Skill-Based Pay: The Business-Culture-Revolutionary Trend In 2022
January 7, 2022
Skill-based pay has become increasingly popular and beneficial to businesses in expanding talent pool, business restructuring, and encouraging learning environment.
Skill-based Pay: The well-received compensation model
There has been a 21% increase in job postings advertising skills and responsibilities instead of qualifications and requirements, as well as a 40% increase in the number of positions that don’t require a degree in 2020 compared to 2019 on LinkedIn, according to LinkedIn. Taken together, there is a clear trend where businesses are starting to intentionally hire and pay talents based on their future potential, rather than based on their past history.
Ms. Tieu Yen Trinh, CEO of Talentnet Corporation, stated that skill-based pay, as well as talent-based hiring, will open up new growth opportunities for both businesses and workers. “According to Harvard Business Review, more than 70% of restaurant servers possess needed skills to succeed in customer service. Businesses need to realize that they will miss out on potential candidates if they continue to hire based on just qualifications or related experience. Instead, by using skill-based pay, managers can have a detailed skill scale to better make decisions in hiring or promotion. On the other hand, employees also benefit from having clear goals to strive forward.”
Furthermore, Ms. Trinh also drew a connection between skill-based pay and organizational transformation into circle-based. To make it clear, she shared that since the businesses stop fixating on positions a.k.a team-based structure, they can shift to project-based structure where a dedicated team of people with all the required skills to bring the project to fruition will be assembled for each project. This initiative empowers employees to actively practice their ownership and promotes collaboration with others.
However, similar to every other HR strategy, there’re always challenges amid all the benefits, namely the unwillingness still of both employees and organizations being over-familiar with traditional compensation model. It’s up to the leaders to find the solution for this existing problem.
A quick guide to skill-based pay for businesses
Skill-based pay is not only about shifting the compensation model, but also involving the changes in business culture and operation. Because of it, the leaders need to plan a suitable learning & development program for the employees, as well as “upgrade” their HR team to be up to par to handle this new compensation model in the long run.
Let’s take a look at a few things that businesses need to prepare before moving on to skill-based pay model.
Firstly, HR department needs to identify the skill profiles that are available in the business, then identify the specific skills that the businesses require in long term. Secondly, HR and line managers should collaborate to build a proper assessment process to evaluate the employees’ skills. And finally, the businesses will also need to prepare for the situation when senior employees, who take pride in their seniority, will become discontented with the new compensation model since new employees can have the same salary to them. Furthermore, the leaders must also be transparent with their employees about the criteria for skills assessment, so that the employees will not be dumbfounded by the implementation of skill-based pay model and businesses can avoid dispute at the end-of-the-year assessment.
While skill-based pay may sound simple, but it’s challenging to get used to this model and successfully implement it in the recruitment process, and build a culture empowering skill-based pay. And the transition between the old and new year may provide a good opportunity for HR to try new approaches, shackle off the uncertainties of a tumultuous year, and embrace a future ahead.