Competency Based Pay

What is Competency Based Pay?

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.

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

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.

What is the Competency-Based Pay Model?

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.

What are the Key Elements of Competency-Based Pay Plan Structures?

There are five key elements of the Competency-Based Pay Plan as mentioned below:

• Competency enhancement needs to be defined and explained to every stakeholder 
• Planning for competency improvements of your staff/team members
• Having Tracking tools for performance-based competencies measurements
• Should have Responsibility cum authority delegation road maps in action
• Employment of learning and development systems in place  

What are the advantages (pros) of Competency-Based Pay Structures?

Following are the advantages of the Competency-Based pay system:

• Competency-Based pay encourages paying the person for the competencies instead of paying the job title or position 
• Job analysis is the basis for such pay structures
• Assessments development improves for performance evaluation task determination
• Data is collected for competencies survey to reward what is righteous and move that to the level next for the reason of performance and not the position/seniority only
• Competent salary of each employee is set as per whosoever is competent of
• Participatory management style enhances
• Reinforcement of ever improvement (Kaizen concept) culture improvises
• CBP works as the Retention tool for your worthy workforce / HR / human capital
• Increased retention results in decreased HR turnover rates positively 
• Change is welcome in such systems
• Encourage employees to work harder and add to the company’s success
• Workers’ comfort zones are crossed and put into the harder levels of competency cum professionalism to fight with and cover those obstacles which ordinarily workers avoid to
• Juniors can earn more than seniors by the Competency-Based work input they put
• Corporate Transparency level is improvised
• Self-improvement and individual motivation for all because of performance and Competency-Based structure pay packages, the more good skills-based you work, the more you earn – hence on the part of employer’s benefit is the employees contribute to the company performance 
• Organizational Loyalty may be enriched due to the employees feel of a culture of “what is performed is rewarded with judiciously by the employer”

What are the Disadvantages (cons) of the Competency-Based Pay Model?

Following are the potential disadvantages of the Competency-Based Pay system: 

• Favoritism may be kept behind the curtain of competency by the immediate evaluators, this sort of thinking might inculcate within those who are not in possessions with higher skills and knowledge; and are technical but ordinary workers not very much into the proficiencies enhancement ring of the game
• Subjectivity issues may raise due to uneven salary structure, causing grudge within employees and teams and may result in employees’ cold wars and lobbying within company cultures causing operational disturbances
• One team might be incomplete looking of failing the other as competitors
• The relative difficulty of competencies with performance graphs to compare to what competency is relevant to which performance of a task, in particular, though not impossible but may be difficult – case to case it might change 
• Investment requirements are huge in this system as far as Competency-Based training are concerned for your workers
• Market comparisons might be difficult for each competency to compare are get on to that
• More admin and payroll tasks’ requirements due to individual tracking of Competency-Based performance to pay for

Summarizing Competency-Based Pay

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.