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Skill-based pay is receiving pay based upon acquiring, demonstrating, and continually performing job-related skills. Basic skills themselves (e.g., reading, math) are not rewarded, but rather the performance of discrete work tasks that have been grouped into a "skill block." This could be one or more work stations in a factory "work cell." It could be a level of knowledge in a trade craft. A block usually requires 3 - 12 months for the incumbent to learn and become proficient in and get evaluated. A worker learns several blocks that are part of a "progression." The larger progression is the person's "job." By rotating through the learned blocks, or otherwise using them on a regular basis, the person stays proficient and provides a return to the business for the extensive training he/she receives. The cross-training and overlap of progressions creates skill-redundancy in a business. This aids team work and coverage of absent employees. For more about SBP, read "Skill-Based Pay: Design and Implementation" by Don Barkman.
The original definition below is not descriptive of skill based pay. Any compensation program that paid you more because it claimed to measure your performance level would fit that definition.
A skill-based pay plan is a pay plan in which you are compensated at the level of experience you possess in any trade. In other words, the more you know and the better you are at your skill the more money you are paid.
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