Paying for knowledge: Does it pay?

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TRAINING & DEVELOPMENT

Employees' pay has traditionally been based on the specific jobs they perform. However, another model of pay is gaining popularity in recent years, one based on the capabilities of employees rather than on the characteristics of their jobs. It is often known as person-based pay, in contrast to job-based pay, and goes by various names, including pay for knowledge, skill-based pay and competency-based pay.

There are many advantages of using pay for knowledge. It improves employee engagement and increases workforce flexibility as workers learn the skills to perform different functions. When properly designed and effectively implemented in the right circumstances, pay for knowledge systems can improve company performance. However, effective use of such systems can be complex, raising questions as to the overall benefits to many employers.

Nonetheless, many Canadian firms are adopting these systems for at least some of their workforce. A recent survey of 261 firms revealed that about 22 per cent of medium to large Canadian firms currently use pay for knowledge, with the average user implementing it for about half of its workforce. Industries with above-average usage include wholesaling/retailing, manufacturing, resources and communications, but examples can be found in almost every sector. Neither company size nor union status seems to affect the incidence of pay for knowledge, but company growth is a significant factor, as more rapidly growing firms are more likely to use the system.

The premise of these systems is employees are paid according to the package of skills, knowledge and competencies that each possesses - regardless of the particular job they are doing at any given time. It should be noted that skill-based pay (SBP) and competency-based pay (CBP) are really two distinct types of pay for knowledge systems, with different characteristics and different costs and benefits. Skill-based pay systems tend to focus on the production or service provision level, while competency-based pay focuses on the managerial or professional level.

Skill-based pay for the front line

Skill-based pay systems typically involve the use of a skill grid, which is comprised of a number of skill blocks,...