If You Pay for Skills, Will They Learn? Skill Change and Maintenance Under a Skill-Based Pay System

Although the use of skill-based pay has increased in popularity, empirical investigations of the effectiveness of this compensation strategy have been scarce. The fundamental premise of skill-based pay is that contingent monetary reward will promote individual learning. The authors empirically examine this essential principle with data spanning 5 years, using latent growth analysis. Results demonstrate that skill-based pay is related to individual skill change and maintenance. Whether or not individuals earn skill-based pay on their initial attempt is associated with subsequent rates of learning. In addition, the frequency with which skill-based pay is received and the total amount earned are both associated with skill development and maintenance.