Building the business case 

This series explores a discussion with IBM on pay-for-skills, and how IBM included skills as a major basis for their compensation decisions. The participants in this discussion were:

Sound ideas originate from people who have spent considerable time in a specific role. They may not necessarily originate in an organization’s headquarters or from a member of senior management.

In IBM’s case, a skills-based approach to compensation was put forward by a member from the compensation department. The said person was a practitioner in the field who identified the need to help managers arrive at more data-driven decisions.

However, the final decision-making right will still be retained by managers. But the underlying idea is to equip them with valuable information that drives sound decision-making. This is all the more necessary in a company such as IBM that has an estimated 350,000 employees across multiple business segments spanning software, services, and hardware.

In diverse markets especially, managers will be able to better understand trends in similar cities with equivalent skillsets that employees bring. Amid this scenario, managers require “a macro lens at their fingertips”. In the absence of data that is based on IBM’s talent pools, he or she will be basing compensation decisions on their considerably smaller teams.

At the outset, IBM did not launch the artificial intelligence (AI) powered skills-based compensation program worldwide. Rather, the organization started with a pilot project of 30 managers in a small market where the concept was beta tested. Additionally, to take it to the next level, this new program needed investment. But this was one area where an investment case was a no brainer.

This was because for a company of IBM’s size, where remunerations account for a large share of total expenses, even a 1% increase in efficient fund utilization can deliver substantial outcomes. The payback is huge – a win-win scenario for IBM, both in terms of business and its workforce now being offered a transparent understanding of what they're being rewarded with. More importantly, it will highlight what their investments are reaping.

With a skills-based approach to compensation, managers can now try and allocate investments to the right areas. And a key requirement is for them to be able to differentiate. What this means is managers must be able to gauge whether the investment is being directed to the right people, and whether compensation increments are of the optimal percentages.

With the help of IBM’s AI tool, it is now possible to put together recommendations better and save substantial time for managers. In sum, IBM was able to meet its expense goals, and showcase to business leaders that there is a proven recommendation tool that helps businesses differentiate and remunerate competitively.