Competency-based pay, alternately known as skill-based and knowledge-based pay, determines compensation by the type, breadth and depth of skills that employees gain and use in their positions.
This salary structure is different from determining pay based on the employee's seniority or amount of time spent in their position. It is common in fields that require professionals who have specialized knowledge. As a result, it is simple to structure pay using accesible salary tables.
Competency-based pay structures can be used to motivate employees, encouraging them to enhance their skills, knowledge and experience. When you reward employees based on their ability to perform a job, this promotes the importance of learning and development for the whole workforce.
A job title is no longer defined by the seniotority level of the individual in the role, instead it indicates the type and level of training and experience the employee has attained.