Which of the following best describes the concept of capability-based pay systems?

Capability-based pay systems focus on compensating employees based on their skills and competencies rather than merely on their job title or length of service. This approach aligns employees' pay with the skills they possess and can apply, promoting a culture of continuous learning and development within the organization. By encouraging employees to develop additional competencies, this system can lead to greater flexibility and adaptability in the workforce.

Skill-based compensation emphasizes this concept, as it rewards employees for the specific skills they have acquired and can utilize, making it a key component of capability-based pay systems. This method not only incentivizes individuals to enhance their capabilities but also equips the organization with a more skilled and versatile workforce that can respond to changing business needs effectively.