Can skills be the greatest single lever for pay transparency, equity, and opportunity?
I recently had the privilege to moderate Hitch’s Magnet Group / Skills Accelerator panel on skill-based pay. The panel featured a group of pay experts, all coming from a different lens: pay equity, pay research and strategy, and data science.
In the session, we discussed some of the macro data points driving the skilling imperative for organizations and society. Influences and outcomes from lower birth rates, retirements, CPI inflation, rising salaries, education, and the latest voluntary turnover data all confirm it really is a new talent marketplace, and that is really drumming a lot of changes to compensation.
HR leaders have long talked about skills as the new currency of work; however, connecting them to the currency of pay and to how we value and compensate for them across the marketplaces of talent continues to prove a challenge.
We have seen Talent Management increasingly on the CFO’s list of top concerns in many C-Suite surveys, but as always, the question is why? Is it the skyrocketing salary budget increases, unplanned talent acquisition costs, or impact on top-line growth and innovation as a sustainable business issue? Panelist Nancy Romanyshyn, Director of Pay Strategy & Partner Success at Syndio, was very clear on what she sees as the real imperative in the C-Suite, “It’s risk! Recognize the attention we’re paying to risk, climate risk — people risk that is fundamentally changing the economy. As a CFO focused on sustainability [survival], recognizing that human capital is a major component of the operation… to be responsive to investors, shareholders.”
Talent is a fiduciary responsibility, and regulatory organizations are beginning to recognize this. With compensation as often the largest part of the organization’s budget and investment, this drawing rules such as the UK requirement for Gender Pay Gap reporting, and in the US, the SEC’s requirements for reporting “material” talent metrics, with others under consideration in the EU and elsewhere.
These are just a few of the many factors that we must consider as inputs into pay strategy. In many industries, we have come a long way from a purely transactional exchange of individual pay for work output. But we have not solved many of the issues around fair and equal pay across gender and/or racial demographics, economic equity, high-quality jobs, etc. Some of those challenges are organizational, macro social, cultural, and, let’s face it, even regulatory or governmental in some instances. Loading all that on the skills agenda as a silver bullet seems unattainable.
Where will skills fit in cascading influence all the way down to the wages received by an individual?
Compensation Philosophy vs Policy
Skill-based pay can push us to look hard at the organization’s real compensation philosophy. Many organizations have transactional compensation policies. But articulating the goal and philosophy behind that compensation is more difficult.
There are many compensable factors e.g., location, experience, occupational risk, negotiation skills at the point of hire, prior success, perceived potential, peer internal and external data, rules and policies, etc. These make it a very difficult task to make sense of where skills increase or decrease the value of those. Balancing this to achieve equity is even more complex with the mechanisms of remuneration available from base salary, bonus, stock (options) and other components like paid time off, parental leave, a car, healthcare, well-being support, etc. Even further complicated with other intangibles like culture and purpose.
Do skills transcend factors like location and get us close to compensation for capability and outcomes? If the outcomes are achieved with the skills required, isn’t that it? As panelist Krista Steuben, Lead Data Scientist at Payscale warned, “Benchmarking salaries by job titles without consideration of skills, means you risk losing your most desirable talent to a competitor who is willing to pay for those skills.”
This is part of the philosophical question, why have a salary range or band? If the job is worth X to the company, pay everyone in a role the same rate if they achieve the outcomes. Simplistic, yes, but if the job has a value, why not document that value to the company and the resulting pay if people do that? If it was a contract or gig job, that’s how it would be priced.
But then the pay and skills philosophy questions of performance, potential, and growth are part of it. Comparison is an occupational hazard of working in a team as it’s a very human trait and is sometimes at odds with the internal sense of reward. One may feel fairly rewarded, but in comparison to someone else, it may be much more or much less than someone else and generate a sense of feeling unfairly rewarded.
One organization I know used skills and proficiency level-based expectations as a tool to reduce the number of salary bands from over 30 to eight. This helped to reduce the culture of comparison and focused people on skill growth within the bands rather than fixating on getting to the next pay band. This increased engagement across the organization in learning, and saved them over $25 million of previously automatic pay band promotion costs.
What if the value of the job derived from the skills required to achieve the right outcomes is based on the contribution to the organization? Pay may be the single biggest P&L expense line, but it is responsible for the single top-line revenue number. Are jobs priced as an expense to manage or an investment to value?
Developing a strategic pay philosophy that is inclusive of the real elements pay touches revenue, expenses, bottom-line, and sustainability as a transparent and intentional commitment is crucial.
