Competency-based pay, also known as skill-based pay, is a compensation system that pays workers based on their skills and abilities. Under this system, workers are classified into levels based on their skills and experience. They then receive pay based on the level they are in.
This system is designed to motivate workers to improve their skills and abilities. It also helps businesses save money by paying workers only for the skills they need.
Skill-based pay can be used in any business. It is commonly used in the manufacturing and service industries. In these industries, worker productivity is often easy to measure.
There are a few different approaches to competency-based pay. One common approach is to assess employees regularly and then provide bonuses or salary increases based on their performance. Another approach is to create specific job roles with associated compensation levels based on the required skill set.
There are 3 primary advantages to skill-based pay: