What compensation system is based on an individual's education and specialized training?

The compensation system that is based on an individual's education and specialized training is skill-based pay. This approach rewards employees for the specific skills and competencies they possess, which often correlates with their educational background and specialized training. Skill-based pay is designed to encourage employees to acquire new skills or enhance existing ones, thereby increasing their value to the organization.

In practice, this system can lead to a more skilled workforce, as employees are motivated to broaden their skill sets and pursue further education. It differentiates from other compensation systems by focusing on the skills an employee brings to their role, rather than solely on job performance, market factors, or individual contributions to the company’s success. This type of pay structure can help organizations align employee development with their strategic goals by creating a culture that values continuous learning and advancement.

The other compensation systems mentioned do not primarily focus on education and specialized training. Market-based pay looks at prevailing salary rates in the external job market, performance-based pay is linked to an employee’s individual or team performance metrics, and merit pay is based on evaluations of work performance typically tied to past contributions rather than educational qualifications.