Skills Are Not The End Game
The fixation on skills as an end goal is a problem. Defined skills and skills-based pay are not the end of the journey. They are not even the beginning of the end, but merely the end of the beginning. It’s more helpful to think of them as the charge that flows along the wires of the talent supply chain.
For the last 10 years, we have referred to skills as the new currency companies must trade on. Yet skills are a local currency; they are not a universal “gold standard.” The diversity of skills as currencies is their local fiat value. One individual values them differently to another; one organization’s fiat currency of skills is different from another’s. This is especially true as we integrate this new dimension into the compensation equation.
The goal is to evaluate what they are worth for each side of the currency exchange, the skills exchange in the marketplace, is the goal. Using data that represents those skills is hard and an emerging field, so there are no existing playbooks. But skills can give us more concrete data and ways to evaluate what has been very subjective before, e.g., what does time served really mean in demonstrable or observable contributions? What evidence of participating in projects, roles, or gigs can we associate with skills as a better proxy for predictive success?
We have seen the “Great Resignation” drive the retreat to old tendencies of solving for open positions — hire more. But as we are seeing, you can’t hire your way out of a skills gap. Panelist Yustina Saleh, VP of Research and Development at Visier, commented, “During the pandemic, people were hoarding toilet paper. There is some evidence they were also hoarding talent, that the replacement was 170%.” But at last count, we have full employment and millions of open roles. It’s unclear what would happen if we suddenly filled all those open.
Ensuring workforce planning requirements are objective in capacity and capability leads to an equitable and well-ordered marketplace in the exchange of skills. As Yustina also noted, many organizations still struggle with “The managers not able to forecast their needs or skills gaps really well. Really pegging the internal data with external data is very, very important to see yourself [in the context of] a bigger industry.”
But as we atomize skills, we must be careful we do not lose the value of paired or molecular skills that capture the institutional expertise and experience that delivers value too. The sum of the parts is not always greater than the whole. Looking at tasks is much more informative than a collection of product nouns. For the person who has institutional memory captured as experience in applying those skills in the organization, their value is in context.
4 Skills-based Pay Takeaways from the Hitch Magnet Group Skills Accelerator Session
Skills can be the focal point for evaluating unstructured experience and expertise when it comes to quantifying contribution. More data, that is transparent, can only be good for improving equity and removing the unknown or subjective elements. But the skills-based pay discussion is complex and emotive. Our expert panelists summarized four key takeaways that can aid in an intentional design and approach:
- The value of work is strategic. It’s essential to connect the business strategies to the human capital capabilities (skills) which rely on them being present. Establishing this creates the value of required work and roles to evolve the investment conversation of recognition and reward; this role delivers X, which is worth Y to the organization, so we should reward equally with Z.
- Investment in people and talent is a CFO issue, too. More than the expense line item, it’s about risk management and mitigation. Delivering insights beyond a salary budget expense item, to the real cost and investment return of talent is critical decision-making data. Using skills data helps connect the balance sheet to the return on investing in talent strategies through retention, engagement, compensation, etc.
- Skills will not be the single data point for compensation. But better, more complete data on skills and work outcomes will help drive equal and equitable recognition. It’s an evolving field with the blending needs of the future of work. Prior factors and their influence on pay will also change relevance and weighting based on industry, workforce demographics, etc.
- Trust is crucial for building a transparent and intentional compensation philosophy. Establishing trust across the workforce is so important in these “grown-up” conversations. Pay is an emotive subject and trust is vital to support inclusive and diverse participation.
Where does the responsibility lie in ensuring an organization puts these learnings to use when making the change to skills-based pay? Nancy was very clear on the importance of leadership in delivering this, “The CHRO role has really been elevated these past few years and incredibly so during the pandemic. Being able to effectively communicate human capital priorities in a framework that calls out skills critical to the business should definitely be part of what they’re bringing to leadership.”
As we evaluate skills and their influence on compensation, we must ask who pays for pay? One reoccurring question that targets this is around participation and leadership in our affinity groups, employee resources groups, etc. Organizations recognize their importance in ensuring commitments to DEI are active, and real. But too often, the passion and participation that makes them so valuable to the organization is not formally recognized and not rewarded. Instead, it’s seen as a discretionary or volunteer-based activity. Those groups drive active inclusion and engagement, which must be recognized and compensated. But is it a stipend, or bonus, that’s not on the payroll, doesn’t impact pension/401k matching, pay raises, etc.? Stipends and bonuses are non-committal as they can be removed. Why doesn’t the DEI budget pay for that on the payroll, pay for it as salary? (We can expect to have more discussion around this in the recap of the next Hitch Magnet Group session with Mandy Bynum McLaughlin.)
Is it a skills issue? