Some visionary leaders have actually moved beyond the coupling of reward systems with other developmental strategies. They have moved, at least partially, to a pay-for-knowledge/skills mode of compensation. This mode can effectively and systematically brings together the reward system and the organization’s commitment to employee development. This new mode of compensation challenges the traditional mode, which is based on three criteria: position, seniority and productivity. The higher one’s position in an organization, the longer one has worked in the organization, and the more successful one is in achieving specific outcomes, the larger is one’s compensation.
In 21st Century organizations, with their emphasis on organizational learning, we are likely to witness a growing inclination toward this new mode of compensation, which adds a fourth criterion: acquisition and use of new skills and knowledge. Additional compensation is provided to employees who engage actively in their own ongoing development. This coupling of training and education (Strategy One) with an innovative reward system (Strategy Three) is based on the assumption that the aptitude equation (knowledge + skills + motivation = performance) is key to improvement of performance. It is critical to address not only the knowledge and skills elements of this equation, but also the motivation element. New skills and knowledge will be engaged when the employee is motivated to apply the newly acquired knowledge and skills.
Typically, salary in a knowledge/skill-based compensation system is determined in part by the successful completion of certain workshops or formal educational programs. However, this compensation plan usually requires one additional element: the employee must make use of this development in the performance of their current job or in performance of other assignments in the organization. In many cases the salary increase is permanent. It is assumed that the newly acquired knowledge or skill will benefit the organization for many years to come. In other cases, the salary increase is time-limited—or a one-time bonus is given. It is assumed that an employee should be rewarded only once for their developmental effort. They can earn additional compensation by participating in other developmental programs in the future.
Pay-for-knowledge/skill plans are both very old and very new. For many years, organizations have provided salary increases to employees when they receive a promotion—which usually requires some additional training or education. It is also common for employees to receive a salary increase when they have successfully achieved a formal educational objective. A five percent salary increase, for instance, might be awarded when an employee has earned a masters degree in business or electrical engineering, or when they have been granted a doctorate in law. From another perspective, pay-for-knowledge/skills plans are quite new. They are now based on both internal and external developmental programs. Salary increases may be granted upon completion of specific in-house training programs.
