Job-Based Pay

• Job-based pay is a traditional pay structure. Under this pay system, the organization compensates employees based on the job they perform for the company. The employee earns an hourly wage or salary similar to other employees with the same job title who possess the same level of seniority. For instance, two payroll specialists have worked at Company XYZ for five years and earn the same annual salary.
  
  

Knowledge-Based Pay

• Knowledge-based pay is also known as pay for knowledge and skill-based pay. Under this pay structure, employees receive compensation for the relevant skills and knowledge they possess. The more applicable skills the employee acquires, the higher the employee earns. The U.S. Bureau of Labor Statistics studied the knowledge-based pay plans for 20 organizations. One of the respondents indicated its plan has seven compensation levels. When an employee is hired, she is a level one. Once an employee can complete one job in a work team, she progresses to a level two. A level three employee can complete a sufficient number of jobs within a work team. Once an employee can perform all of the jobs within a work team, she progresses to a level four. A level five employee has learned a significant number of jobs on another work team, in addition to learning all of the jobs on her assigned team. Level six employees can perform all of the jobs on two work teams. Once employees achieve a level seven, they become team leaders or team coordinators.
  
  

Similarities

• To obtain their position, employees must possess a certain level of knowledge and skills under both pay structures. Regardless of the pay structure, an employee must have a minimum level of education and prior work experience before the organization will hire him. Organizations, independent of pay structure, also use performance reviews to evaluate employees, issue bonuses and implement necessary changes.
  
  

Differences

• A major difference between the two pay structures involves the knowledge-based pay structure's emphasis on the employee's value over loyalty. Knowledge-based pay rewards employees for their ability to serve different purposes within the organization, whereas job-based pay rewards employees for staying with the organization for long periods of time. Because of this, average wages tend to be higher in organizations that utilize the knowledge-based pay structure. In addition, under the knowledge-based pay structure, the organization has to measure skill in units, such as the seven levels from the above example. In a job-based pay structure, employees receive a pay increase when they are promoted to new positions. Under the knowledge-based structure, employees work several jobs and receive pay increases prior to being promoted.