SKILL-BASED PAY
Reassessing the value of skill-based pay
Given the right circumstances, paying for skill and competency can work well if it is easy to explain and employees are paid only for those skills that clearly add value to the business. That is the message from the authors of Pay People Right! writing in a recent edition of WorldatWork Journal.
A central thesis of the work of "new pay" gurus Patricia K Zingheim and Jay R Schuster is that pay should be linked to individual competence and skills. But far from flourishing, skill- and competency-based pay remains at the margins of mainstream reward practice in the UK and the US.
Stumbling blocks
Few employers appear to have been attracted to the concept of rewarding employees for the skills and competencies they bring to the roles they perform. What's more, while relating pay to the acquisition and use of skills and competencies has aroused some enthusiasm amongst users, there has also been deep disappointment.
As Zingheim and Schuster point out: "Too often, skill-based pay was the latest fad - the latest and greatest - for advisers and consultants to advocate. In most instances, the early technology was not ready for primetime and, because employers had not properly prepared themselves or their workforces for dramatic pay changes, failures were inevitable."
Redesigning the reward system to forge a link between pay and skills is said to be complex, time-consuming and difficult to manage. Zingheim and Schuster comment: "In the end, the design of skill/competency pay was burdensome and bureaucratic and, ironically, employers tended to use a combination of the same eight competencies."
The way forward
Zingheim and Schuster reckon that while such a move can indeed be high risk, skill-based pay may offer some major benefits when introduced as part of a total reward solution.
But employers need to insist that the programme is simple to explain and communicate. And companies must have very clear and realistic expectations as to what skill-based pay can deliver.
The authors conclude: "If skill-based pay can emphasise a value-added business formula by responding to both the skills the company needs for success and the market value of these skills, then some form of skill-based pay probably will have lasting value to the enterprise."
A final word
"The argument that paying for people skills and capabilities, rather than inanimate jobs, is powerful and compelling. People do the work of business, and can learn, grow and perform jobs don't and can't. It makes sense to organise work around the capabilities of hires, rather than shoe-horning people into jobs and expecting them to perform as the jobs are structured. Rewarding key skills and capabilities is one essential element to building a powerful workforce brand." - Patricia K Zingheim and Jay R Schuster, WorldatWork Journal, third quarter 2002.
Want to know more?
Title: "Reassessing the value of skill-based pay", by Patricia K Zingheim and Jay R Schuster, WorldatWork Journal, third quarter 2002.
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WorldatWork, formerly the American Compensation Association, is one of the HR professions oldest and most distinguished bodies. Founded in 1955, it is "dedicated to knowledge leadership in compensation, benefits and total rewards". WorldatWork is a not-for-profit association with a membership of more than 25,000 human resource professionals, consultants, educators and others, primarily in the United States and Canada.
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Posted 17 March 2003