What Is Skill-based Pay?

Skill-based pay (SBP) is a compensation system that rewards employees with additional pay in exchange for formal certification of the employee’s mastery of skills, knowledge, and/or competencies . ... Thus, SBP is a person-based system, because it is based on the characteristics of the person rather than the job.

What is an example of skill based pay?

For example, employees working in an innovation lab could be compensated Skill-based, whereas employees in say facility management are paid Job-based. Alternatively, you could choose the base pay to be Job-based while incentive plans are Skill-based, e.g. in manufacturing.

What do you mean by skill based pay?

Skill-based pay refers to a pay system in which pay increases are linked to the number or depth of skills an employee acquires and applies and it is a means of developing broader and deeper skills among the workforce. Such increases are in addition to, and not in lieu of, general pay increases employees may receive.

What is skill based pay and what are its advantages?

Skill based pay allows companies to review market compensation data and determine pay based on the assessed value an employee has within an organization . Rather than establishing a set salary for every job description, the employee’s skills and knowledge are taken into account.

How is skill based pay determined?

Skill-based pay is a salary system that determines an employee’s pay based on his or her knowledge, experience, education or specialized training . Depending on the company, the employee might also receive a higher salary for earning formal certification in his or her industry.

What are the disadvantages of skill-based pay?

• Average pay of employees likely higher.
• High labor costs, if productivity increases do not offset additional costs.
• SBP systems more complex.
• SBP systems require a major investment in training.

What are the advantages of skill-based pay?

Among the advantages of skill-based pay are the following:

It enables job rotation, and filling of temporary vacancies due, for instance , to absenteeism. It therefore contributes to a leaner workforce. => It enhances productivity and quality through better use of human resources.

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

Skill-based systems are better defined having been used for years as the basis for defining certain jobs. ... In contrast, competency-based pay systems have been applied as components of a pay system and so far have been applied to individuals at professional or management levels.

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

Skill-based pay rewards a person for what he is worth based on his set of skills , rather than what the job itself is worth. ... Job-based pay increases are tied to company budgets, market trends for the job title, periodic performance reviews and promotion to a higher-level job title.

What is a skill-based job?

Skills-based hiring involves using specific skills and competencies as the requirements for the job rather than a college degree . It both widens the talent pool and narrows the focus by giving you more clarity into what you actually need and want from your organization’s next great hire.

What are the advantages and disadvantages of skill-based pay?

• Workforce flexibility.
• Lower labour costs.
• Employees’ commitment.
• Employees’ self-management.
• Higher average pay rates.
• Productivity enhancement.
• Multi-tasking encouragement.

What are the potential effects of skill-based system?

• Higher productivity.
• Lower costs.
• Higher quality.
• Lower staffing levels.
• Lower absenteeism.
• Lower turnover.
• Improved relations with labor union.

Why do companies must adopt skills based pay?

Employees with hot skills are in high demand as companies plan for current and future skills gaps in their organization. ... By adopting a skill-based compensation program, businesses are better able to upskill their current workforce rather than rely exclusively on hiring new talent with desired skills.

Who uses skill-based pay?

Although the earliest adopters of skill-based pay tended to apply it to production employees , firms are also applying SBP to service employees. Knowledgeable customer-service employees performing broader jobs can handle a wider range of customer issues without having to pass them off to other employees.

What is pay for knowledge?

Pay-for-knowledge is an innovative compensation system that bases salaries and wage rates not on par- ticular job classifications, but, rather, on the reper- toire of skills an employee possesses.

What are the two most important reasons for adopting person focused pay?

Advocates of person-focused pay programs offers two key reasons that firms seeking competitive advantage should adopt this form of compensation: technological innovation and increased global competition .