Skill-Based Pay: A Concept That's Catching On

An alternative to the job-based approach to compensation (in which organizations decide on how much a particular job is worth and then set a range of pay that an individual can get for performing that job) is becoming increasingly popular: paying for the skills people have rather than for the jobs they do. Skill-based pay begins with the concept that individuals should be paid for their skills and argues that paying for skills has many advantages over paying for jobs. Unfortunately, there is a lack of data on the relative effectiveness of skill-based pay, so claims are hard to prove. Nevertheless, it is possible to identify some of the advantages of skill-based pay as well as situations in which it seems to be particularly effective.