Managing Employee Performance and Reward Concepts, Practices, Strategies

Configuring base pay structures and pay progression according to the capabilities of the person holding the position rather than on the basis of the components of the position represents a very different way of managing employees’ base pay. Having considered the main aspects of the person-based approach, and the general characteristics, advantages and disadvantages of skill- and competency-based pay, in this chapter we examine the steps and design challenges associated with the development, implementation and administration, first, of skill-based systems and, second, of competency-based systems. Since the processes of competency analysis and assessment have already been considered in detail in chapter 5, in this chapter our treatment of these aspects of competency-based and competency-related pay systems is necessarily brief.

Developing a skill-based pay system

As noted in chapter 7, a skill-based pay system is one in which the base pay structure generally takes the form of broad grades, with in-grade pay level and progression being linked to the acquisition of desired ‘hard’ technical knowledge and manual skills and the formal assessment of individual employees’ knowledge and skill learning and proficiency. Skill-based pay progression in broad grades is analogous to development-based pay increments up to grade midpoint in narrow-graded systems, except that skill learning covers the full range of skills covered by the job family rather than just one job, and the range of development-related pay is substantially greater. As Mitra, Gupta and Shaw (2011) state ‘… the most fundamental reason for using skill-based pay systems is to promote workforce flexibility …’.