Whenever an employee is compensated in accordance with her or his type and level of obtained skills that are applied in the workplace, it’s known as competency-based pay. This salary structure differs from paying employees based on their tenure or seniority levels, and is common in fields that require professionals who have specialized knowledge. Competency-based pay has the advantage of being simple to structure and utilizes readily accessible salary tables. One unique disadvantage of the salary structure is it can be difficult to alter during times of economic hardship. Competency-based pay might also be known as skills-based and knowledge-based pay.
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