Many different pay-structure models exist, but they're variants or combinations of a job-based pay model that's based on knowledge and performance. Each has advantages and disadvantages. If you're currently looking for a job and you believe that you have skills and abilities that go beyond a job description, you may prefer being hired by a company that compensates employees with a knowledge-based pay system or one of its variants.

Job-Based Pay Models

Job-based pay models are familiar to most people. In this model, management identifies a job by a name that identifies the primary tasks to be performed ("floor supervisor," "clerk-typist," "machine operator") and assigns a pay scale to that job, which reflects the estimated education and experience needed to perform the job. The wages of supervisory jobs might also take into account the number of employees being supervised. Raises based on time spent on the job are another characteristic of job-based pay models.

Knowledge-Based Pay Models

Knowledge-based pay models, also frequently identified as "performance-based," or "competency-based," establish pay levels on the basis of the skills and knowledge required to perform the work. At first glance, the distinction may seem formalistic. When you identify a job that requires certain skills, then hire someone because they have the necessary skills and knowledge to do the job, aren't you effectively using both models?

The Practical Difference Between the Two Models

There isn't a firm line that separates the two models, but they differ in emphasis. The job-based model identifies workers by job titles and links compensation rather tightly to the title (and to seniority). The performance-based model also has job titles, but compensation isn't tied to the title but to the worker's specific abilities. In general, knowledge-based pay models work best in organizations that have fluid organizational structures or where work assignments aren't fixed – where, for example, an engineer may be asked to head up a small team assigned to a specific project, then on completion of that project, that engineer will become part of a larger engineering team working on an assignment in progress.

Combinations of Both Models

"Merit pay," is a pay-model that combines both jobs and knowledge (or performance) models. A fixed-pay jobs-based model is augmented by bonus payments that are based on performance which exceeds the expected performance level for the job title.

A related model is sometimes called "practice effectiveness," and is designed to overcome a frequently encountered drawback of merit pay, which is that what started out as merit pay becomes institutionalized – another jobs-based model by another name. The practice-effectiveness model avoids this by identifying each of the skills or accomplishments that earn pay beyond the basic salary that's part of the job description, basing increased pay on the basis of the skills acquired or on the accomplishments achieved. These are not necessarily permanent aims, but they reflect the organization's current need.

What's In It For You?

When you're looking for a job, it's likely that it will come with a job title. That doesn't necessarily mean that the company's pay model is entirely job-based. When you're being interviewed, ask how the company sees the job you've applied for. If you like a fast-moving work environment, fluid assignments and the ability to rise quickly in the organization on the basis of superior performance or a commitment to continued certification and learning, you may prefer a knowledge- or performance-based environment. If you like organizational clarity and a stable work environment, you may prefer working for a company that bases compensation primarily on the job-title and time spent on the job.

Source: https://work.chron.com/jobbased-pay-vs-knowledgebased-pay-8232.html

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