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An Introduction to Skill Based Pay

Skill based pay sometimes referred to as ‘person based pay’ is a system that places a monetary value on skills rather than the job. Business owners must always be thinking about what’s next and continuously strive to improve in a rapid changing marketplace with increasing customer demands and both global and domestic competitors. Growing in popularity is a move from traditional seniority and merit based pay to skill based pay systems which communicate to employees that financial rewards are directly related to the knowledge and skill they can bring to the workplace.

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.

The following are a few advantages of implementing a skill based pay system:

• Encourages the development of skills, which increases the value of a company

• Increases flexibility of skills among employees

• Rise in organizational performance levels, such as productivity and quality

• Higher employee satisfaction

When a company makes the decision to use skill based pay, they must evaluate market compensation data and evaluate three types of criteria: horizontal, depth and vertical skills. The horizontal and depth categories are those skills of a more technical nature while vertical focuses on organizational skills. A skill matrix is then designed, allowing for movement within the matrix as skill levels increase. Compensation surveys are reviewed to set the pay range for each level along the matrix. Companies need to decide how to evaluate the skills of their employees to place them within the matrix and determine on-going training needs to support the structure. Skill certifications are a way to clearly and objectively measure the skillset of each employee.

If you are interested in moving your company to a skill based pay system, consider the services of the professionals at WageWatch, specializing in innovative market compensation research. We offer compensation surveys for a variety of industries and can provide you with an accurate 2013 wage forecast. Please call WageWatch at 888-330-9243 or contact us online for more information on market compensation and compensation surveys.

This entry was posted on Wednesday, February 13th, 2013 at 4:29 PM and is filed under Benefits & Compensation. You can follow any responses to this entry through the RSS 2.0 feed. Comments are currently closed, but you can trackback from your own site.