SKILL BASED PAY

B Y:

S A RT H A K
M A R AT H E

KEZIAH BABU

NEHA HINGE
WHAT IS SKILL BASED PAY?
• SBP is a compensation system that rewards employees with additional pay in exchange for formal
certification of the employee’s mastery of skills, knowledge, and/or competencies.
• Employees receive additional pay only after they demonstrate the skills, knowledge, and/or
competencies that the system rewards.
• SBP is a person‐based system, because it is based on the characteristics of the person rather than the
job.
HOW IS SBP ESTABLISHED?

Whatever the form of SBP, the establishment of an SBP plan typically involves several general steps:
1. Identify potential SBP jobs
2. For each job level, identify the specific skills (both depth and breadth) sought.
3. Evaluate the potential costs and benefits of the SBP plan
4. Develop the appropriate techniques
5. Establish certification standards and processes
6. Determine the dollar amount of SBP for the acquired skills
SPB PLAN DESIGN AND MANAGEMENT
• Analysis of the work activities, organizational culture, and the available human, technical, and financial
resources.
• A pay system in general should be tailored to fit the technical system and the social system in the
organization
• Employees’ understanding, acceptance, and participation throughout the process of planning, designing
and implementing
• Help the executives fully understand the costs and benefits of SBP in their situation.
• Develop a comprehensive communication plan
• Develop a risk management plan
• With the help of a task team, work with them to conduct a diagnosis of the appropriateness of SBP for
their organization. Factors such as workforce characteristics, training capability, change in technology
and work processes, how well the organization has identified and documented the skills required in the
work process, and many other factors could make SBP a good fit or a poor fit.
• Help senior managers understand the design options that might maximize benefits and minimize costs.
• Ensure that senior managers understand the implementation challenges and appropriate timeline for
developing SBP. Implementation challenges may include difficulty in reaching an agreement on key
design choices; convincing employees and managers that SBP is in their interest; finding time for
training, especially if the organization is busy; and more broadly, balancing the need to deliver products
and services with the need to learn new skills for long ‐term benefits.
EFFECTS OF SBP ON EMPLOYEE ATTITUDES
AND BEHAVIOURS
• The Motivational Effect of Job/Work Redesign Under SBP
• According to the JCM, the motivational potential of the job depends on five core dimensions: skill
variety, task 20 identity, task significance, autonomy, and feedback. An SBP system as described earlier
will result in a change in employees' jobs/roles in a way that will give them a higher motivating
potential. Given that the purpose of SBP plans is to motivate skill acquisition, jobs/roles should be
redesigned and enriched to allow employees to apply the acquired skills when using this system.
EFFECTS OF SBP ON ORGANIZATIONAL OUTCOMES

• SBP affects organizational outcomes directly through improved employee skill levels, workforce
flexibility and ability to assign employees to cross functions, and improved teamwork effectiveness.
• SBP affects organizational outcomes directly through improved employee skill levels, workforce
flexibility and ability to assign employees to cross functions, and improved teamwork effectiveness.
An Expectancy Theory Perspective:

Murray and Gerhart (1998) suggest that four actions could be taken to increase the motivational potential
of jobs when using SBP.
First, individuals with higher skill competencies can be assigned to jobs of greater skill variety.
Second, jobs can be redesigned so that a more skilled worker can complete the whole unit and thus
achieve increased task identity.
Third, if increased skill competencies allow an individual to have greater control over the work process
with less supervision, the individual may experience a greater sense of autonomy.
Fourth, greater skill acquisition may enable a worker to personally conduct a quality inspection and give
him/her access to information regarding productivity.
FREQUENTLY ASKED QUESTIONS

1. How do we decide whether skill‐based pay is right for us?

2. What are the critical issues in union settings?
3. How do we get employee acceptance of the system?