Competency-based Pay and Broadbanding
Competency-based pay is a pay system that compensates employees on their skill set, their knowledge, and their experience. It's an alternative to traditional pay approaches that are based on job title and position. The idea behind competency-based pay is to encourage employees to improve themselves (skills, knowledge and experience) and thus contribute more to the company.
A common form of competency-based pay is Broadbanding
. What is Broadbanding exactly?
Broadbanding is a pay strategy that consolidates the many distinct pay grades of traditional pay structures into only few “broad bands”. Because there are only few pay grades in the pay structure, a person’s payment cannot only be increased by job promotion (as is the case in traditional pay structures) but also by improved skills and competencies. The salary is determined by the value a worker delivers relative to the value of the position to the company. In other words, broadbanding blends skills, performance, competencies, the companies’ goals and pay grades.
Source: Tucker, S.A., K.M. Cofsky (1994) “Competency-Based Pay on a Banding Platform” ACA Journal