In contrast to traditional compensation programs, pay-for-skills systems relate pay to the acquisition of skills. In some circles called "pay-for-knowledge," these systems reward employees for enhancing their value to an organization by increasing their skills base.

Pay-for-skills systems are usually associated with the self directed work team concept. This approach to organizational design requires that employees be cross-trained to perform the various jobs associated with a given work process. A pay-for-skills system is ideally suited to this type of work design, as it encourages and reinforces the acquisition of the necessary skills to effectively perform the various tasks required of the team.

The employee usually begins at an entry-level pay classification and commences to learn and apply the first job skill. When proficiency in that skill has been demonstrated, either through testing or to the satisfaction of peers, the employee moves to the next higher pay classification. He or she may then begin learning an additional skill, which, when acquired, advances his or her pay again. This continues until the employee has all of the necessary skills and has reached the highest pay classification in that area. Future pay increases usually come through market adjustments and/or incentives.

Because pay-for-skills systems are usually associated with team oriented organizations, the requirements for advancing to higher pay classifications may include more than job proficiency; such as interpersonal skills and contribution to team objectives. Some of these team objectives might be quality, downtime, safety, maintenance, etc.

The principal advantage of a pay-for-skills system is that it increases the capabilities of employees and provides the organization with increased flexibility in allocating resources. The approach contributes to a higher quality of work experience in that employees gain greater job satisfaction by performing a variety of tasks. A disadvantage of the pay-for-skills system is that an organization must be prepared to provide the necessary training and resources to facilitate the process. Also, this approach to pay may result in higher overall compensation costs as employees usually advance more quickly than under traditional base compensation systems. However, the benefits of the pay-for-skills system more than justifies the additional costs.

A word of caution: It is premature to consider pay-for-skills approach to compensation if you do not currently have a reliable base compensation system. The Quorum Group can assist you in assessing your organization's readiness for a pay-for-skills approach through a brief but thorough assessment.

The Quorum Group
John G. Brau, SPHR
P.O. Box 2121
Alvin, Texas 77512-2121
Tel.: 281-393-1100
Email: JohnB

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Last Update: September 02, 2008