4 Advantages of Competency-Based Pay Structures

Posted by Kurt Liebegott  /  August 18, 2015  /  Workplace Culture   —   No Comments ↓

competency-based-payCompetency-based pay is a pay structure that rewards employees based on how well they perform in the workplace, rather than the hierarchy of their position or years of experience. Let's take a closer look at the advantages of this emerging pay-management structure.

What are the benefits of competency-based pay structures?

Serves as a motivational tool

In various business verticals, the pay structure is determined by the years the employee has dedicated to the company or the industry. With a competency-based pay structure, the only thing standing between your employees and a greater wage is how much they contribute and how well they perform. With this method they're often more likely to take greater initiative and contribute to your competitive advantage.

It reinforces a culture of self-improvement

Once your culture has been established, it's more difficult to maneuver it in a different direction than setting the tempo a certain way in the first place. Don't let that discourage you however, as it is certainly not impossible to change its course. One way to create a culture of self-improvement and company-wide productivity is through a competency-based pay model. This pay structure offers a tangible reward for your employees who are dedicated to growing their skills and improving themselves. When your employees dedicate their time—even outside of the 40-hour week—to growing your products, services and organization, they will not only contribute to the success of the company, but also be motivated by the compensation they receive for their dedication.

It may improve staff retention

As described by the staff at CIO: "Employee retention is a critical issue facing today's enterprises as they compete for talent in a recovering economy. As Josh Bersin, principal at Deloitte and founder of Bersin by Deloitte, spells out, the costs of employee turnover are increasingly high, as much as 1.5 to 2 times an employee's salary. There are also other, soft costs, such as lowered productivity and a decrease in employee morale. These all add up to big trouble for businesses that aren't investing in their human capital."

While a pay structure alone is often not enough to retain your top talent, it certainly shouldn't be ignored. Since the competency-based pay model is still rare, your employees may be more motivated to stay with a company that rewards them for self-improvement and skill development, rather than seniority at the company or years of experience under their belts.

It encourages corporate transparency

Put simply, transparency is good for business. It creates trust between your employees and those at a higher-level. It improves employee engagement at its core and contributes to employee retention. The competency-based pay structure is clear-cut in the essence of transparency, since your employees know exactly what is expected of them to get a promotion.

Interested in learning about organizational change? Check out our recent posts: "The Secret Behind Continuous Improvement Process Success" and "The Role of Education in Making an Organizational Culture Change."

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Topics: Workplace Culture