Explain competence-based pay including its advantages and disadvantages. Include in your discussion the practice of broadbanding.

Question

What will be an ideal response?

Answer 1

Competence-based pay, also known as knowledge-based pay, pay-for-knowledge, or multiskilled-based pay, compensates employees for the different skills or increased knowledge they possess rather than for the job they hold in a designated job category. There are several advantages that stem from the use of skill-based pay plans. The most frequently cited benefits of skill-based pay include greater productivity, increased employee learning and commitment to work, improved staffing flexibility to meet production or service demands, and the reduced effects of absenteeism and turnover. Unfortunately, some skill-based pay plans limit the amount of compensation employees can earn, regardless of the new skills or competencies they acquire. Further, employees can become discouraged when they acquire new abilities but find there are no better jobs to which they can transfer.?Organizations that adopt a skill-based pay plan frequently use broadbanding. Broadbanding simply collapses many traditional salary grades into a few wide salary bands. This is done by organizations in an attempt to structure their compensation payments to employees, to encourage lateral skill building, and to address the need to pay employees performing multiple jobs with different skill level requirements. By broadbanding, organizations can consider job responsibilities, individual skills, and career mobility patterns in assigning employees to bands.