Human Resources -- Skill-Based Pay…Has it Caught on?
The skill-based pay structure sharply differs from the traditional job-based pay structure. Compensating an employee according to skill set, skill-based pay focuses on developing multi-skilled employees with an eye toward greater flexibility and productivity. Presenting both benefits and drawbacks, skill-based pay has developed to become one of the dominant compensation systems.
Compare and contrast a skill-based pay structure with a traditional job-based pay structure.
A traditional job-based pay structure compensates an employee according to the job he/she holds, sometimes with modifications dependent on the market (Mitra, Gupta, & Shaw, 2011). In contrast, a skill-based pay structure compensates an employee according to the employee's skill set: an employee with a greater skill set will receive higher compensation than another employee performing the same job but having a lesser skill set (Mitra, Gupta, & Shaw, 2011, p. 55). One strategic goal of the skill-based pay system is the development of multi-skilled employees who can perform a variety of tasks (Byers & Rue, n.d.). This system focuses on 3 categories of skills: horizontal, consisting of broadening skills for a range of tasks; vertical, consisting of obtaining higher-level skills; and depth, consisting of high-level specialized skills for the employee's existing job (de Silva, n.d., p. 12). This somewhat radical departure from the traditional system is based on the concept that multi-skilled employees increase organizational flexibility by enabling the organization to more easily handle "workflow irregularities" (Mitra, Gupta, & Shaw, 2011) and ultimately enhance the productivity of the organization (Mitra, Gupta, & Shaw, 2011). Furthermore, greater job satisfaction, lower absenteeism and lower employee turnover are expected to flow from skill-based pay, as the organization is encouraging and investing...
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