Person-Focused Pay: Complete Guide to Competency-Based Compensation

Person focused pay systems are also known as competency based pay, skill-based pay, or pay-for-knowledge systems. These innovative compensation strategies represent a fundamental shift from traditional job-based pay structures to more dynamic, employee-centered approaches.

In a person-focused pay program, compensation is treated as a reward that employees earn by acquiring and applying job-relevant knowledge and skills. Rather than basing pay solely on the position held, person based pay structure approach motivates individuals to continuously learn, expand their capabilities, and deliver more value in their role. As employees gain new competencies, their pay grade increases, creating a win-win arrangement where the company supports professional development and staff members have incentive to maximize their impact.

What is person-focused pay?

Person-focused pay, also known as person-based pay, is an innovative compensation strategy that aligns remuneration with individual growth and development. Unlike traditional job-based pay systems that focus solely on position requirements, person-focused pay emphasizes the unique value each employee brings to the organization.

Person-focused pay encompasses several related compensation approaches, with competency based pay being one of the most prominent and widely adopted models within this framework. This approach recognizes and rewards employees for acquiring job-related knowledge, skills, and abilities (KSAs). By doing so, it creates a powerful incentive for continuous learning and professional development.

Competency based pay refers to a salary structure where compensation is determined based on skills, knowledge, and experience rather than job title or position. This specific type of person-focused pay system moves beyond traditional hierarchical compensation models to focus on what employees can actually do and contribute to the organization.

Main elements of competency-based pay

The main components of a competency-based pay plan encompass employee skills including both hard and soft capabilities, technical and practical knowledge, demonstrated experience and proficiency, plus behavioral competencies that contribute to organizational success. There are three main types of person-focused pay:

• Pay-for-knowledge: Compensates employees for learning and applying specific knowledge areas.
• Skill-based pay: Rewards employees for developing and demonstrating particular skills.
• Competency-based pay: Compensates based on broader abilities and behaviors that contribute to organizational success.

What is the difference between competency-based and traditional pay plans?

Competency based pay is based on the skills of each individual whereas traditional pay plans are based on job title and position. Traditional pay plans tend to limit employees to use their seniority to move up in their organization. Competency based pay allows employees to increase their pay by developing their skills and knowledge in their field.

Person-focused pay programs are innovative compensation strategies that align an employee’s skill development with their earning potential. These models represent a shift from traditional job-based pay structures to more dynamic, competency-driven approaches. By incentivizing continuous learning and adaptability, organizations can foster a culture of growth while meeting evolving business needs.

4 Models of Person-Focused Pay Programs

Organizations can implement person-focused pay through various models. Each approach has its unique strengths and is suited to different organizational contexts. Let’s explore four common models:

Stair Step Model

The Stair Step Model is a structured approach to skill development and compensation. It’s designed to create a clear progression path for employees, much like climbing a staircase.

How stair step model of person-focused pay works:

1. Each step represents a job role with increasing complexity.
2. Employees start at the entry-level, mastering foundational skills.
3. As they acquire new competencies, they ascend to the next step.
4. Each step corresponds to a predefined pay increase.
5. Progression is linear, requiring mastery of each level before advancement.

This model excels in industries where skills build sequentially, such as manufacturing or technical fields. It provides a transparent career trajectory, motivating employees to upskill systematically.

Benefits:

• Structured learning path for employees
• Predictable salary progression for both employer and employee

Challenges: May limit lateral movement between different skill sets

Skills Block Model

The Skills Block Model offers a more flexible approach to skill development and compensation. It’s akin to assembling building blocks, each representing a distinct skill or competency cluster.

Key features:

• Skills are modular and can be acquired in any order.
• Employees can develop multiple skill sets simultaneously.
• Compensation increases as employees accumulate more skill blocks.
• Allows for recognition of prior learning or experience.

This model is particularly effective in roles where skills are more independent, such as customer service, sales, or creative industries. It accommodates diverse career paths and recognizes the value of varied skill sets.

Advantages:

• Encourages multifaceted skill development
• Adapts to individual learning preferences and career goals
• Facilitates cross-functional capabilities

Considerations:

• Requires robust skill assessment mechanisms
• May necessitate more complex administration and tracking systems

Job Point Accrual Model

The Job Point Accrual Model focuses on developing versatility within a job family. This approach encourages employees to broaden their expertise across related roles, enhancing their value to the organization.

