Competency Based Pay

What Is Competency-Based Pay?

Competency-based pay is a pay structure that compensates employees based on their skill set, knowledge, and experience rather than their job title or position. A competency-based pay plan encourages employees to reach the pay rate that they want by taking charge of improving their skills and work.

What Is the Difference Between Competency-Based and Traditional Pay Plans?

The main difference between competency-based and traditional pay plans is employee potential. Because traditional pay plans are based on an employee’s job title and position, their pay can be limited by their ability to move up in seniority at their organization. However, in a competency-based pay plan, employees are able to increase their pay potential by improving on their skills and gaining knowledge related to their field.

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Competency-Based Pay Pros and Cons

Like all compensation plans, competency-based pay has both advantages and disadvantages. The following are some examples of competency-based pay pros and cons to help you determine if this pay structure could work for your company



Why Use Competency-Based Pay?

As we mentioned above, a competency-based pay plan can be a great motivator for an employee and could help them take their work to the next level. Competency-based pay doesn’t follow the traditional paying system, but that’s it’s main advantage, too. It might just be the change that motivates your employees to improve.

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Communicating compensation can be tricky, but doing it right can yield incredible benefits. Learn about HR’s strategic outcomes and how compensation connects to them.

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