You want to employ the best and the brightest people. But to get them (and keep them), you have to offer the right compensation package. While the solution may be to pay more, often the real answer lies in how you pay.
The following outlines the pros and cons of three of the most popular rewards based compensation plans. These plans offer compensation that is based on the skills and performance of an individual employee--rather than creating a benchmark salary for certain positions within your organization.
As implied by the name, skill-based pay rewards employees for improving their proficiency with essential job skills. Widely used in manufacturing, skill-based pay is now becoming increasingly popular in other work environments. The basis behind this pay structure is that employees are paid based on their skill level--not the position they hold.
Managers start by developing a list of skills needed to excel in a specific position. Each skill is then ranked by importance. As an employee gains mastery of these skills, their compensation is increased accordingly.
Competency-based pay is similar to skill-based in that it focuses on what the employee brings to the table. However, competency-based pay looks at general attributes of the employee as opposed to specific skills.
In this compensation plan, the employer develops a list of important characteristics (detail-oriented, strong leadership, ability to handle multiple tasks, etc.) and bases compensation on the extent to which the employee displays these skills in their daily job activities.
In this model, employees are paid a below-average base salary and can earn additional bonuses by meeting or exceeding set goals. In many companies, employees are given 75-90% of market compensation. They are then given individual, departmental and corporate goals. If these goals are met or exceeded, the employees can earn above market compensation.
Which system is best for your company goals?
Designing a compensation plan is not something that can be done by copying someone else. Every company has its own unique products, people, and processes. What works in one organization may not work in another. Much can be learned by studying what has succeeded or failed with other companies, but a sound understanding of the different variables involved is essential to designing a plan that benefits your company and your employees.