Skills-Based Pay
Lawler and Ledford (1987) argued twenty-six years ago that skill-based pay was going to become an increasingly popular concept in compensation management. Ledford and Heneman (2011) define skill-based pay as "a compensation system that rewards employees with additional pay in exchange for formal certification of the employee's mastery of skills, knowledge and/or competencies." The authors juxtapose this against a "job-based pay system," defined as a system where employees are entitled to receive their pay even if they are not proficient in their position.
There are two issues with the concept from the outset. The first is that employees should be proficient in their position, since they have been given that position. It makes little sense for an employee to remain in a position with no skills. Trotter (2013) notes that a person's skills and competencies contribute to them receiving the position, at least in any company where merit is taken into consideration. Where there are companies that do not take merit into consideration -- union shops that still use length of service as the primary method of determining promotions -- the problem is likely the system of allocating people into jobs, rather than the system of pay. Furthermore, if a person is experienced and otherwise qualified, usually the skill can be added quickly.
The second issue is that skill-based pay as described is not mutually exclusive to job-based pay. The term "additional pay" indicates that skills-based pay is a supplement to job-based pay, rather than a replacement for it. That said, the question skill remains as to whether there has been increased adoption of skills-based pay in the past quarter century.
Skill-Based Pay
The idea behind skill-based pay is that is...
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