What Is Competency-Based Pay? Definition, Pros And Cons

Organizations that utilize competency-based pay structures reward representatives given the skills, knowledge, and experience they apply in the work environment instead of their work title or position.

This approach is intended to persuade workers to become optimistic, expand on their current abilities and apply these in their work.

Competency-Based Pay Definition

The point when a worker is reimbursed as per their sort and level of acquired abilities applied in the working environment is known as competency-based pay.

This pay structure contrasts with paying representatives given their residency or position levels and is expected in fields that require experts who have particular knowledge.

Moreover, competency-based pay enjoys the benefit of being easy to structure and uses promptly open pay tables.

On the other hand, one of a kind detriment of the pay structure is that it may be challenging to modify during seasons of monetary difficulty. Therefore, competency-based pay is likewise known as skills-based and competency-based pay.

Differences Between Competency-Based And Traditional-Based Pay

Traditional based pay

Traditional pay structures inside organizations have generally been centered on the appointed work.

Pay has been founded on position and status and is affected by factors like the lowest pay permitted by law and exchange.

Even though competence and skill have been reflected in a roundabout way, pay frameworks have not been intended to energize the improvement of people.

With technical headways and attention to efficiency and quality, many organizations currently perceive the need to pay attention to individual commitments.

Competency-based pay

Competency-based pay portrays a framework where prizes depend on utilizing competency without thought for results.

The reason is that a special presentation relies upon practical skills, and more elevated skill levels will create unrivaled execution.

A competency pay framework focuses on people. By and by, competency frameworks are only from time to time utilized in an unadulterated structure. Competency is one of the elements deciding pay, yet the execution is likewise a component.

Elements Of Competency-Based Pay


This is the data a worker has amassed throughout their education and career


This is an employee’s capacity to apply the information to various work circumstances. It depicts what a worker can do.

Together, knowledge and skills structure an employee’s skills. These components are generally recorded as part of a set of working responsibilities.

competency-based pay pros and cons

Competency-based Pay Pros

  • It supports a culture of progress and expansive inspiration. Competency-based plans encourage a workplace that values improvement. Along these lines, workers effectively look for ways of propelling their abilities pertinent to their work.

  • It persuades workers to be more and accomplish more. Rather than being restricted by residency and rank, representatives can take a more proactive position in personal growth to offer more to the association.

  • It increases truthfulness. In a competency-based pay plan, workers can more readily comprehend their procuring potential and the abilities needed to arrive at their ideal pay rate.

  • It further develops representative maintenance. This pay plan makes workers feel esteemed because they see their abilities as critical to the organization, further developing care. They are likewise more in command over their pay which can make them less inclined to search for another occupation somewhere else.

Competency-based Pay Cons

  • It can prompt more prominent pay subjectivity since competency-based plans are more inclined to subjectivity since assessments are not entirely clear.

  • Leading business sector comparisons might be troublesome. For example, task-to-work correlations might be a test in a competency-based pay plan since most study information is from the customary pay plan models.

  • Laying out the relationship between skills to performance might be a challenge. It is hard to pinpoint which explicit skills straightforwardly affect efficiency.

  • It could be more inclined to prefer it. For example, in a competency-based pay plan, employees might get deterred if they find that a partner is being paid more when, given their discernment, they are more talented. This might prompt a sensation of preference and disappointment.


What precisely comprises competency-based pay is discussed by different people. In any case, the general agreement is that this type of pay scaling relies upon the skills of those considered for raises.

While some differentiation has been made between competency versus performance-based pay, competency should be checked somehow or another in one or the other model, and the presented results are a substantial approach to deciding if somebody is contributing adequately to their association.

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