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Literature Evaluation: The Focus on the Difference between Job-based Pay and
Skill-based Pay Scheme

Article in Journal of Industrial Distribution & Business · July 2023

DOI: 10.13106/jidb.2023.vol14.no7.1

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Print ISSN: 2233-4165 / Online ISSN 2233-5382

JIDB website: http://www.jidb.or.kr
doi:http://dx.doi.org/10.13106/jidb.2023.vol14.no7.1

Literature Evaluation: The Focus on the Difference between

Job-based Pay and Skill-based Pay Scheme

Eungoo KANG1

Received: April 22, 2023. Revised: July 24, 2023. Accepted: July 25, 2023.

Abstract
Purpose: The present research is to explore and investigate the meaningful difference between job-based pay and skill-based pay
in the current literature to shed light on the advantages and caveats of two compensation approach, providing direction for human
resource practitioners looking to develop efficient and fair compensation plans. Research design, data and methodology: The
methodology based on Preferred Reporting Items for Systematic Reviews and Meta-Analyses (PRISMA) was used for this
research. The PRISMA technique is generally considered the gold standard since it guarantees openness, repeatability, and rigor.
Studies comparing salaries based on work duties versus those based on individual skills published in English and accepted for
publication in peer-reviewed journals are eligible for inclusion. Results: According to the comprehensive literature analysis, the
present research provides clear comparison between Job-based pay and skilled-based pay, pointing out a similarity and four
differences (1. Criteria for pay determination, 2. Flexibility, 2. Job Scope, and 4. Career progression. Conclusions: The result of
the current research implies that human resource professionals would be well to learn the effects of various compensation
structures on career advancement, and suggests for them that employees can take advantage of chances to advance in their careers
based on right compensation schemes.

Keywords : Compensation Scheme, Job-Based Pay, Pay, Skill-Based Pay, Human Resource Management

JEL Classification Code: O15, J33, M10

1. Introduction12 "job-based pay." (Ahmad, 2015). The goal of the two

compensation schemes is to increase productivity in the
Organizations in today's highly competitive business workplace by motivating and rewarding hard effort.
climate are always looking for new ways to compensate However, they are not the same in pay scale, adaptability,
their personnel. Skill-based pay and job-based pay system work scope, or opportunities for advancement.
are two methods that have recently received much attention. Institutions with standardized job functions often utilize
The skill-based pay plan is a person-based system that a job-based system, in which workers' basic salaries are
rewards workers who have mastered a certain skill set with based on their credentials and the going market rate for the
higher wages. Compensation based on a job's obligations, position (Richard & Kang, 2018). In contrast, workers who
experience, and education, among other things, is called have acquired certain skills are rewarded monetarily for
their efforts. Particularly popular in specialized fields like

1 First and Corresponding Author. Full-Time Faculty, Becamex ⓒ Copyright: The Author(s)
This is an Open Access article distributed under the terms of the Creative Commons
School of Business, Eastern International University, Binh Duong, Attribution Non-Commercial License (http://Creativecommons.org/licenses/by-nc/4.0/) which
Vietnam. Email: [email protected] permits unrestricted noncommercial use, distribution, and reproduction in any medium,
provided the original work is properly cited.
2 Eungoo KANG / Journal of Industrial Distribution & Business Vol 14 No 7 (2023) 1-7

