A system of payment where employees are compensated based on their individual skill level and education attainment. Under this system, employees are rewarded for reaching certain goals in education, training and skill development. Knowledge-based pay systems provide incentive for employees to improve their skill set and education.
The concept of knowledge-based pay focuses on an individual employee’s ability to improve their education to increase salary or other compensation. As the employee increases their scope of knowledge earned, the employee can generally take on more complicated and lucrative projects on behalf of the company.
In some businesses, the organizational structure encourages educational development. In doing so, employees are rewarded upon obtaining certain educational goals. This may or may not be formal accredited education, but may include in-house education or training and skill development from third parties.
Generally, the parties agree on this type of pay structure at the time of hiring, although companies can incorporate this type of system at any time, upon the agreement of any union or contracts.
Once in place, a knowledge-based pay system can empower individuals to improve their abilities on the job. Often the individual receives a specific amount of pay increase when he or she achieves the next level of education. The system may be one-tiered or involve various steps that must be achieved.
Knowledge-based pay systems can encourage employees to become life-long learners, which can help a company maintain its edge in the industry. This can lead to greater innovation, longer retention of skilled employees, and higher revenues as a result of high-quality workmanship.