What is the term for a pay system where increases depend on the skills an employee has acquired?

• A. Skill-based pay
• B. Seniority pay
• C. Merit pay
• D. Incentive pay

Answer: (A)

Skill-based pay is a compensation approach where increases are tied to the actual skills an employee has acquired and can apply. Instead of rewarding tenure or past performance alone, this system rewards demonstrated competencies. As workers gain new abilities through training or certification and prove their mastery of relevant tasks, their pay steps up to reflect that expanded capability. This encourages continuous learning, boosts flexibility, and helps align compensation with the organization’s current needs.

Seniority pay rewards length of service, regardless of new skills. Merit pay ties raises to performance appraisals, often focusing on how well someone performed previously. Incentive pay provides bonuses for meeting specific targets or outcomes.