The Power of Skill-Based Pay Systems and Daily Evaluations

Performance has long been at the core of compensation management. The desire to pay more productive employees a greater wage is, in fact, a strong business strategy, but with the multi-faceted nature of jobs today, a simple measure of ‘performance’ is often very difficult to justify. More and more it is not just the effort put forth by the employee that makes them desirable, but also the amount of job based skills the employee possesses.

Some of the potential outcomes of skill-based pay systems include a flexible workforce, lowered labor costs, and increased quality and productivity.

Skill-based pay systems are based on the idea that employees will be proactive in obtaining new, job-related skills if they are compensated for such efforts. This is a basic principle of human behavior: Actions that lead to rewards will be repeated. The underlying concept behind a skill-based pay system is relatively simple: increase an employee’s compensation as they acquire and become more proficient with specific job-related skills.

Newly implemented skill-based pay systems can be met with resistance, especially from long-term employees who have continuously received pay increases based on years of service. This can be challenging to overcome, but in most cases the long-term employees have a great deal of job-related skills, allowing them to enter into the new pay system with a high level of compensation.

To correctly implement a skill-based pay system, it is important for the skills in the system to be job-related. For example, employees that primarily work on cast in place walls also learn how the prep a concrete slab would receive additional compensation for possessing that knowledge. One way we found was to define the skills by cost code or work task.

Another important aspect of a well thought out skill-based pay system is that the amount of compensation increase should be relevant to the difficulty of the skill: Learning to prep a concrete slab is not as difficult as learning to finish one, so the former should not be associated with as large of a pay increase as the latter.

The final important characteristic of an effective skill-based pay system is regular communication of the skills or tasks that each employee must know and establishing a daily evaluation of these. With today’s technology and electronic time collection, it can be incorporated in the daily process.

Skill-based pay systems, as with any compensation management strategy, can be ineffective if used incorrectly. It is important to consider the suggestions outlined in this article before implementing a skill-based pay system. Ultimately, the implementation of a skill-based pay system can lead to greater profits as employees become more skilled and more proficient, allowing for them to perform their jobs more effectively. To receive a free Skill Based Pay Microsoft Word 18 page example of our concrete construction company’s skill based pay send an email requesting it to info@paycrew.com. Please feel free to comment and discuss if anyone else has implemented a skill based pay system and would like to share their experiences.

This was a summary of the research and practice implications from: Dierdorff, E. C., & Surface, E. A. (2008)