What knowledge based pay is
Knowledge based pay (الأجر القائم على المعرفة) is an arrangement in which an employee’s pay moves with the defined units of knowledge they have acquired and shown that they hold, not with the job they occupy and not with a result they achieve. What is paid for is the knowledge the employee holds, even when they do not use all of it in their role today. The arrangement can also appear under the names skill based pay and pay for knowledge.
That description is what separates knowledge based pay from the arrangements around it, and it shows the price of the arrangement at the same time. Knowledge based pay pays on a stock of knowledge rather than on its use, and it leaves the organisation carrying a stock that grows and does not shrink.
How knowledge based pay differs from competency based pay
The two names can be used as alternatives in management writing, but the two arrangements differ in where their effect falls:
| Knowledge based pay | Competency based pay | |
|---|---|---|
| What is measured | Units of knowledge acquired and proven | The level of proficiency in a behaviour described for the role |
| Where the effect falls | Adds an amount independent of where pay sits in the grade | Moves pay within the range of the grade |
| Must it be used today | No | Yes, because what is measured is performance in the role |
| Evidence of entitlement | A test, a certificate or the output of a programme | Documented evidence of performance in the role |
Competency based pay places its effect explicitly inside the range. The width of a single range is what range spread measures, and competency based pay works within that width. So the difference between the two lies neither in strength nor in precision. One answers the question «where does this employee stand in their range?», and the other answers the question «what do we add because this employee now knows this?». Combining the two in a single document produces an arrangement that pays twice for the same thing, or does not pay for it at all.
The evidence row mirrors a distinction drawn under competencies: a skill can be evidenced by a qualification or a test, while a competency can only be evidenced by what somebody did.
The structure of knowledge based pay: four elements
- Units of knowledge that are counted and bounded, each with a name and a known content. A unit that was not listed in advance cannot be claimed once it has been acquired.
- A single method of proof for each unit: a test, a certificate from a named body, or the output of a programme. Allowing several methods for one unit produces a dispute in every borderline case.
- A value announced for each unit before it is acquired. A value set after the employee arrives with the certificate turns the arrangement into a negotiation rather than a system.
- A cap on the total. This element can be left out of a design, and the example below shows what leaving it out costs.
Why knowledge based pay needs a cap: the arithmetic of reaching the top
Take an organisation that defines ten units of knowledge, each worth SAR 400 a month, on base pay for the role of SAR 9,000 a month. A diligent employee acquires two units a year:
| Year | Units acquired | Added each month (SAR) | Monthly pay (SAR) | Increase over base pay |
|---|---|---|---|---|
| Second | 4 | 1,600 | 10,600 | 17.8% |
| Third | 6 | 2,400 | 11,400 | 26.7% |
| Fifth | 10 | 4,000 | 13,000 | 44.4% |
The unit value, the base pay and the pace of two units a year are assumed values, set out to explain the mechanism. They describe no practice and no market.
Two things happen together in the fifth year. The first is that the employee has reached the last unit, so nothing is left in the arrangement for their pay to move by, after they have grown used to an annual increase of SAR 800, two units at SAR 400 each. The second is that the cost of the role has risen by 44.4%, while the role itself may not have changed.
That is why knowledge based pay is not built without a cap and without an answer to what comes after it. Three answers are available: open new units under an announced rule; move the employee to a higher role that uses what they have acquired; or announce from the first day that the arrangement ends at a named unit. Any of the three is safer than silence, because by the fifth year silence can be taken as a step backwards.
Where knowledge based pay pays back, and where it is a cost with no return
Because the arrangement pays on a stock, the organisation recovers its cost only where that stock turns into the capacity to cover for absent colleagues. That does not happen equally in every kind of work.
Consider an operation with five stations and five employees, each proficient at a single station. The absence of one employee stops a whole station, the fragile chain described under job specialization, where each step has a single person who has mastered it. If each employee were proficient at two stations, the operation would hold ten proficiencies spread across five people, and a colleague could cover the absence of any one of them without a stoppage. In that case the extra cost buys calculated cover, and that is the situation knowledge based pay was designed for in the first place.
Where the work is a single flow with no stations, or where the extra knowledge can be used only in another role the employee does not hold, the organisation pays for a stock that is never drawn on. The sign appears early: units that employees acquire and whose holders are not called on to use them even once a year. A unit that goes unused is not a wrong unit of knowledge. It is a unit placed in an arrangement that has no need for it.
The practical test is to ask of each unit before it goes on the list: how many times a year will its holder be asked to use it? A unit for which there is no answer in numbers stays off the list.
Knowledge based pay and the training provisions of the Labor Law
Knowledge based pay rests on training that is documented, and the Saudi Labor Law (نظام العمل) addresses training in two places that concern two different groups of people. Mixing up those two groups is the mistake to avoid in this area.
Article 42 of the Labor Law requires every employer to put in place a policy for training and qualifying its Saudi workers, in order to raise their skills and improve their level in technical, administrative, vocational and other work, and it leaves the detailed rules to the Implementing Regulation (اللائحة التنفيذية). Article 44 of the Labor Law sets out what a training programme must contain. The exact wording carries the point, so the first sentence of Article 44 of the Labor Law is given in Arabic:
«يجب أن يشتمل برنامج التدريب على المهارة التي يتدرب العامل عليها والقواعد والشروط التي تتبع في التدريب، وعلى مدته وعدد ساعاته والبرامج التدريبية النظرية والعملية، وطريقة الاختبار والشهادات التي تمنح في هذا الشأن.»
