For the skill-based compensation structures, payments are tied to individual skills and compensation rates essentially indicate the value allocated to the employees’ skills rather than their job assignments. Compensate employees for the skills they bring to the job. These structures are associated with the opportunities for developing more versatile employees. The payment systems underline the compensation of employees based on a range of knowledge, acquired business-related skills, and the extent of such knowledge or skills.
Employees are expected to learn several skills over a particular period, although the required skill levels and time differ from one organization to another. Further, employees are entitled to pay rise after learning a new skill and demonstrating some progress in the skill development. The skill-based payment system is considered to be different from job-based system because it fundamentally emphasizes on the individual/employee as opposed to the job (Jackson, Schuler, & Werner, 2011)
Skill-based pay exhibits a different approach to traditional payment systems with the variation in payment rates for skilled, semi-skilled and unskilled workers in the structure. It is apparent that skill-based pay mainly focuses on the individual rather than the assigned job. The pay structure rewards workers for what they are but not the value of their job. As such, job worth or value determines the basic pay usually indicates the rate for minimum skills with skills acquisition resulting in payment progression.
In contrast to traditional job-based pay structures, skill-based structures reward employees in accordance to their level of skill as well as knowledge and for acquiring new skills (Mitra, Gupta, & Shaw, 2011). In the private sector, particularly in the manufacturing environment, skill-based pay is significant because skills reflected in the compensation rates can be tied to specific processes and technological requirements in various manufacturing plants. The pharmaceutical industry is an example of one of the sectors in which a company may effectively adopt the skill-based compensation because employees can be trained to perform different processing tasks (Rabin, 2003).
Traditional job-based pay systems pay each employee to carry out a particular job all the time. On the other hand, skill-based compensation system seeks to have all employees acquire skills on all jobs to help them move from one job to another as required. Employees are eligible for payment rise for learning as well as indicating proficiency in a new skill, even though they don’t use that skill on the job.
Using skill-based payment systems in organizations enhances the ability of the human resources to uphold the organizational goals. The motivational factor involved propels the organization to actualize its mission. Many companies such as some of the Fortune 1,000 companies have implemented skill-based pay for all or some of their workers. Furthermore, they have reported advances in workforce productivity and flexibility, although these benefits are yet to be considered wholly independent outcomes (Byers & Rue, 2008).
Authenticity of Author’s claim
According to Lawler and Ledford (1987), skill-based pay structure has several advantages, especially in some situations in which it is substantially effective such as in the manufacturing environment. Besides, the skill-based pay structure has gained popularity in the private-sector over the decades. The increased popularity is attributed to various benefits related to the system and its contribution to the organization’s productivity as well as performance. It is apparent that skill-based pay facilitates job enrichment and enlargement by with more specific job classifications.
The system also increases flexibility by boosting the multiple task performances. Additionally, it enables job rotation, leads to a leaner workforce, and enhances quality by supporting improved use of human resources. The capacity of skill-based pay structures to facilitate technological change is associated with its increased implementation because of the increased use of technology-oriented approaches in different sectors. Further, the job enlargement, continuous training, and higher pay levels with advanced skills usually minimizes staff turnover (Lawler & Ledford, 1987).
Many organizations have adapted skill-based pay plans to encourage self-development and advance employees’ perspective of operations by broadening their skills. The enhancement of skills, backed with better payment systems, leads to financial security. These systems reward several skills and positively encourage skills development, which make employees multi-skilled as well as flexible. Although skill-based payment systems do not essentially underline the effective use of skills, performance criteria can be incorporated in the system in order to increase its effectiveness in utilizing employees’ skills. Further, the system is supported by training opportunities that are vital to its success with significant effect on the employee development, as well as productivity in an organization.
Pay structure prominent in the private sector
Skill-based pay structure has grown in prominence with the increased interest in employees’ skills among employers and employees. Over the decades, skills offer a measurable standard of employment and opportunities for higher pay. The enhancement of competence levels through the acquisition of new skills offers uniquely competitive advantages for employers.
As a result, skill-based payment system has become an underlying approach of meeting the employer and employees’ needs. The advances in skill and technology-based industries have supported the increased implementation of skill-base pay, in addition to the consideration of knowledge and skill application as a measure of performance, productivity as well as competitiveness. When employers incorporate skill-based payment with their organizational mission, they increase their chances of attaining the set organizational goals. It is also an effective way of ensuring organizations’ ability to develop and innovate in the private sector (De Silva, 2008).
Many companies have adapted skill-based pay structure to promote flexibility and productivity. The individually acquired skills among human assets in an organization can be used in teams to develop highly competent teams to handle projects, and enhance the competitiveness of the company. Compensating employees for the skills they acquire during their service to the company encourages them to continue with their knowledge-acquisition quest, which translates to higher business performance in the company.
Since training account for current competence and facilitate the development of skills, organizations typically adapt payment systems that emphasize skill acquisition through training. Employers (organizations in the private sector) are, therefore, increasingly adapting skill-based payment systems because they promote current as well as future skills needs (De Silva, 008).
The current business world dictates that companies must develop changes in technology and human resource skills. Companies in both public and private sectors are continually facing the challenge to meet these ever-changing requirements in the market. In an attempt to address these challenges, organizations have adapted skill-based pay structure because it enables skills development and flexibility. The pay structure creates a flexible, multi-skilled workforce, which facilitates continued as well as uninterrupted production and employees’ responsibility of producing high-quality products.
References
Byers, L. L., & Rue, L. W. (2008). Chapter 13: Base Wage and Salary Systems. Web.
De Silva, S. (2008). An introduction to performance and skill-based pay systems. Web.
Jackson, S., Schuler, R., & Werner, S. (2011). Managing Human Resources. Mason, Ohio: Cengage Learning.
Lawler, E.E., & Ledford, G.E. (1987). Skill-based pay: A concept that’s catching on. Management Review, 76(2), 46-46.
Mitra, A., Gupta, N., & Shaw, J.D. (2011). A comparative examination of traditional and skill-based pay plans. Journal of Managerial Psychology, 26(4), 278-296.
Rabin, J. (2003). Encyclopedia of Public Administration and Public Policy: A-J. New York: CRC Press.