What is Competency Based Pay? | Meaning & Definition | Akrivia HCM

Competency-based pay is a payment system that recognizes contributions rather than job titles or experience. With the competency-based pay structure, each employee is compensated based on their own performance.

The competencies are the skills, knowledge, and attributes necessary to succeed in the job. The skills include conflict management, listening to others and taking the initiative, product knowledge, and financial analysis; and attributes such as motivation, confidence, and enthusiasm.

This type of pay plan benefits businesses by encouraging productivity from employees and keeping them satisfied with their pay scale.

Advantages of Competency-Based Pay:

1. Reduced Turnover to Employers
2. High motivation for employees
3. Increased transparency between employers and employees
4. Individual Self Motivation

Disadvantages of Competency-Based Pay:

1. Favoritism for one employee affects the work environment.
2. Employees lack unity because of the competition present within the organization.