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

Erich C. Dierdorff

Department of Management, Kellstadt Graduate School of Business, DePaul University, 1 East Jackson Blvd., Suite 7000, Chicago, IL 60604, edierdor{at}depaul.edu

Eric A. Surface

SWA Consulting Inc., 3901 Barrett Drive, Suite 200, Raleigh, NC 27609

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.

Key Words: skill-based pay • person-based pay • skill change • latent growth analysis

This version was published on August 1, 2008

Journal of Management, Vol. 34, No. 4, 721-743 (2008)
DOI: 10.1177/0149206307312507
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