What is competency based pay?
Competency-based pay is the payment scheme, that calculates employee’s rewards depending on their experience, skills and knowledge, and not just job title.
A competency base pay system is the one that focuses on employees as individuals. Usually it’s more motivating for employees to work and develop their skills, be more aspirational and apply gained knowledge and new skills in their work. However, in practice, such pay systems are rarely used in their pure form, but combined with performance based payment systems.
Competency-based pay encourages enhancing employees’ knowledge and skills. Therefore, this motivates them to be proactive, take initiative, and have greater contribution to your company’s success. In other words employees salary will depend on their actual contribution and performance. It’s a good way to motivate people and drive business development.
Under this payment structure your employees get rewarded for better competencies, thus improving skills and gaining new applicable knowledge will become a new black for your team.
Even though competency based pay is not a new concept, yet it’s not that popular among employers. Switiching to such payment structure will set you ahead of competition for best talent. It will also motivate employees to stay with your company longer. As you can see in companies with competency based pay there’s literally no career plateau or ceiling. Thus employees development and pay rise depends on their efforts, not corporate hierarchy.