Faculty Publications


A comparative examination of traditional and skill-based pay plans

Document Type



Employee relations, Pay, Skills based pay

Journal/Book/Conference Title

Journal of Managerial Psychology





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Purpose: The purpose of this paper is to make a comparative assessment of the relationship between types of pay plans and several workforce-level outcomes in 214 organizations. The plans include pay that is skill-based, job-based, and market-based. The types of workforce-level outcomes include workforce flexibility, attitudes, membership behaviors, and productivity. The paper also assesses the relationship between the success of pay plans and workforce productivity/membership behaviors. Design/methodology/approach: Survey data from 214 organizations are used to test the hypothesized relationships using hierarchical regression analysis and partial least square techniques. Findings: Results support a significant and positive relationship between skill-based pay plans, workforce flexibility, and workforce attitudes. Skill-based pay plans, when compared with market-based pay plans, are found to positively relate to workforce membership behaviors, and workforce attitudes mediate this relationship. Similarly, workforce flexibility mediates the positive relationship between skill-based plans and workforce productivity. The success of skill-based plans depends on significant improvements in workforce productivity and membership behaviors. The fit between the pay plan and the facility's climate/culture moderates the relationship between workforce productivity and the pay plan's success. Practical implications: The results indicate that skill-based pay plans are superior for achieving several organizational and employee outcomes. The authors discuss the implications of these results for research and practice. Originality/value: Limited comparative empirical evidence exists on the effects of different types of pay systems on organizational outcomes. The paper seeks to address this gap. © Emerald Group Publishing Limited.

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