3-1

Chapter

3
Defining Internal
Alignment

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 3-2

Key Issues

Two basic questions lie at the core of

compensation management . . .

 How is pay determined for the wide variety

of work performed in organizations?

 Does how much an organization pays for

different work make a difference?

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 3-3

What Is Internal Alignment?

Often called internal equity, refers to

the relationships between the
jobs/skills/competencies within a
single organization.
The relationships form a pay structure
that should support the organization
strategy, support the workflow, be fair
to employees, and motivate behavior
toward organization objectives.

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 3-4

What Is Pay Structure?

Refers to the array of pay rates for

different work or skills within a
single organization.
The number of levels, differentials
in pay between the levels, and the
criteria used to determine those
differences create the structure.

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 3-5

Compensation Strategy:
Internal Alignment

Support organization
strategy

Support work flow

Compensation
strategy
should . . .
Support fairness

Motivate behavior

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 3-6

Internal Alignment
Fairness Issues
Procedural justice
 Process by which a decision is reached
Distributive justice
 Results/outcomes of the process
Pay procedures more likely to be viewed as
fair if . . .
 They are consistently applied to all employees
 Employee participation/representation is
allowed
 An appeals procedure is available
 Data used are accurate
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 3-7

Structures Vary
A internal pay structure is defined by
Number of levels of work
Pay differentials between levels
Criteria used to determine levels and
differentials
Content - Work performed in a job and
how it gets done
Value - Worth of the work: its relative
contribution to objectives
Job- and person-based structures

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 3-8

Exhibit 3.1: Engineering Structure at

Lockheed

Entry Level Engineer: Limited use of basic principles.

Close supervision.
Senior Engineer: Full use of standard principles
and concepts. Under general supervision.
Systems Engineer: Wide applications of principles and
concepts, plus working knowledge of other related
disciplines. Under very general direction.
Lead Engineer: Applies extensive knowledge as a
generalist or specialist. Exercises wide latitude.
Advisor Engineer: Applies advanced principles, theories,
and concepts. Assignments often self-initiated.
Consultant Engineer: Exhibits an exceptional degree
of ingenuity, creativity, and resourcefulness. Acts
Recognized
independently to uncover and resolve operational
Authority
problems.

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 3-9

Exhibit 3.2: Managerial/Professional Levels

at General Electric Plastics (GEP)

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 3-10

Exhibit 3.3: Engineering Pay Structure

at Lockheed Martin

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 3-11

Exhibit 3.4: What Shapes Internal

Structures?
EXTERNAL FACTORS:
Economic pressures
Government policies, laws, regulations
Stakeholders
Cultures and customs

ORGANIZATION FACTORS:

Strategy HR policy
Technology Employee acceptance
Human capital Cost implications

INTERNAL STRUCTURE:
Levels
Differentials
Criteria
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 3-12

Exhibit 3.5: Illustration of an

Internal Labor Market
Consultant
Hire
Engineer
Promote
Advisor
Engineer
Promote
Lead
Engineer
Promote
Systems
Engineer
Promote
Hire Senior
Engineer
Promote
Hire Engineer
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 3-13

Strategic Choices in Designing

Internal Structures

Tailored versus Loosely Coupled

Egalitarian versus Hierarchical

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 3-14

Which Structure Fits Best?

More hierarchical structures are related

to greater performance when the work
flow depends more on individual
contributors
More egalitarian structures are related to
greater performance when close
collaboration and sharing of knowledge
are required
Structures not aligned with the work flow
appear to be related to greater turnover
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