Compensation refers to payments, such as salaries, wages and bonuses, that reward employees for their job-related performance. Job-based compensation structure, or job-based pay, is the most traditional type of compensation system in which pay is set on the basis of the job itself. Employees are remunerated on the basis of the jobs they are currently performing. Job-based compensation is in contrast to skill-based pay, which awards employees on the basis of their skill and knowledge level. Job-based compensation structure has several advantages despite being touted as an outdated compensation structure.
Job-based compensation emphasizes job specialization and seniority. Job specialization refers to the depth of job-related knowledge, experience and expertise an employee brings to a task. Individual employees are specialists in their designated tasks and are rewarded according to performance. Job-based compensation structure rewards employee seniority and compensates them on the basis of length of service. This compensation structure assumes that an employee becomes more valuable to an organization with time.
Job-based compensation motivates employees to perform better and thus move up through organizational ranks over time. Employees receive instant pay increases as their job performance improves or their job changes. Criteria for a pay raise is fairly straightforward, and employees are aware that improved performance leads to higher pay grades.
In a job-based compensation structure, the job itself becomes the unit of determining base pay. Human resource professionals establish minimum and maximum pay amounts for each job and compensate employees based on their performance. Employee job evaluation determines employee performance. This structure is easy to administer because it focuses on allocating pay systematically and ensuring that the most important jobs are paid more.
According to Brian Towers in "The Handbook of Employee Relations," job-based compensation structures are stable and predictable since they delineate and map clear-cut job and pay progressions. The system, according to the author, is unlikely to cause de-motivation, disruption and discontent among employees.
The authors of the book “Compensation and Organizational Performance” state that job-based compensation structure works best in situations and organizations that are stable, have routine and standardized jobs and where there is a clear distinction among jobs. Manufacturing firms and assembly lines typically pay their employees on the basis of job-based performance.