Pay for skills

NEXT GEN PAY----- PAY FOR SKILLS

What will be the next round of pay and reward creativity?

The context of pay and reward innovation has evolved dramatically in response to an expanding
and changing global community and economy. Going forward, pay and reward designs must be
defined in terms of adding value to the business. Often organizations recognize a need for new
reward directions but are sometimes slower to execute new alignments than to acknowledge the
need to change. Prior generations of invention brought us such great tools as variable pay,
performance shares, cascading goals for performance management, and multisource
performance feedback. However, the strong connection between reward design and business
goals has been elusive. So the new generation of pay and rewards should reflect a much tighter
relationship between business outcomes and rewards. Another essential innovation on the fast
track is more efficient pay and reward management The next great pay and reward innovation
should, in our view, focus both on a key business issue and on making pay and reward solutions
more efficient

Paying for Skills:

The rebirth and revitalization of pay and reward solutions that permit organizations to pay for jobs
where that makes sense but also to pay for skills when that best fits their needs. Enabling paying
for skills is a key priority for the next few years. This involves paying for skills for not only
manufacturing and other nonexempt jobs but also for exempt jobs where skills and competencies
are critical for outcomes.

The need for an improved business focus by human resource programs has made what people
do and how they do it increasingly significant. Organizations want to nurture and grow skills,
competencies, and capability, and this implies paying not just for generally described jobs but
also paying for skills the organization needs. However, although paying for skills makes great
sense, the solutions offered to date haven’t been practical to the bottom-line business leader. Skill
pay has struggled under the burden of complexity and bureaucracy, paperwork, and a sluggish
response rate.

The compelling business case for paying for skills is that pay and rewards are powerful
communicators of business directions and values. So what people are paid for matters. If an
organization wants to pay people to try to get a job in a higher salary grade, then a system
focused on paying for jobs is the route to choose. If, instead, the organization wishes to make it
attractive for people to acquire and apply skills that are essential to business success, then
paying for business-relevant skills is preferable to paying for generally described jobs.

This is not an incentive programe where by the employee wins a certain size carrot for reaching
the maximum incentive. This is not a system of discipline where by the employee wins a whack
with a certain size stack for failing to reach an arbitary goal.

What Pay for Skill is:

• Tools for monitoring and helping to improve overall knowledge base.

• Tool to monitor the effectiveness of quality and productivity.
• Tools for analyzing performance of group of people
• Tool to determine pay level.

The urgent need to make the business use of skills more practical isn’t just a pay issue. Training,
development, succession planning, performance management, recruitment, selection, placement,
and nearly every human resource issue organizations face need to evaluate skills. Skills and the

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ability to translate them into performance is the cornerstone of contemporary human resource
management.
What’s needed is a skill solution that goes beyond pay to all aspects of human resource
management. This requires the development of a readily assessable library of skills that can be
used by organizations and people to assemble the skill mix that reflects the work to be done in
the organization. As the need for skills changes and new skills emerge, the library must adapt.
Skills must be “priceable” in the external market so people and organizations have an idea of
what their skills are worth. Organizations must be able to pay most for skills that are both most
valuable in the marketplace and worth the most to the business. Businesses must be able to
utilize job-based systems in one part of the organization and skill-based systems in another and
be able to relate people in one system to those in another. And organizations need to move
people from system to system without creating extreme discord and disruption.

All the skill-based human resource systems must be linkable. That means performance
management and succession planning are tied to skill learning and development. People must be
“profitable” in terms of the skills they possess. People with specific skills should be able to seek
work that needs those skills. And organizations that need specific skill sets must be able to find
the people who have these skills. How well skills are applied to do work must be discernible. The
move to skills requires the application of current, timesaving, and readily accessible technology.

The needs of an skill pay solution include the following:

• Skills Library: An Internet-based way to access well-defined skill combinations in order

to determine what skills are needed to perform in a specific organizational role and to use
the definitions in the skills library to define the basic elements of work. The definitions
should be concrete and based on real skill differences, not merely semantic differentials.
The skill definitions should be standardized in order to provide a future for a large survey
of the market value of specific skills.

• Skill Profiling Capability: Based on the skills library, a way to develop accurate skill
profiles that combine multiple skills and skill sets to match how work is actually performed
in an organization. Provides profiles that combine skills commonly appearing together in
work situations. Permits the organization to add or delete skills flexibly from a role being
assigned to an individual to reflect actual skills needed to perform the required work.

