Want to pay for skills? Five things to keep in mind

Kate Bravery

Global Advisory Solutions & Insights Leader
Jean Martin

Global Head of Product, Mercer Career

Future-proof your organization

This blog was originally published on Eightfold.ai.

You’ve heard of “pay for performance.” But many organizations are shifting the way they hire and promote from a job-centric point of view to a skills-centric point of view. Perhaps, then, “pay for skills” is a more appropriate way of compensating people to help attract, build and retain critical skills.

In a recent Mercer survey of over 400 companies across the globe, 46% of participants say they do not have programs that link pay to the development of skills.

But, to deliver on the primary aim of attracting and retaining critical skills, employers must increase pay for skills across the employee lifecycle.

Pay for skills can take many forms and should align with your overarching rewards and talent strategy. For some organizations, pay for skills will revolutionize the way workers are paid. For other organizations, paying for skills represents an opportunity to supplement or support existing rewards programs.

When done right, employers can use skills-based market insights previously unavailable to them to inform the way they determine pay levels.

Increasing transparency in the process allows employees to find out which skills are most valued and what skills they will need for future advancement. And both employees and employers reap the gains that come from actively supporting skills development, including more engaged employees, more stimulating careers and employees’ increased ability to thrive within organizations for more extended periods.

Here are five tips for succeeding if you’re interested in creating a “pay for skills” program.

Prioritize

Start by knowing what skills will be most critical to your business strategy and the most significant risks to your industry. What skills will matter most in mitigating these risks and in enabling strategy execution? How confident are you in your current talent supply approach, and how successful have your hiring decisions been? Could your efforts be more successful if you relied more on internal talent mobility?
Evaluate alignment

Consider whether your pay-for-skill techniques align with your company’s broader rewards and people strategies. Is there a foundation in place so your pay-for-skills approach will be understood and be consistent with your employer brand?
Make it fit for purpose

Don’t try to roll out an enterprise-wide program. Pick a department, business function or country. Start with a pilot, and look at the impact of pay for skills on metrics such as retention and vacancies, engagement and development initiatives. Test and learn, and then go from there.
Remember, it’s personal

Unlike changes in performance management or employee development plans, making changes to pay can quickly become highly personal. Any changes must be supported with communications and change management expertise.
Know the value of critical skills

Be sure you’re “placing bets” on the right skills. Using technology such as Mercer Skills Pricer WRONG LINK, employers can evaluate a skill or skill cluster in real time and predict whether the value will increase or decrease over time. With such insights, a company can make informed investment decisions about employee development and the skills to buy or borrow from outside the organization.