Section FourAdditionally, traditional compensation systems do not work well
with managers and professionals. With such employees, the
job-based focus of traditional systems conflicts with the
individualized nature of their work. With increasing
professionalization of the workforce, the importance of this
problem will be magnified. To summarize, when compensation
systems limit workforce flexibility and discourage workers from
using their intelligence, they cannot facilitate the
implementation of today’s competitive strategies.^18
Skill-Based Pay
Skill-based pay or knowledge-based pay, in contrast to
traditional compensation approaches, focuses on the individual,
not the job. In fact, with skill-based pay, employees perform a
number of jobs and receive the same pay rate, irrespective of
the job. As noted earlier, in Chaparral Steel’s application of skill-
based pay, there are only two general job classifications in its
production environment. With skill-based pay, employees are
able to increase their compensation as they acquire a broader
range of skills. Thus, they have a strong incentive to learn.
With the rapid rate of change in today’s business environment
and the need for flexible assignment of work, there is an
obvious need for employees to develop or broaden their skill
repertoires.^19 The flexibility of skill-based pay is revealed in the
following description of its application in a container plant: