Identify and briefly describe the issues in developing a skill-based pay system.

There are five main issues in the design of a skill-based pay system:
1. deciding whom to include
2. designing the skill blocks
3. linking skill blocks to pay
4. providing learning opportunities
5. certifying skill achievement

Skill-based pay systems are suitable for organizations that need employee flexibility, and high-level and diverse employee skills. Skill blocks are set out in a grid defined by skill types and levels. Skill block difficulty, length of time for skill mastery, and the value of each skill block determine the relative amount of increase for each skill block. The high–low method determines entry level and skill block pay amounts. Training needs to be provided since pay is tied to skill development. A valid and fair system for determining when an employee has mastered a skill block is needed.