technology, healthcare, and arts and crafts. Workers are decreases both turnover intention and actual turnover.
incentivized to consistently expand their skill sets via merit- Employees that are unhappy with their compensation tend
based compensation instead of job-based pay, which to be less productive, tardy, absent, and dishonest, among
provides a structured route to advancement based on job other negative effects. Pay satisfaction at the individual level
titles and organizational charts (Orakwe, 2021; Boxall et al., was shown to favorably correlate with academic
2007). achievement at the district level and negatively correlate
Raising one's degree of expertise may lead to better job with teacher turnover intentions by Hedge and Pulakos
prospects and higher pay. A person's professional (2002).
development is often heavily influenced by the breadth and It's clear that both financial contentment and
depth of their skill set (Boxall et al., 2007). The current discontentment have a significant role in shaping various
research compares and contrasts Skill-based pay and job- outcomes. Existing research, however, is not without its
based pay system, focusing on how each approach affects flaws. The most immediate concern is with the construct's
intrinsic motivation, work satisfaction, and business results. measurement. For instance, the multidimensionality of the
Although much research hasn’t been done on skill-based notion of pay satisfaction and turnover intention has been
pay system, what there is implies that it may boost largely ignored in the existing literature (Dierkes, 2003).
organizational efficiency, and most workers view it
favorably (Kang & Lee, 2021).
Hybrid payment systems that adopt the best features of 2. Literature Review
both methods should also be investigated. Professionals
must grasp the variables in salary negotiation, degree of 2.1. Aims of the Literature Review
leeway, work responsibilities, and advancement
opportunities (Baldwin, 2003). By considering workers' The purpose of this research is to better comprehend the
strengths, human resource managers can create effects of skill-Based Pay and job-based pay system on
compensation structures that are fair and competitive with worker pay and business results. The review looks at the
the market. many applications of two pay schemes in terms of both
Opportunities for skill development and financial academic prior studies. In this overview, this research will
incentives may be fostered in an atmosphere that promotes look at how both compensation systems work, what makes
lifelong learning and professional development. This study them unique, how they're grounded in theory, and how they
does have some limitations, such as the fact that it only affect employee motivation, job satisfaction, and business
includes papers written in English and peer-reviewed by outcomes. The limits and difficulties of various
academics and does not include studies written in other compensation models, such as moral hazard, adverse
languages or that do not directly compare skill-based pay selection, and strategic conduct, are also discussed.
and job-based pay system. Nonetheless, the analysis of the The review also identifies gaps in the literature and
current study sheds light on the advantages and caveats of suggests areas for further research, such as the need for
two compensation plans, providing direction for businesses comparative studies between two compensation plans,
looking to develop efficient compensation plans. exploration of different organizational contexts, and
investigation of hybrid payment systems that combine
1.1. Background Information elements of both models. The purpose of this literature study
is twofold: first, to familiarize readers with main two
When it comes to incentivizing workers to work toward compensation plans; second, to give useful information for
organizational objectives, money is often at the top of the companies that want to create flexible pay packages.
list. Financial compensation is used to motivate employees
(Marsden, 2006) and to entice and keep the most qualified 2.2. Skill-based Pay VS Job-based pay
candidates (Morris et al., 2005). The projected positive
connections between compensation and performance and Employees officially recognized as having acquired a
the retention of top talent have been proven to be modest at specific skill level may be eligible for a pay increase under
best by studies of real pay (Nankervis et al., 2016). Pay a scheme known as Skill-Based Pay. In this pay system,
satisfaction, defined as an individual's positive or negative monetary bonuses are awarded only when workers have
feelings about their pay (Shields et al., 2015), has been shown they deserve them by demonstrating proficiency
proposed by researchers as a more reliable predictor of (Cutler & Waine, 2005; Richard & Kang, 2018). Experts
positive personal and organizational outcomes than actual refer to skill-based pay as a "person-based system" since it
pay. emphasizes personal qualities above those required for a
Indeed, existing research has shown that pay satisfaction specific role. According to the prior study (Dolton et al.,
 Eungoo KANG / Journal of Industrial Distribution & Business Vol 14 No 7 (2023) 1-7 3

2003), traditional job-based compensation plans give cheaper labor costs per component compared to the
employees the same amount of money every pay period, comparative plant.
regardless of how well they execute their duties. There are
several different kinds of skill-based pay systems. Giancola 2.4. Research Gap
(2011) identifies the three distinct forms of knowledge:
depth, breadth, and autonomy. According to the previous Even though a lot is written about job-based
work (Guzak & Kang, 2014), the second consideration is compensation and skill-based pay, much has yet to be done
whether the incentive is an additional sum on top of regular to compare and contrast how they're used in various
pay or a bonus. While these pay systems have a standard set workplaces. A dearth of research explicitly compares JBP
of components, their contexts, goals, and methods of and SBP and how they affect employee motivation, job
execution differ significantly from one culture to the next. satisfaction, and organizational performance, even though
However, the job-based compensation scheme is usually certain studies have studied the merits and drawbacks of
connected to the job title and the seniority can be an each model separately (Macky & Wilson, 2013). In addition,
important factor in deciding a worker’s wage rate. Thus, this the present research tends to narrow down on specific
kind of pay plan is different from the skill-based pay system industries or occupations, such as manufacturing or
which is called ‘Pay-for-Knowledge and focused on the pay healthcare, rather than look at how job-based pay and skill-
rate of the current market. The monthly fixed income is based pay may be used more generally in other sectors, such
designed for a job-based pay plan and it depends on as aviation and education.
worker’s job type, professional degrees workers possess, Therefore, studies evaluating the efficacy and
and their working time (Years) (Van Yperen, 2003). That applicability of different payment methods in various
means that compensation rates for workers can be changed organizational contexts are required. Furthermore, hybrid
only if they are acquired additional skills. The prior research payment systems that combine job-based pay and skill-
has also mentioned that skill-based pay is different from the based pay aspects to maximize the strengths of each model
job-based pay scheme, indicating that it is used for team have received less attention. Organizations looking to create
compensation scheme in flat organizations (Armstrong & novel and adaptable compensation schemes may benefit
Taylor, 2017). from investigating the viability and effects of such hybrid
approaches.
2.3. The Empirical Evidence Base for Skills-Based
Pay Table 1: The Key Description of the Literature
Key Subject Description
The prior studies regarding skill-based pay are scarcer. The review identifies gaps in the
literature and suggests areas for
Our data comes mainly from the commercial sector since the
Aims of the further research, such as the need for
author could only identify one empirical study on SBP's Literature Review comparative studies between Job-
usage in the public sector (Zeuch, 2016). The majority of the based pay and skill-based pay plans.
articles here also focus on the industrial sector. The data
suggests, however, that skill-based pay programs may help The skill-based pay is a "person-based
raise organizational productivity. Moreover, investigations system" since it emphasizes personal
qualities above those required for a
of employees' perspectives on such compensation plans
Skill-based Pay specific role. According to the prior
indicate that workers have generally favorable impressions study. However, the job-based
VS Job-based
of them. pay compensation scheme is usually
While empirical study on the skill-based pay is still connected to the job title and the
scarce, studies examining how skill-based pay systems seniority can be an important factor in
affect company performance and other desired deciding a worker’s wage rate.
organizational outcomes have shown good effects. One such
While empirical study on the skill-
example is the research conducted by Kleijnen and Smits The Empirical based pay is still scarce, studies
(2003), who looked at a skill-based-equipped component Evidence Base examining how skill-based pay
assembly facility. The facility was part of a big organization for Skills-Based systems affect company performance
that manufactured car safety systems, and the authors found Pay and other desired organizational
a similar plant within the same company that employed a outcomes have shown good effects.
more conventional time-based pay scheme as a point of
comparison. After analyzing 34 months of data, Kleijnen
and Smits (2003) concluded that the treatment facility's SBP
system led to higher productivity, better quality results, and
4 Eungoo KANG / Journal of Industrial Distribution & Business Vol 14 No 7 (2023) 1-7

