Skill Based Pay Law and Legal Definition

Skill-based pay isased on competence rather than duties performed. Skill-based pay allows companies to pay employees for their value to the organization and provides a way for employees to influence their pay by being able to move toward acquiring more skills that lead to pay increases making them more valuable to their organizations.

Traditionally wages and pay have been determined through government regulation, minimum wage determination, negotiation with unions, decisions of arbitration or labor courts and the individual contract of employment. Skill-based pay focuses on performance over the other factors which influence pay and pay increases, such as profit ( generally unrelated to individual or group performance), job evaluation, seniority, cost of living, manpower shortage or surplus, and negotiating strength of the parties.