Competency-Based Pay is defined as the way the organization sets their employees' salary based on the skills, abilities, and work experience instead of the position the workers have been hired for. At times in HR practices, the employees in the same positions have little different pay packages due to their abilities and exposure enhancing an individual's competency level compared to others.
The basic difference between the Competency-Based Pay and Traditional Pay Plan is that the former is skills-based, knowledge, and abilities of the worker which employee may augment from time to time for personal grooming and growth perspectives, and the latter is based on the job title and position of a person in an organization on which someone has got placement on.
In a traditional pay plan, the employee can rise to the next level due to seniority because of a particular number of years working with a company with the pay limits predefined for each slab of grading systems therein such a pay structure, whereas, in the Competency-Based pay the employees’ may get a pay raise because of skills set enhancement they did and they got knowledge increased with time for self-growth reasons to be eligible for performance pay- say Competency-Based pay.
The competency-based pay model, as already discussed, is based upon individual performance and the pay for a performance motivates employees to work better than before. Hence, this sort of model encourages skills, knowledge, and experience enhancements rather than the same practices for years.
Novelty ideas and betterment initiatives are welcome in this kind of organizational culture known as organic ones - having ease of chain of command and the both horizontal as well as vertical chain of communication with easy access to all- here CEOs room is open for an ordinary worker as well to walk into the discuss the required.
Employees’ suggestions may also be provided with the due importance to a great deal in such pay systems. In simple words put the CBP is paying the person and not the position.
There are five key elements of the Competency-Based Pay Plan as mentioned below:
Following are the advantages of the Competency-Based pay system:
Following are the potential disadvantages of the Competency-Based Pay system:
Hence it is your choice being an employer that you choose between either the traditional base pay plan or the performance cum competency base pay. The former is known for the pay for the position and paying the worker; and the latter one is the Competency-Based pay which, in its real-time essence, is based on the employee’s merit that is human skills, performance, and practical efficacy input into the job.
Others are Merit pay – which is paying for superior performance – and Practice effectiveness pay (paying for certain pay slabs including rewarding for success stories within companies that is the combination of fixed and variable compensation plans.
You should choose your way by defining what is your mission (why you are in business) and what is your vision (what you want to achieve). Based on mission and vision predefinitions, you should be having on your table the short-term and long-term objectives explaining the skills required to achieve those. And according to the education, skills, experiences, and job competencies requirements of your job positions, you should design your way of practice to the best of your benefit and success.