• Methodologies for Market Pricing Skills: Solutions for approximating the market value
of skills from the measured market value of defined jobs. Estimating the value of skills
from the value of jobs that normally require these skills. Ultimately being able to directly
survey the market value of skills defined in the library and in skill profiles. Permits
organizations to anchor skill pay solutions in the market. Prevents possible inflation of
skill pay costs that may result from the absence of market information that guides the
payment of certain skill combinations.

• Skill Pay Programming: A system for paying people for the skills they have and use to
perform the work they are assigned. Links the skills library, the skill profile of the
individual, and surveys or approximating the market value of skills and skill profiles to
how much the individual is paid. The solution will have mechanics of how people’s pay is
adjusted, how the acquisition of skills is paid for, how the application of skills is rewarded,
what happens when skills become obsolete and people need to acquire new skills, and
the like. It is the “how paying for skills works” part of the process

• Skill Performance Management: A methodology for evaluating skill competence and

skill performance that results in the individual’s work performance. Standards of skill
performance that can be evaluated by multiple means such as observation, work

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samples, testing, and in-work performance reviews. Linkages between the performance
management outcome and other skill-based human resource tools. Tools that translate
the acquisition and application of skills into performance. Provides guidelines that
suggest what happens when a skill is learned. Defines the importance of a skill and how
fast the skill is learned. Helps the performance process by making qualitative and
quantitative judgments about how well the skill is learned and applied

• Skill Training and Development: Teaching tools for skill development. Electronic
education for managers to use to train people and for individual selflearning to develop
the needed skills. Teaching solutions that adapt to changes in skill needs. Linkages to
performance management and paying for skills to permit testing and evaluation as well
as pay for accomplishment. Relates training and development to the process of
evaluating whether or not the individual is performing at a satisfactory level. Also provides
tools for skill improvement if skill is deficient.

• Succession and Advancement: Skill progression tools that help create a way to move
to work of more responsibility by acquiring and applying skills the organization needs.
Career paths that are associated with skills and how important and difficult to acquire and
apply the skills are. Changes to how people grow and add values that are focused on
demonstrating needed skills rather than jobs and job titles. Communicates a route for
people to follow to higher pay and more of the critical skills

• Recruitment, Selection, and Placement: Tools to help attract the people with the
needed skills to the organization and subsequently select and providing them work that
utilizes these skills effectively. Methodologies that set a priority of keeping people with
critical skills in the event of talent cutbacks. Facilitates the evaluation of skills and hiring
people with specific skills. Permits focusing on hiring people that satisfy skill needs, not
just people who have held jobs with similar-sounding titles in other organizations. This
seems a tall order for a human resource program with a foundation of skills. But not really
a major challenge for an Internet application. It combines the features organizations have
developed and implemented by means of manual skillHR/based human resource
solutions but are not linked or integrated. Most of these program elements exist in either
HRIS systems or on PC-based systems. The key issue is one of human resource
applications on the Internet. The Internet has not proven to be a highly viable way to get
products in the hands of users when the product is administered and monitored on the
Internet, however. The challenge of managing confidential pay and reward data on the
Web can probably be addressed by some sort of Intranet tool that translates Internet
information into a tool applied within the organization

Problems on Paying for Skills:

• None of the HRIS systems on the market is designed to manage a pay system based on
the skills individuals possess.
• Skill pay is one of the most over-engineered of all possible human resource systems.
Because paying for skills rather than jobs is so different from what people are
accustomed to, organizations developing such solutions are more likely than not to
develop them with considerable employee and management involvement.
• The design process becomes very linear, involved, and sometimes confusing because
most organizations that are implementing such programs do not have experience with
such solutions

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Conclusions

This is a good time to challenge providers of Internet human resource tools to develop something
they are all well qualified to deliver. Organizations are in dire need of a pay solution that matches
the interest businesses have in making skills the foundation of human resource planning. And at
the core of it is paying for skills.Skill pay made great business sense except for the problems that
the Internet is ideally suited to solving What we need is someone to step forward to develop and
implement something that will provide organizations with the next great innovation in
compensation. And that could be a practical and streamlined way to implement paying for skills.
Not that this will ever completely replace paying for jobs. However, for some organizations, it is
likely a way to encourage people to acquire and apply the skills that most help the organization
be successful. And in the final analysis that’s what a pay program should do to be deemed a
success. The next generation of pay and reward innovation will be closer to the business of
organizations than prior innovations. And it is likely that a combination of the Internet and paying
for the skills that add value to the business may just be how the future will be defined.

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