Compare and contrast market-based pay systems and competency-based pay systems.
What will be an ideal response?
The market-based pay system uses a direct market-pricing approach for all of a firm's jobs. This type of pay structure is feasible if all jobs are benchmark jobs and direct matches can be found in the market. Pay surveys can then be used to determine the market prices of the jobs in question. If competitors' pay decisions determine a company's pay structure, though, then the level of pay or the mix of pay forms is no longer a source of potential competitive advantage. It is neither unique nor difficult to imitate. In contrast, a firm may choose to differentiate its pay strategy from those of its competitors to execute its own strategy more effectively.
Under a competency-based pay system, workers are paid not on the basis of the job they currently are doing, but rather on the basis of their skills or on their depth of knowledge, both of which are termed "competencies." Skill-based plans are usually applied to so-called blue-collar work and competencies to so-called white-collar work. The distinctions are not hard and fast. They can focus on depth, breadth, or self-management. In a world of slimmed-down big companies and agile small ones, the last thing any manager wants to hear from an employee is "It's not my job."
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