Subject: Human Resource Management
Topic: Compensation
Scope: Job-based pay – Competency-based pay
Author: Camilla Yi

Compensation is the human resource management function that deals with every type of reward individuals receive in exchange for performing organizational tasks. Compensation design has been changing to meet the environmental challenges of the 21st century.
Compensation system consists of base pay system, merit incentive system, and benefit system. The determination of compensation system is of vital importance, which could help company build a better employment deal, hold on to good employees and to reduce turnover.

Part 1 Base Pay System
There are three major formats that are often used to design pay systems: job-based approach, skill-based approach and competency-based approach.
Job-based pay is an amount or a rate of compensation for a specified position of employment. It is a traditional approach to design pay system. There are five prerequisites of job-based approach: the first is standardized job description and job specification; the second is certain job content; the third is whether the company has a specified job certification system; the fourth is relatively high ranking of jobs; the last one is a higher-than average pay levels.
To build a job-based pay system, the main steps as follows:

Job-based approach can help company achieve “equal pay for equal work”; this approach is easy to carry on and allows company to reduce its administration cost. But it also shows some drawbacks: employees under the job-based system are easy to hit the career plateau, the end of advancement and lack of work challenge may cause staff turnover.

Nowadays, the bureaucratic job-based approach used in determining pay is no longer the only game in town, nor will it be the major format used to design pay systems in the future. Instead, the new