Final answer:
The compensation plan that rewards employees based on their skills and knowledge is the skill-based pay plan (C). It incentivizes workers to learn valuable skills and can lead to higher productivity, but might also result in fewer jobs as employers prefer more versatile employees. Therefore, the correct option is C.
Step-by-step explanation:
The plan which bases compensation on the skills or knowledge an employee possesses and is valued by the employer is called the skill-based pay plan (C). This type of compensation model rewards employees for the variety and depth of their skills and knowledge, rather than for their job title or position alone. Compensation is typically linked to the level of skill an employee has as measured by competencies or certifications, encouraging continuous learning and improvement. Under a skill-based pay plan, as wages tend to be set based on the scarcity and demand of specific skills within a marketplace, employees have an incentive to acquire new skills that are valuable to the employer. Such plans can also lead to increased productivity, as employees gain proficiency in multiple areas of expertise. However, this can impact the employment dynamic, as employers may choose to employ fewer workers who possess a broader range of skills over many workers with more narrow skill sets.