What is competency-based pay?
A type of compensation known as competency-based pay or performance based pay, also referred to as skill-based pay, is one in which an employee’s pay is linked to their demonstrated competencies and skills rather than their job title or tenure. It includes evaluating and remunerating workers considering their capability, information, and dominance of explicit abilities that are pertinent to their job or the association’s essential goals. Ability based pay plans to boost and reward workers for persistently creating and applying their abilities to make individual and hierarchical progress.
In a capability-based pay framework, employees are commonly considered in contrast to a bunch of foreordained skills or expertise levels. These skills can be behavioural, like leadership, communication, or problem-solving abilities, or they can be technical, like proficiency in a particular software or language. Workers who exhibit more significant levels of capability or accomplish dominance around there are qualified for more significant compensation or extra monetary prizes.
The Organization’s culture of continuous learning and development is encouraged by competency-based pay. Employees are encouraged to acquire new skills and improve their existing ones to increase their earning potential. Organizations can increase employee engagement, attract, and keep top talent, and ensure that compensation reflects the value employees bring through their expertise and contributions by aligning pay with competencies.
Difference b/w skill-based pay and competency-based pay Skill-Based Pay
- Focus: Specific skills.
- Application: Trades and technical fields.
- Progression: Based on acquiring new skills.
- Focus: Combination of skills, knowledge, and behaviors.
- Application: Professional and managerial roles.
- Progression: Based on demonstrating competencies.
Instead of traditional factors like job title, seniority, or position, competency-based pay recognizes, and rewards employees based on their demonstrated skills and competencies. It facilitates the development of a skilled and adaptable workforce that is capable of effectively meeting the changing demands of their industry, drives performance, and encourages continuous learning.