Competency-Based Pay

What is the difference between skill-based pay and competency-based pay?

While both skill- and competency-based pay systems are centered on individuals rather than jobs, the manner in which the individual is evaluated for pay purposes differs. Skill-based systems are more defined, having been used as the foundation for defining specific jobs for many years. Pay is based on skills that have been validated through some form of assessment or certification. These pay structures have been used in both blue-collar and white-collar jobs. Competency-based pay systems, on the other hand, have been used as components of a pay system and have so far been applied to individuals at the professional or management levels.

What are the main components of a competency-based pay plan?

Skill, Knowledge and Experience.

What are the advantages of competency-based pay?

• Lowers Turnover
• Improves transparency
• Enhanced self-motivation
• Motivation at the company level

What are the disadvantages of competency-based pay?

• It may sometimes lead to unconscious bias.
• It might be difficult to determine which skills lead to increased job performance or productivity.

Is competency-based pay good for an organization, why or why not?

In most cases, competency-based pay has proven to be of benefit for organizations. Competency-based pay motivates employees to perform better and allows for career progression. It is appropriate for firms that place an excessive emphasis on outputs, demand alignment with a performance appraisal, and seek cultural change toward greater flexibility.