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Competency-based pay

What is competency-based pay?

Competency-based pay refers to a salary structure where employees are compensated based on their knowledge, skills and abilities, rather than their job title or position. A competency-based compensation plan motivates individuals to improve their abilities and efforts in order to achieve the pay rate they desire.

What are the five main elements of competency-based pay?

The five main components of a competency-based pay plan are as follows:  

1. Establish competency development requirements:

It is critical to understand the skill gaps before beginning any skill development efforts. This entails determining exactly what employees don't know how to accomplish or can't do well. With development goals in mind, it's easier to plan how to properly train new hires to boost the company's core competencies.  

2. Make a plan:

For everyone concerned, creating a game plan for competent development activities is critical. A visionary plan may help maintain track of these activities and make them as energy-free as possible, whether it's assigning essential tasks, creating timetables, setting goal dates, or communicating modifications and changes.  

3. Delegate responsibilities:

As a busy organisation, the executive team is already overburdened. Building a roadmap for a competency development plan, on the other hand, is only as useful as it is complemented by and implemented by those in charge. It is sufficient to secure that the deadline is met, that standards are met, and that skills are developed by taking the time to assign tasks to assigned staff members.

4. Employ a learning and development system:

The most effective strategy to enhance skill sets is to keep learning. Despite the fact that the organisation has numerous business divisions and direct training sessions, any type of investigative activities is a vital part of a competency-based development plan.  

5. Use tools to keep track of your skills:

The organisation can arrange all of the competency development activity data and make it broadly available with the help of skill management software. This makes gathering, analysing, and reporting data a breeze.

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

Skill-based systems are more well-defined, having been used for years to identify certain jobs. Pay is determined by skills that have been assessed or certified. Both blue-collar and white-collar jobs have been subjected to these wage structures. In characterising jobs like apprenticeship, tradesman, and master craftsman, increasing skill levels are the determining factor.

Competency-based pay systems, on the other hand, have been used as components of a pay system and have only been applied to personnel at the professional or managerial levels thus far. The term competency-based compensation refers to a pay system that pays people for using their skills rather than for the results they produce. Individuals are the focus of a competency-based compensation system. Competency is one aspect that may influence salary, but performance may also play a role.

Why is competency-based pay desirable?

Some of the advantages of the competency-based pay system are as follows:

  • It encourages employees to work harder and contribute to the company's success.
  • Employees grow loyal to the organisation because they are rewarded for something they believe they deserve.
  • Employees are pushed out of their comfort zones by competency-based pay because they believe they can earn more depending on their skills.
  • According to their proficiency levels, subordinates can also earn more than seniors.
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