Brown et al. ( 2003 ) examined the implications of pay dispersion for organiza-
tional performance (eYciency, patient care,Wnancial performance) within 333
acute care hospitals in the state of California. TheyWnd the eVect of pay dispersion
on organizational performance depends on an organization’s pay market position.
Egalitarian structures were more eVective when paired with below-market wages
and hierarchical structures more eVective in tandem with above-market pay.
Pay basis. Traditional job-based pay systems (e.g. point factor systems) are
structured so that pay is attached to the jobs that employees perform. The internal
value of jobs is often determined by job evaluation, a process wherein value is
assigned based on the assessment of jobs vis-a`-vis a set of compensable factors (e.g.
skills, responsibility, eVort, working conditions). Jobs of similar value are assigned
to the same pay grades. Lower pay grades represent jobs of lower value; higher pay
grades contain jobs of higher value. In job-based systems, jobs and pay grades are
often ‘priced’ through the use of market survey data. While job evaluation helps
determine the internal pay structure (‘internal equity’), collecting representative
market pay data helpsWrms assign wages and ensure external competitiveness
(‘external equity’). In job-based pay systems, while there may be pay adjustments
(e.g. merit increases) associated with performance, pay is largely determined by the
value of the job that one holds. Thus, large pay increases occur primarily as a
function of progressing up the hierarchy of pay grades into jobs deemed to have
more organizational value.
In contrast to job-based pay structures, person-based pay structures attach pay
to individual employees’ skills, knowledge, or competencies. Under person-based
pay systems, the basis for pay is largely a function of the breadth and/or depth of
knowledge, skills, or competencies possessed by an employee. The knowledge or
skills required for work process or task completion are typically broken down into
skill or knowledge ‘blocks’ which are, in turn, often further broken down into skill
or knowledge ‘levels.’ Under person-based pay systems, pay adjustments are made
when individuals are certiWed as having acquired additional skills or knowledge
speciWc to the particular system. As with job-based systems, market pay data is
often used to help ‘price’ the pay structure, although the pricing is often compli-
cated by the lack of comparable person-based systems in other organizations.
Advocates of person-based reward systems believe these pay systems hold many
advantages over job-based systems (Lawler 2000 ). Job-based systems are thought to
incent upward promotion, reinforce hierarchical structures, and to be more
consistent with a ‘command and control,’ top-down management style. Moreover,
job-based systems are deemed less compatible with interdependent tasks and
team-based structures. In contrast, person-based systems, with their emphasis
on skill and knowledge acquisition, are argued to be a betterWt with the need
for a lean,Xexible, and multi-skilled workforce able to adjust their roles as
dictated by changing market and organizational demands. For all of these
reasons, proponents of person-based pay systems believe they should be a central
354 james p. guthrie