HR Glossary

Competency-based Pay

What is Competency-based Pay?

Competency-based pay (CBP) is a system of pay that rewards employees for the skills and knowledge they bring to their jobs, rather than for the time they spend on the job. Under a CBP system, employees are assessed against specific competencies and paid according to the level of mastery they have achieved.

CBP systems are often based on job profiling, in which individual jobs are analyzed in terms of the skills and knowledge required to perform them. Job profiles can then be used to create a competency map, which identifies the specific competencies required for each job.

Employees are assessed against the competencies in their job profile, and are paid according to the level of mastery they have achieved. This can be done through a variety of methods, including job-based pay scales, competency-based bonus systems, and pay-for-performance systems.

CBP systems are becoming increasingly popular in today’s workplace, as they allow employers to better match pay with employee skills and abilities. They also help to motivate employees to continue developing their skills and knowledge, which can lead to improved performance and productivity.

What are the benefits of Competency-based Pay?

There are a number of benefits to using competency-based pay as a way to reward employees. First, it allows employers to more accurately match pay levels to the skills and competencies required for a job. This can help to attract and retain qualified employees, since they know that they will be fairly compensated for the skills they bring to the job. It can also help to motivate employees to develop and improve their skills, since doing so can lead to a pay increase. Additionally, competency-based pay can help to improve employee productivity and performance, since employees are more likely to be engaged in their work when they feel that their skills are being put to good use.

What sort of companies use Competency-based Pay?

There are many types of companies that use competency-based pay. Large, global companies are the most likely to use this type of pay system, as it allows them to compare the skills and abilities of employees around the world. However, there are also many smaller companies that are using competency-based pay systems. This is likely because the system allows for more flexibility and can be tailored to the specific needs of the company. In addition, competency-based pay can be beneficial for companies that are experiencing rapid growth, as it can help them quickly identify and assess the skills of new employees.


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