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Home | Business | Management

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Skill-based Pay Management

By: Robert II Smith

Much is being written about skill-based pay. This approach has been utilized for many years, though generally not under this title, for specific types of occupations. Scientists, engineers, teachers and other "knowledge-intensive" professional jobs have been paid largely on this basis (Armstrong 2002). Simply, skill/knowledge-based pay programs pay employees for what they can do rather than what they are doing. A nuclear physicist is paid for all the collective skills and knowledge he/she commands, even though for extended periods the work performed does not require these qualifications. A teacher will receive a pay increase upon completion of a Master's degree, even though the activities performed and the skill/responsibility level remains unchanged. Most of the recent activity in skill-based implementation has been in new production facilities designed to minimize distinctions between jobs and to operate utilizing work team structures. Additionally, some of the fast-food organizations have utilized this approach to give employees the feeling that there is a mutual investment in the current employment arrangement, hoping to reduce the devastating turnover levels experienced in that industry. The best applications of skill-based pay are in work contexts where jobs are highly interdependent, cooperation /supportive behavior is required, flexibility of work assignment is needed and where the skills utilized are reasonably stable. Organizations using quality circles and other forms of employee participation also find that employees tend to make greater contributions when they are motivated to increase their job knowledge. Care must be taken to ensure that skills can be defined and that skill mastery can be determined reliably before a skill-based system is adopted, however, particular attention should be given to the process by which skill mastery is tested and who does the testing; often peers and supervisors find saying "no" has undesirable consequences and decide to operate the system more like a seniority program. The organization must also ensure that a payback will be forthcoming from a multi-skilled workforce; the average pay levels will typically raise as incumbents mature under the system and in order for productivity to be maintained there must be some offsetting benefits. A skill-based system may not work for all occupations within an organization; prior to its consideration it must be decided if the organization's culture will support multiple approaches to administering pay. A health care organization may have occupations which are already treated as separate units within the pay system and adoption of skill-based pay for some, merit pay for some and time-based pay for the rest may be acceptable. On the other hand, a white collar public sector agency may find different pay systems for different groups to be inadvisable (Armstrong 2002).

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