Compensating professional employees like engineers and scientists presents unique problems. Analytical jobs like these emphasize creativity and problem solving, compensable factors not easily compared or measured. Furthermore, how do you measure performance? For example, the success of an engineer’s invention depends on many factors, like how well the firm markets it.
Employers can use job evaluation for professional jobs. Compensable factors here tend to focus on problem solving creativity job scope, and technical knowledge and expertise. Firms use the point method and factor comparison methods, although job classification seems most popular (here, recall that you slot jobs into grades based on grade descriptions). Yet in practice firms rarely use traditional job evaluation methods for pricing professional jobs, since it is so difficult to quantify the factors such as creativity that make a difference in professional work.
Most employers use a market pricing approach. They price professional jobs in the marketplace as best they can, to establish the values for benchmark jobs. Then they slot these benchmark jobs and their other professional jobs into a salary structure. Each professional discipline (like engineering or R&D) usually ends up having four to six grade levels, each with a broad salary range. This help employers remain competitive when bidding for professionals whose skills and attainments vary widely and who literally have global employment possibilities.
Competency based pay
We’ve seen that employers traditionally base a job’s pay rate on the relative worth of the job. The compensation team compares jobs using compensable factors such as effort and responsibility. This allows them (1) to compare jobs to one another (as in based on its duties, this job seems to require about twice the effort of that one). And (2) to assign internally equitable pay rates for each job. Thus, the pay rate for the job principally depends on the job itself not on who is doing it.
For reasons which we’ll explain shortly an increasing number of compensation experts and employers are moving away from assigning pay rates to jobs based on the jobs’ numerically rated, intrinsic duties. Instead they advocate basing the job’s pay rate on the level of competencies the job demands of those who fill it. Title and tenure have been replaced with performance and competencies is how one expert puts it Compensation specialists call this second approach competency based pay.
What is competency based pay?
Where the company pays for the employee’s range depth and types of skills and knowledge rather than for the job title he or she holds.
In a nutshell competency based pay means the company pays for the employee’s range depth and types of skills and knowledge, rather than for the job title he or she holds. Experts variously call this competence knowledge or skilled based pay. With competency based pay an employee in a class I job who could (but may not have to at the moment) do class II work gets paid as a class II worker, not as class I.
Demonstrable characteristics of a person including knowledge skills and behaviors that enable performance
Different organizations define competencies in somewhat different ways. Most, like the US office of Personal Management, use competencies synonymously with the knowledge or skills or abilities required to do the job. Another approach is to express competencies somewhat more narrowly in terms of measurable behaviors such as design a Web site. Here, you would identify the job’s required competencies by completing the phrase. We can simply define competencies as demonstrable knowledge skills and behaviors that enable performance.
In practice competency based pay usually comes down to using one or both of two basic types of pay programs: pay for knowledge or skill based pay. Pay for knowledge pay plans reward employees or learning organizationally relevant knowledge for instance Microsoft pays new programs more as they learn the intricacies of Windows Vista. Skill based pay tends to be used more for workers with manual jobs – thus carpenters earn more as they become more proficient at finishing cabinets.
Several things distinguish the competency based pay approach.
1) First employees build job competencies (knowledge and / or skills through experience on the same or similar jobs.
2) Second, competence based pay ties the person’s pay to his or her competencies — pay is more person oriented. Employees here get paid based on what they know or can do – even if, at the moment they don’t have to do it.
3) Traditional job evaluation based pay plans tie the worker’s pay to the worth of the job based on the job description – pay here is more job oriented.