The HR Dictionary

Competency-Based Pay

Competency-based pay is a compensation model that focuses on paying the person rather than paying for the job. It's intended to motivate staff to develop knowledge and skills that contribute to the practice's success. 

Traditional Pay vs Competency-Based Pay

The main difference here is potential. While traditional pay schemes reward employees for the work that they do, competency-based pay scheme rewards employees based on their potential to improve upon their skills and encourages employees to improve their skills to perform the job better.

Pros of Competency-Based Pay Structure

  • Encourages workers to put forth their best effort and support the business.
  • When employees receive rewards for accomplishments they believe they merit, they stick with the organization.
  • A competency-based pay system will help employees better understand their earning potential and the abilities they need to develop to achieve the compensation they want.
  • When employees believe they can earn more money based on their competencies, it encourages them to step out of their comfort zone.

Cons of Competency-Based Pay Structure

  • Competition inside the company can occasionally cause a team to become disjointed.
  • It might be difficult to define which talents and qualifications are crucial to the business.