Competency Based Pay

Learn about Competency Based Pay and more with Workstream and improve your hiring vocabulary. Workstream helps companies hire better, faster - everyday.
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What is competency-based pay? 

Competency-based pay is a system of paying employees according to their mastery of skill, knowledge, and experience as opposed to their job title, position, or tenure in the company. Via this system of pay, employees are encouraged to reach their desired pay rate by improving and developing their skill set. 

Is there another name for competency-based pay? 

It may also be known as skill-based pay. 

How does a competency-based pay plan differ from a traditional pay plan? 

In a traditional pay plan, the focus is on paying for the job based on a grade level and experience that a specific job requires. In this traditional plan, the pay typically increases as the employee’s tenure with the company increases. Meaning, the more tenured the employee is, the more they can move up the organization, the more they are paid. 

On the other hand, the competency-based plan focuses on paying for the person’s skill set. In a competency-based pay plan, the pay increases on the level of skill mastery and not necessarily on the employee’s tenure with the company. 

What are the benefits of having a competency-based pay plan?

Here are the following perceived benefits of a competency-based pay plan: 

What are the possible drawbacks of having a competency-based pay plan? 

Here are the following potential drawbacks of a competency-based pay plan: 

A competency-based plan has its share of advantages and disadvantages. Ultimately, it is up to the business to decide if it is a suitable plan for them or otherwise.

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