowledge and skills, and working conditions. It supplies work-related evidence for the distinctions used in pay decisions (PDF pages 25–26). Collect information from jobholders and supervisors through interviews, questionnaires, observation, or work diaries. Resolve conflicting accounts by collecting more information and checking the description with people familiar with the work. - A **job description** records what the job involves, including its responsibilities and relationships to other jobs. - A **job specification** records the knowledge, skills, and abilities needed to perform it. Judge the result for consistency across sources, support for the description, acceptance by jobholders and managers, currency, and usefulness. Gather enough detail to justify the pay distinctions. Revisit it when the work changes, since an outdated description can make those distinctions misleading. [^adams]: J. Stacy Adams, [Inequity in Social Exchange](https://doi.org/10.1016/S0065-2601\(08\)60108-2) (1965), especially the definitions of inputs, outcomes, and perceived inequity. [Scan hosted by MIT](https://web.mit.edu/curhan/www/docs/Articles/15341_Readings/Justice/InequityInSocialExchange_Adams.pdf). [^tournament]: Edward P. Lazear and Sherwin Rosen, [Rank-Order Tournaments as Optimum Labor Contracts](https://doi.org/10.1086/261010) (1981). The paper studies pay based on ordinal rank under stated assumptions about effort, risk, and ability. [^institutional]: Paul J. DiMaggio and Walter W. Powell, [The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields](https://doi.org/10.2307/2095101) (1983), especially pp. 150–153. [Paper scan](https://gwern.net/doc/sociology/1983-dimaggio.pdf).