Pay for knowledge and pay for skill compensation systems reward employees with higher pay as an incentive for the increased knowledge or skills they acquire.
Most organizations have traditionally designed their compensation systems around specific jobs. The wage and salary structure of these systems has typically been based on job analysis and evaluations, this process determines a job’s worth and salary range. In recent years, however, a new alternative to this job based approach has been developed, this new system pays employee’s for the skills and knowledge they possess, rather than for the job they do or a particular job category.
Whether the compensation system is called knowledge based pay, employee does but on the range of jobs the employee can do. Employees are rewarded for each new knowledge or skill. These learning based pay system evaluate the employee’s worth to the employer. Increased skills and job mastery give management greater staffing flexibility. The increased employee knowledge also may reduce the total number of workers needed and may lead to higher quality results. The higher pay and greater diversity of work may mean higher levels of satisfaction and therefore lower absenteeism and turnover. At the same time, the HR department creates a continuous learning organization where continued growth is valued by employees and the company. In short, employees are paid more because they are worth more.
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