Skill-Based Compensation System
The Compensation Management System is designed to provide a direct link between organizational performance and employee contribution and pay. Skill-based Systems are one method of achieving this linkage.
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. The pay increases are usually tied to three types of skills:
- Horizontal skills, which involve a broadening of skills in terms of the range of tasks
- Vertical skills, which involve acquiring skills of a higher level
- Depth skills, which involve a high level of skills in specialized areas relating to the same job.
Skill-based pay differs in the following respects from traditional pay systems which reflect skills differences in a structure consisting of rates of pay for unskilled, semi-skilled and skilled workers:
- Skill-based pay is a person-based and not a job-based, system. It rewards a person for what he/she, rather than the job, is worth. Job worth is reflected in a basic rate of pay for minimum skills, but pay progression is directly linked to skills acquisition (rather than to general pay increases applicable to all).
- It rewards (and therefore emphasizes) a broad range of skills which makes the employee multi-skilled and therefore flexible.
- It positively encourages skills development.
- A skill-based pay system may not necessarily reflect how well the skill is used, as this falls within the performance component of pay. But there is nothing to prevent injecting performance criteria into the system. In such cases the system will be more performance-oriented than a structure which merely recognizes different rates of pay for skills.
- The system needs to be underpinned by opportunities for training which is critical to the success of the system. The traditional structure is not dependent on such opportunities.
