Competency-Based Pay

Meaning & Definition

Competency based pay uses the actual skills, knowledge, behaviours and competencies of the employee; not just the job title or time spent working in that role; as a basis for compensation. An increase in pay is directly linked to the employee’s ability to develop necessary skills, the level of expertise they possess and their contributions to the development of the organisation’s capabilities.

Important aspects of Competency-Based Pay

• Promotes ongoing education and skills development.
• Compensates for ability and productivity rather than length of time in role.
• Creates an agile and forward-looking workforce.
• Increases engagement and motivation for employees.
• Aligns salary with desired employee skill-set for the organisation.

Applicable Regulations & Policies

• No specific statute of compliance is linked to this term in any way.
• Internally managed compensation and rewards, and performance policies.
• Requires a competency framework and assessment method that is clearly defined.
• Transparent criteria reduce bias and promote fair treatment for everyone.