3. Research Methodology
Procedure of the Article Selection
The methodology based on Preferred Reporting Items
for Systematic Reviews and Meta-Analyses (PRISMA) was
used. The PRISMA technique is generally considered the
gold standard since it guarantees openness, repeatability,
and rigor (Burton et al., 2011). The procedures that were Screening Eliminating Selecting
used were as follows:
Questions for further study: The research question was
established to direct the literature review. A potential study
topic is "How similar or dissimilar are job- and skill-based
Figure 1: Screening Result ot the Current Study
pay?" Formulation of Search Strategy: A thorough search
strategy was established to discover applicable studies.
Among the most popular search phrases were job-based pay,
skill-based pay, compensation systems, payment models, 4. Research Results
and similar topics (Boyett & Boyett, 2004). The search used
several online resources, including PubMed, Google Scholar, 4.1. Comparison between Job-based Pay and
and scholarly journals.
Skilled-based Pay
The present author devised inclusion and exclusion
criteria to choose papers relevant to the study issue. Studies
Various payment plans exist in the business environment.
comparing salaries based on work duties versus those based
However, they all are combinations or variants of job-based
on individual skills published in English and accepted for payment models derived from competencies of performance
publication in peer-reviewed journals are eligible for and knowledge. Thus, if one believes in possessing abilities
inclusion. Not all studies were included because they did not
and skills that extend beyond the existing job prescription,
match the inclusion requirements; for example, conference
choosing an organization that compensates its employees
abstracts, journals written in languages other than English,
based on skills may be wise. An example of job-based pay
and studies that did not directly compare the payment
is single-rate pay for jobs with flat payment rates, like
strategies (Choudhury et al., 2011). manufacturing jobs like machine operators. Such positions
The initial search results were screened based on titles often have a short learning curve, limited performance
and abstracts to identify potentially relevant studies. Then,
variability, and are routine (Dierkes, 2003). An example of
the entire texts of the articles were evaluated for inclusion.
skill-based pay includes that of a medical doctor. A doctor
Two or more independent reviewers undertook the screening
will always be paid variably depending on the skill level and
and selection procedure to assure dependability and reduce
such that a resident doctor will earn less than an attending
bias (Brown & Heywood, 2019). Disagreements among the doctor, who also probably makes less than a doctor in
reviewers were discussed and settled by mutual agreement.
specialist fields like neurosurgery (Papenfuß & Keppeler,
Information was gathered by utilizing a standardized data
2020).
extraction form to gather pertinent information from the
chosen studies (Nguyen, et al., 2022; Woo, 2020).
By synthesizing and analyzing data, the present author
4.2. Similarity
determined how job-based vs. skill-based compensation
Compensation: Both job-based and skill-based pay
compares and contrasts. Spotting recurring ideas, trends,
schemes aim to compensate workers monetarily for the
and any gaps or contradictions as possible. Results
value they provide to their employers (Kang & Lee, 2021).
Presentation: The results were presented in a logical and
Rewarding Effectiveness: Both strategies aim to reward and
well-structured format that emphasized the main parallels
motivate workers for their contributions to the company's
and differences between job-based pay and skill-based pay.
success (Nankervis et al., 2016). Inspiration of Workers:
Clarity and comprehension may be improved using tables,
Both methods can encourage workers to improve their
graphs, and other visual aids.
performance on the job and expand their skill sets (Murphy,
2020).