In our own rendering, which is not an official translation, the training programme must include the skill on which the worker is being trained, the rules and conditions followed in the training, its duration and number of hours, and the theoretical and practical training programmes, together with the method of testing and the certificates granted for it.
The link to knowledge based pay is direct, because Article 44 of the Labor Law requires the programme itself to carry a named skill, a method of testing and a certificate, which are exactly the elements needed to prove a unit of knowledge. Royal Decree M/44 of 1446H, in force since 19 February 2025, added the words on the skill on which the worker is trained to Article 44 of the Labor Law and left the rest of that Article as it was. The two numbers are kept apart here: Article 44 of the Labor Law is a different thing from Royal Decree M/44.
Under Article 43 of the Labor Law, every employer must qualify or train, from among its Saudi workers, the proportion set by a decision of the Minister, and Saudi workers completing their studies count towards that proportion where the employer bears the cost of the study. Since the M/44 amendment, Article 43 of the Labor Law carries no percentage and no threshold based on the number of workers: the proportion is a matter for the Minister’s decision. We have not found that decision in the sources we reviewed, so no figure is given here, and we do not carry one over from the wording in force before the amendment.
Why knowledge based pay cannot borrow Article 48 of the Labor Law
When an organisation spends money on an employee’s learning, the question arises of recovering that cost if the employee leaves afterwards. The provision that can be cited at this point is paragraph 2 of Article 48 of the Labor Law, and its wording is given in Arabic:
«لصاحب العمل، بعد إكمال مدة التدريب أو التأهيل، أن يلزم المتدرب أو الخاضع للتأهيل بأن يعمل لديه مدة مماثلة لمدة التدريب أو التأهيل، فإن رفض أو امتنع المتدرب أو الخاضع للتأهيل عن العمل المدة المماثلة أو بعضها؛ وجب عليه أن يدفع لصاحب العمل تكاليف التدريب أو التأهيل التي تحملها صاحب العمل أو بنسبة المدة الباقية منها.»
In our own rendering, which is not an official translation: once the period of training or qualification is complete, the employer may require the trainee, or the person undergoing qualification, to work for the employer for a period equal to the period of training or qualification. If that person refuses or declines to work the equal period, or part of it, they must pay the employer the training or qualification costs the employer bore, or a share of those costs in proportion to the period remaining.
Two phrases in the text cannot be dropped. «أو بعضها» (or part of it) means that a partial refusal triggers the rule. «أو بنسبة المدة الباقية منها» (in proportion to the period remaining) means that the repayment is tied to the part of the period left unserved, and not necessarily to the full cost.
More important still is where Article 48 of the Labor Law sits. It is in the second chapter of Part Four of the Labor Law (الباب الرابع), the part on training and qualification, and the people that chapter addresses are trainees who are not the employer’s workers, engaged under a separate qualification and training contract (عقد التأهيل والتدريب). For those trainees, the Implementing Regulation also sets out cases in which a trainee may end the training contract without that repayment applying, provided the trainee notifies the person responsible for training of the reason for ending it. Knowledge based pay, by contrast, applies to employees whose employment contracts are in force, the group addressed by the first chapter. Applying Article 48 of the Labor Law to them carries a provision from one chapter into another.
For an employee whose contract is in force, then, the recovery of training costs is not settled by Article 48 of the Labor Law. The Implementing Regulation deals with training costs, and with any period of continued work after training, for the employer’s own workers in separate provisions, and that question has its sources there.
How knowledge based pay differs from a certification allowance, upskilling and promotion
All three sit close to knowledge based pay, and they separate along two questions: what triggers the money, and whether the employee changes role.
- A certification allowance. An amount paid for holding one particular certificate, which stops at that certificate. Knowledge based pay is a ladder of several units, with a rule for how they accumulate and a cap.
- Upskilling. A development activity whose aim is to close a skills gap, and which carries no effect on pay in itself. Knowledge based pay ties the financial effect to the output of learning through an announced link.
- Promotion. A move of the employee to another grade with a different range, after their work has changed. Knowledge based pay raises pay within the role the employee already holds, and does not move them out of it.
The provisions relied on are those of the Saudi Labor Law as published by the Ministry of Human Resources and Social Development: Article 42 (the training policy for Saudi workers), Article 43 (the training proportion set by decision of the Minister), Article 44 (the contents of a training programme) and paragraph 2 of Article 48 (work for an equal period after training under a qualification and training contract, and the repayment of costs). Royal Decree M/44 removed the percentage and the headcount threshold from Article 43 of the Labor Law and added the wording on the skill to Article 44 of the Labor Law; its amendment of Article 42 of the Labor Law did not alter the duty, and it left the wording of paragraph 2 of Article 48 of the Labor Law quoted above unchanged.
Before knowledge based pay is priced
An organisation considering knowledge based pay can ask one question before it puts a price on a single unit: what happens to the employee on the day they acquire the last unit on the list? If that question has no written answer today, its answer will be written five years later, under pressure.
This is an explanation of the concept and of the statutory provisions cited, not legal advice.
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