Skill based pay is a form of incentive pay in which employees are paid for the skills they possess, not just the skills that they perform. Skill-based pay is becoming more prevalent and necessary as technology and employee skills become more important to employers. Skill-based pay is different from traditional pay systems in that it is a person-based system and not a job-based system. It compensates employees for the skills they have that are pertinent to the organization, rather than paying them for the jobs they are performing. Under skill-based pay systems, raises do not always follow job changes, however there are many opportunities for higher wages through new applicable skills.
Skill-based pay has been in use for many years, but it is not until recently that the system has become a well-known and fast-growing pay system. In the past, skill-based pay was known as pay for knowledge, competency pay, pay for skills, and multi-skill pay.
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