Skill-based Pay

Skill-based Pay

Introduction

Employees of every organization work on the roles and responsibilities assigned in the job description. In the return of this work and time commitment, the company rewards an employee with monetary and in kind benefits. The monetary reward and incentive includes the salaries, bonuses, increments, and commissions. The literature and research work in human resource management has always tried to analyze the pay structure that can be the most beneficial for the company to motivate employees as well as not overpaying them. There are a number of types of pay structure that have been suggested by the theorists and implemented by the companies like the traditional pay, skill based pay, broad banded, job family, and the spot rate structures. These pay structure are differentiated on the basis of the types of employees paid, and the company philosophy and business operations.

Discussion

In the year 1987, a research paper named as 'skill based pay: A concept that's catching on' was published in which the comparison of traditional pay structure was done with skill based pay. The reasons for the implementation of skill based pay were also discussed and it was concluded that the skill based pay structure is a successful way and companies will continue to implement this structure in the future (Lawler & Ledford, 1987). Since the publication of the research paper, a number of books, articles and academic works have analyzed the feasibility of skill based pay and the other possible pay structure that can used. Thus, the debate and discussion of best possible pay structure still continues and a number of new factors have increased the complexity like the introduction of online employees who work from a remote place and become part of the organization through the digital network.

Traditional vs. Skill based pay

The introduction of skill based pay structure in the 1970s and 1980s was a challenge to the existing traditional pay structure in the organizations. The traditional pay structure was a job based approach based on the seniority and merit of the employee (Martocchio, 2011). The traditional pay structure was based on the concept of awarding the job tenure and performance of the employee. It was a very suitable pay scale for stable companies with hierarchical structures. Employees used to typically move upwards with the increasing job experience. This system usually resulted in lesser powers and discretion for the managers to do favoritism. It was designed with the intention to make the negotiations on the labor contracts easier and simple. This system was also known as the narrow-graded pay structure because the scale was divided on the basis of the grade, levels and scales (Durai, 2010).

The skill based pay structure was different from the traditional structure. It is described as a structure in which an employee gets rewarded for the competency that makes the person more capable for doing the job. Skill based pay structure ended the requirement of a hierarchical company setting and provided the opportunity of different pay scales on the same level ...