Competency-based pay definition plus stuff you should know

26 of September, 2022

It seems almost like a dream, getting paid for what you’re good at. Imagine if your contribution, which moved your company forward, shows up in your paycheck. Words of thanks for a job well done became actual currency. A competency-based pay system can do all that because it allows your knowledge and abilities and skills to drive your career forward. Let’s dive right to it!

What is competency-based pay? 

While skill-based pay goes to employees who are hands-on with a product and have certifications or formal assessments that can quantify their success, competency-based pay is a little different. Start ups or smaller businesses don’t necessarily have the need for a pay-grade driven structure with rigid titles and levels. In a competency-based system, employees complete assessments and they receive rewards for what they do and how they do it rather than the product they create. This system has its merits to be sure, but can cause some hiccups in teams as well. 

Driving to Achieve

In a competency-based system, employees set their growth path by driving towards goals and sharing their achievements. Generally, specific goals established at the start of an engagement period. Those goals, once accomplished and acknowledged, pave the path to success and promotion for that employee. 

Seniority doesn’t matter

Young people coming into an established company can’t help but look up to the more experienced folks around them. It may seem impossible to reach the level of more senior employees in a skill based system with rigid staff levels. But, in a competency-based system, all employees try to achieve company goals. The playing field is more level. It’s not about how long you’ve been there but rather, what you’re contributing now. 

Subjective rather than Objective

When evaluating an employee in a competency-based pay system, clear goals with quantifiable markers of achievement are vital. Unfortunately, especially with soft skills or group goals, evaluation becomes more subjective. The opinion of the manager, if favorable, can bump your pay. If your manager feels you haven’t performed, it’s harder to make an argument since there’s no level to achieve or certification to earn. Promotions can look unfair because they’re so subjective, causing friction between employees. 

Logistics and Administration

In a competency-based system, outside the box thinking is encouraged, even though working in the box makes for easier management. As each individual has a different path, there’s no one simple way to manage growth and goal tracking. Pay ranges can vary significantly, adding more work to administrators tracking pay and profitability. Hiring can be more lengthy and complicated as new employees are likely not an apples to apples match with current or previous staff. 

If competency-based pay is right for your organization, don’t let the the additional administration needs scare you. Sesame HR has several products that can help track employee goals and achievements. Payroll variations become easy to manage with Sesame’s payroll system. And, recruitment software can give you a snapshot of who you need and how close you are to finding them.