Skill-Based Pay


The Business Center is a leader in the field of skill-based pay. We have been helping clients develop and install SBP systems since 1981. Don Barkman, president of The Business Center, has written the most comprehensive book on the subject titled Skill-Based Pay: Design and Implementation. It is available on this web site.


SBP is a marriage of a well-developed training process with a systematic compensation program. It brings discipline to the learning of an organization, boosts individuals to high levels of competency, rewards participants equitably, and aids productive and consistent organization performance. A well-designed SBP program uses comprehensive and objective methods for evaluating knowledge and the application of skills on the job. When properly administered by trained evaluators, it is seen as fair and equitable by all the parties. It’s reliance on observable behaviors used in actual job performance makes it exceptionally valid and reliable - as compared to traditional subjective performance ratings by supervisors.


Skill-based pay can work very well for new plants and for organizations undergoing significant change. Originally used exclusively in new manufacturing and processing plants, it has spread to older plants and to the public sector. It has proven very effective at helping work teams deliver the cross-training and skill overlap that strengthens team cohesion and performance. Because new operations must do significant amounts of training, SBP offers a way to structure that training and to maximize the return on compensation increases.


It does not, however, fit every circumstance.


There are several obstacles to using SBP. New organizations must develop extensive training and evaluation materials and processes. Older organizations must overcome psychological hurdles and monetary constraints. Because it places emphasis on learning multiple skills, or higher levels of specialized skills, it can be frightening to workers who have difficulty learning. It can also encounter resistance from employees who feel they have earned a higher status position in the workplace and resent newer workers getting to the same level in significantly shorter times. There are also difficulties adjusting the reward aspect when it is introduced into an existing operation where employees are already competitively paid. SBP brings all employees up to a fully competent level of performance, but it is not conducive to singling out superior performers. Some leaders find this aspect frustrating. It is difficult to sustain it when there is a high level of turnover.


Organizations can encounter difficulty using SBP when the work itself is not designed for team work and multi-skilling or a systematic progression to higher expertise. SBP rests on the way the work is designed. There are also problems when the organization is unable or unwilling to commit the resources and time to develop and apply the training and evaluation materials required. An error common in some early systems was to pay for knowledge instead of demonstrated skill. This wasted money on pay increases for passing tests related to skills of marginal use in the actual job. Another problem occurs when a firm tries to imitate the practices of another organization or work exclusively from the literature on the topic. Because each application has its own unique history, workforce, pay concerns, etc. this can lead to serious problems. The use of resources who can lay out the principles of SBP and aid an organization in applying them eliminates the problems of imitation and inexperience.


For more on SBP, visit the description of our book, Skill-Based Pay: Design and Implementation, read some of the excerpts from the book in our Samples section, and order a copy of the book while you are here. Don Barkman, the author, is available to discuss the book with you over the phone.




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