Goodbye role-based salary! Hello skills-based pay!

“This isn’t part of my job description.” 

“According to my title this isn’t my responsibility.” 

“My current salary only covers these specific tasks!” 

“Why should I learn something new?” 

Sounds familiar?

 Or do you breathe a sigh of relief knowing these are no longer part of your work life? 

These are statements of a mindset that’s rapidly becoming extinct in the workplace. Driven by technology, globalisation and changing employee expectations the world of work is changing at an incredible rate.

One of the biggest changes we’re seeing is the move from traditional role-based salary structures to skills-based pay models. There is a growing recognition that an employee’s skills are often more valuable than their job title. 

But what is skills-based pay and why is it so hot right now? 

What is skills-based pay?

Skills-based pay pays employees based on the specific skills and competencies they bring to the table not just their job title or tenure. Two employees in the same role, one with advanced expertise in data analytics and the other with none. In a skills-based model the former might get paid more because they bring more value.

This way salaries are aligned with real-world impact, encourages continuous learning and enables organisations to attract and retain top talent in a hyper-competitive market.

Why is skills-based pay on the rise?

Skills-based pay isn’t a coincidence; it’s a response to the pace of change. Here’s why it’s gaining traction:

1. Adapting to Technological Change: The half-life of skills is getting shorter. According to the World Economic Forum, 50% of employees will need reskilling by 2025 as technology and automation changes the nature of work. Companies need to reward those who upskill to stay ahead.
2. Closing Skills Gaps: A McKinsey study found 87% of organisations face or will face significant skills gaps. Skills-based pay incentivises employees to close those gaps.
3. Increased Employee Engagement: Gallup research shows employees who feel valued and recognised are 21% more productive. Skills-based pay ties recognition to expertise and boosts engagement and morale.
4. Promoting Equity: Tenure-based pay systems can perpetuate inequities. Skills-based pay rewards objective measurable competencies. This reduces unconscious bias in salary decisions.
5. Workforce Agility: In a world where job roles are changing fast skills-based pay enables companies to adapt by focusing on what’s needed now and future-proof for what’s to come.

What’s in it for employees and organisations? 

Money is always a sensitive topic, often seen as a zero-sum game. But a skills-based pay model flips that on its head, offering employee and employer benefits.

For Employees:

• Recognition for Expertise: Employees are valued for their unique skills.
• Opportunities for Growth: Encourages continuous learning and development with a clear path to potentially higher pay.
• Transparent Career Progression: Links between skills and salary create a path to advancement.

For Organisations:

• Attracting Top Talent: Skills-based pay systems make hiring more competitive and flexible.
• Higher Retention Rates: Employees want to stay and grow.
• Better ROI on Training: Investment in employee upskilling yields direct business benefits.

Beyond these benefits the ripples of skills-based pay are profound. It creates a culture of lifelong learning which is essential in today’s fast-changing world. Employees who own their growth become more innovative, more adaptable and more aligned to the organisation.

Plus, skills-based pay can close socio-economic gaps by rewarding merit and ability over connections or tenure. It’s a win-win for everyone.

How do you apply skills-based pay? 

Moving to a skills-based pay model may seem scary but here are 5 practical steps to get started:

1. Audit and Identify Key Skills: Conduct a skills audit to determine what skills are required for success in your industry. This will be the foundation of your skills-based pay framework.
2. Create a Skills Matrix: Develop a matrix that outlines the required skills, proficiency levels and pay increments. This is transparent and fair.
3. Robust Assessment Tools: Use standardised tools and certifications to assess employees skills objectively. Platforms like Coursera or LinkedIn Learning offer measurable credentialing.
4. Skills Development in Reviews: Tie reviews to skills development. Ask employees to outline their growth plans and reward progress.
5. Communicate: Transparency is key. Explain why, how and what’s in it for employees.

Balancing skills and roles

Skills-based pay has many benefits but it’s not without its challenges. Some roles require leadership, strategic thinking or other skills that don’t fit into a skills-based framework. So organisations need to balance role-based and skills-based to ensure fairness and sustainability.

Look beyond the paycheque

Skills-based pay will boost your salary and career growth but look at the bigger picture. Does your workplace offer meaningful opportunities, work-life balance and alignment to your personal values? Money matters but overall job satisfaction is key to long term happiness.

For organisations it’s not a trend it’s a must. By recognising and rewarding what drives results you can have a workforce that’s skilled and committed.

Are you ready to rethink how you reward talent and how you want to be rewarded?