Well over a half century ago, job evaluation systems emerged. These systems, while linked to the labor market, targeted the elusive measurement of internal job worth. Arising out of the industrial engineering school of thinking, they took on a life of their own in the late thirties and forties. By the fifties and sixties, these systems were glorified, by some, as a virtual science.
By the seventies, the triumph - or tyranny - of technology catapulted human resources to center stage. The concept of "human capital" and the view that "knowledge is wealth" emerged. Organizations began to seriously think of their work force (their skills, knowledge, special talents, and experience) as a competitive weapon.
Corporate winners in the technology-driven eighties and nineties are placing increased priority on human resources, in general, and individual employees, in specific. Ironically, while downsizing is responsible for the loss of jobs, the survivors (keepers, core team members) are valued all the more.
Out of this transition to a knowledge-intensive economy, new ideas about pay are springing forth. One of these ideas, skill-based pay, borders on challenging job evaluation's first commandment: "Thou shalt evaluate the job, not the person."
This quasi-iconoclastic view has much appeal. It appears to fit well with the anti-bureaucratic thinking of those trying to reinvent, re-engineer, and restructure the corporate animal. The early champions of this way of thinking about pay are converting others. Full-blown skill-based (or knowledge-based) pay plans are appearing as alternatives to job-based approaches.
(Technical ladders, a well-established approach, is a precursor to skill-based plans. While it links compensation to the acquisition of skill/knowledge [or job competencies], it remains rooted in a job-based framework.)
Skill-based pay systems made their debut in the manufacturing sector (which may account for why they are called skill-based, rather than knowledge-based systems). Today, a few service sector enterprises are trying out the approach. Most plans are still new and plan design is as varied as the organizations who use them.
Only a few serious research studies on skill-based pay have been conducted. Based on these studies, our experience in designing base and variable compensation plans, and other studies, we created a profile [not available online, call for a photo-copy] which contrasts job-based and skill-based plans. This profile is excerpted from Stern & Associates' presentation on strategies and approaches to compensation, which encompasses the linkages between strategy, organization, motivation, and reward systems.
While the few available research studies shed some light on skill-based pay plans and the organizations who use them, management should be cautious about drawing hard and fast conclusions for several reasons, including these:
The majority of skill-based plans are relatively new... minimal track-records exist. Research, so far, excludes organizations that have scuttled the approach after trying it out, as well as those who use hybrid plans. Research questionnaires are usually completed by a single individual (typically a manager of compensation or human resources), whose likely affiliation with the effort is a contaminating factor.
There has long been a need to tie reward systems to training and development. Skill-based pay appears to be one approach to accomplishing this linkage, but it is not for everyone.
Before embarking on the skill-based path, an organization should make a careful assessment of six key factors: strategy, needs, resources, culture, commitment, and the targeted direction of organizational change. We have found that setting compensation objectives helps to clarify these factors and identify the types of approaches that will best serve the organization over the long-term.
Leading organizations in today's knowledge-intensive and highly competitive markets are keenly aware of the crucial importance of a highly-trained and flexible work force. Some are trying the skill-based approach; others have found different approaches, better suited to their circumstances. There is more than one avenue to achieving such high-performance goals as organizational flexibility, human resources development, productivity, and quality.