Skills-Based Pay

Lawler and Ledford (1987) argued twenty-six years ago that skill-based pay was going to become an increasingly popular concept in compensation management. Ledford and Heneman (2011) define skill-based pay as "a compensation system that rewards employees with additional pay in exchange for formal certification of the employee's mastery of skills, knowledge and/or competencies." The authors juxtapose this against a "job-based pay system," defined as a system where employees are entitled to receive their pay even if they are not proficient in their position.

There are two issues with the concept from the outset. The first is that employees should be proficient in their position, since they have been given that position. It makes little sense for an employee to remain in a position with no skills. Trotter (2013) notes that a person's skills and competencies contribute to them receiving the position, at least in any company where merit...
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