Explain the difference between skill-based pay and competency-based pay. Provide an example of a job that might fall under each type of pay. Which pay system would you prefer if you worked for a company and could choose?
A skill based pay is one in which pay is decided based upon skills possessed by the person. The skill is decided based on some certfications, degrees or qualifications. A competency based pay is one in which pay is determined by the overall competency of the candidate. The competency is based on a combination of skills possessed, past work experience and on the job training.
A job at entry level such as machine operator falls under skill based pay. The machine operator must be skilled in producing components and handling the machine. He must have done some industrial diploma course in machining operations to show his skills. A job at middle management position that requires team handling and decision making falls under competency based pay. The person must be skilled in technical knowledge, soft skills and also must have handled teams in the past successfully to prove his competency.
Competency based pay is more preferable over skill based pay, since in this pay structure is determined by competency levels and pay can increase if the person performs well and proves his competency even more. There are higher chances of promotion, career growth and job enlargement in competency based pay structure.
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