It is predominantly of two types – Pay for Knowledge and Skill Based Pay.
In the Pay for Knowledge Pay plans, the employee gets rewarded for acquiring organizationally relevant knowledge.
Microsoft pays new programmers more as they learn the nuances and intricacies of Windows 7.
Skill-based pay on the other hand is more applicable in the context of manual workers.
A carpenter gets paid more as he becomes more adept at making and completing storage lockers.
The significant difference in this method compared to the traditional job evaluation-based pay plans are that this is more person-oriented rather than job-oriented and employees build job competencies through experience on the job.