Skill-Based
Pay Managers start
by developing a list of skills needed to excel in a specific position. Each
skill is then ranked by importance. As employee gains mastery of these skills,
their compensation is increased accordingly. Pros: Competency-Based
Pay In this compensation
plan, the employer develops a list of important characteristics (detail-oriented,
strong leadership, ability to handle multiple tasks, etc.) and bases compensation
on the extent to which the employee displays these skills in their daily job
activities. Pros: Cons: Variable Compensation Pros: Cons: Which system
is best for your company goals?
Salary Plans
What compensation plan is best for your business?
You want to employ
the best and the brightest people. But to get them (and keep them) you have to
offer the right compensation package. While the solution may be to pay more, often
the real answer lies in how you pay.
The following outlines the pros and cons of three of the most popular rewards
based compensation plans. These plans offer compensation that is based on the
skills and performance of an individual employee-rather than creating a benchmark
salary for certain positions within your organization.
As implied by the name, skill-based pay rewards employees for improving their
proficiency with essential job skills. Widely used in manufacturing, skill-based
pay is now becoming increasingly popular in other work environments. The basis
behind this pay structure is that employees are paid based on their skill level-not
the position they hold.
Cons:
Competency-based pay is similar to skills-based in that it focuses on what the
employee brings to the table. However, competency-based pay looks at general
attributes of the employee as opposed to specific skills.
In this model, employees are paid a below-average base salary and can earn additional
bonuses by meeting or exceeding set goals. In many companies, employees are
given 75-90% of market compensation. They are then given individual, departmental
and corporate goals. If these goals are met or exceeded, the employees can earn
above market compensation.
Designing a compensation plan is not something that can be done by copying someone
else. Every company has its own unique products, people, and processes. What
works in one organization may not work in another. Much can be learned by studying
what has succeeded or failed with other companies, but a sound understanding
of the different variables involved is essential to designing a plan that benefits
your company and your employees.