Model mechanics:

• Jobs within a family are assigned point values based on complexity and importance.
• Employees earn points by mastering different roles within the job family.
• Compensation increases correlate with accumulated job points.
• Emphasizes horizontal career development alongside vertical progression.

This model is particularly beneficial in organizations with interconnected roles or those seeking to build a flexible workforce. It’s commonly used in healthcare, hospitality, and multi-skilled manufacturing environments.

Strengths:

• Promotes cross-training and operational flexibility
• Supports succession planning and knowledge transfer

Potential drawbacks: Could lead to competition for high-point roles

Competency-Based Pay Model

The Competency-Based Pay Model focuses on rewarding employees based on their demonstrated proficiency in specific competencies crucial to organizational success. This model goes beyond technical skills to include soft skills and behavioral attributes.

Key elements:

• Identification of core competencies aligned with organizational strategy
• Detailed competency frameworks with proficiency levels
• Regular competency assessments and feedback mechanisms
• Pay increases tied to competency development and demonstration

This model is particularly effective in knowledge-based industries and professional services firms where success depends on a combination of technical expertise and soft skills.

Advantages:

• Aligns individual development with organizational goals
• Encourages holistic professional growth
• Facilitates targeted learning and development initiatives

Challenges: Requires robust and fair competency assessment processes

Advantages of Person-Focused Pay Programs

For employees, pay for performance offers several benefits that can boost both job satisfaction and career growth:

• Job enrichment: Employees get the chance to take on more varied and interesting tasks as they build their skills.
• Skill development: There’s a clear incentive for workers to learn new things and improve their abilities.
• Growth potential: As employees become more valuable to the organization, their pay can increase accordingly.
• Motivation boost: Direct rewards for achievements can light a fire under employees, pushing them to do their best work.
• Personalized rewards: This system allows for pay that truly reflects an individual’s performance and skills, rather than a one-size-fits-all approach.

Employers also stand to gain from person-based pay programs:

• Better job performance: When employees are motivated to develop their skills, the quality of their work often improves.
• Reduced staffing needs: With a more skilled workforce, companies may be able to accomplish more with fewer employees.
• Greater flexibility: Employees with a wider range of skills can be moved around to different roles as needed, making the organization more adaptable.

Disadvantages of Person-Focused Pay Programs

While person-based pay has its perks, it’s not without its challenges. Here are some potential drawbacks for employers to consider:

• Higher labor costs: Hourly labor costs may increase as employees gain more skills and qualify for higher pay.
• Increased training expenses: To support skill development, companies often need to invest more in training programs.
• Overhead costs: Managing a person-based pay system can be more complex, potentially leading to higher administrative costs.
• Compatibility issues: This system may not play well with existing incentive pay structures, causing conflicts or confusion.
• Dependence on training quality: The success of person-based pay hinges on well-designed training programs. If the training falls short, the whole system can falter.
• Valuation challenges: It can be tricky to determine the exact monetary value of different skill and knowledge sets, leading to potential disputes or perceived unfairness.

By weighing the person based pay structure advantages and disadvantages, businesses can decide if this pay strategy aligns with their goals and culture.

FAQ about Person-Focused Pay

What is the difference between competency-based pay and skill-based pay?

There is no significant difference between competency-based pay and skill-based pay, as these terms are used synonymously in compensation management. Both approaches focus on rewarding employees based on their abilities, knowledge, and demonstrated capabilities rather than their job title or hierarchical position within the organization.

What is the difference between job-based pay and person-focused pay?

Job-based pay compensates employees for their current job responsibilities with set pay limits for each position, using evaluations based on job descriptions and requiring promotions for advancement. In contrast, person-focused pay compensates employees for their flexibility and skill portfolio, allowing pay increases as they acquire new competencies within their current role, with advancement possible through skill development rather than positional changes.

What is the difference between pay for performance and competency-based pay?

Pay for performance rewards employees based on specific performance outcomes and short-term results measured against targets and KPIs, with compensation varying based on achievement. Competency based pay focuses on rewarding employees for developing and demonstrating specific skills and knowledge through long-term capability building, with compensation increases tied to mastering new competencies regardless of short-term performance fluctuations.

While person-focused pay programs offer compelling benefits, they are not ideal for all organizations or positions.  If your organization is exploring innovative compensation strategies to attract and retain top talent, a person based pay structure is well worth considering.

Implementing person-focused pay requires defining core competencies and proficiency targets for each role, as well as robust payroll capabilities to track salary adjustments as employees advance. Talentnet payroll services in Hanoi can help you design and implement a compensation system that aligns with your organizational goals and culture.