4.3. Differences

4.3.1. Criteria for pay determination:

 Eungoo KANG / Journal of Industrial Distribution & Business Vol 14 No 7 (2023) 1-7 5

The job-based compensation method bases pay levels on Criteria for Pay,
factors unique to each job, such as duties, experience, and Flexibility
education (Gardner & Martinko, 1988). Compensation Difference
ranges and market rates for a specific job level or
Job Scope,
classification determine an employee's base compensation. Comperison Career Progress
According to the study (Gomez-Mejia et al., 2014), Two Pay Plans
experience, level of education, and market value for the
Encouraging
position in question all play a role in determining salary, Similarity
whereas skill-based pay emphasizes personnel’s existing Performance
abilities (Hedge & Pulakos, 2002). Employees get a salary
commensurate with their experience and knowledge, with
the possibility of a raise as they gain new skills and expertise. Figure 2: The Summary of the Literature Review Resource
Using skill-based compensation is prevalent in fields where
workers must have specific skills, such as the technology,
The depth and breadth of one's skill set is frequently a
healthcare, and crafts sectors.
factor in one's professional advancement. A payment plan
4.3.2. Flexibility: that is competency-based has been lauded for its ability to
Job-based pay compensation is established by the role encourage and inspire employees to take charge of
held, making this method more rigorous than others. It may enhancing their skills and improving their work production
make it more difficult for workers to bargain for to attain the pay rate their desire. Thus, skilled-based pay
remuneration reflecting their unique talents and experience
serves as a means of motivating the workforce and
(Kandula, 2001). Skill-based pay provides compensation
based on demonstrated expertise and offers more leeway in improving business productivity.
how to allocate resources. It encourages workers to improve
their abilities so that they may earn more money and
progress in their careers (Kang & Lee, 2021). 5. Implications of the Research

4.3.3. Job scope: To create equitable and market-competitive pay

Job-based pay considers the individual's qualifications, structures, human resource professionals must have a firm
experience, and education in addition to the duties and grasp of the factors that go into salary calculation.
obligations of their position. It finds widespread use in Determining acceptable price ranges for various
institutions with fully defined and standardized job occupations requires extensive job appraisals and market
functions (Morris et al., 2005). As for Skill-based pay, research in job-based compensation (Morris et al., 2005).
employees, regardless of their official title, are compensated Human resource professionals should prioritize designing a
depending on their expertise and proficiency in certain areas skill-based compensation structure that compensates
(Kato, 2018). It works well in firms with fluid job workers for learning and using new competencies. This
descriptions and where individuals' skill sets may need to be strategy might include regular skill evaluations, training,
adapted for various activities. and advancement opportunities. Human resource
professionals may consider adopting a compensation plan
4.3.4. Career progression that incorporates components of both job-based and skill-
Job-based pay systems often provide a regulated path to based pay (Shields et al., 2015).
promotion based on a person's job title and the company's The adaptability afforded by skill-based compensation is
organizational chart. Employees may anticipate more helpful for human resources professionals because it permits
compensation and better job opportunities as they advance a more fluid distribution of available funds. Targeted
in the corporate ladder (Lockey et al., 2017). Skill-based pay training programs and incentives for continual improvement
is centered on paying workers based on their talents as a may be used to motivate workers to improve their skills.
great way to motivate them to keep learning and improving. Human resource professionals should also develop a clear
There are chances to advance in one's profession and earn and widely disseminated structure outlining the requisite
more income due to improving one's skill set (Marsden, knowledge and abilities for various salary grades (You et al.,
2006). 2007). Employees will be encouraged to take charge of their
professional growth and financial success. However, it is
crucial to maintain internal equality and market
competitiveness when determining skill-based pay rates for
employees at all levels of the business.
6 Eungoo KANG / Journal of Industrial Distribution & Business Vol 14 No 7 (2023) 1-7

Job-based pay helps establish salaries in companies Newcastle-Ottawa Scale (NOS) and the Cochrane Risk of
that clearly define roles and responsibilities. Human Bias tool (Hedge & Pulakos, 2002). The validity and
resource professionals should prioritize completing trustworthiness of the results would improve with a more in-
thorough job studies to assess the value of occupations and depth analysis of the studies' quality.
set fair compensation levels. However, skill-based
compensation may be helpful in companies where roles and
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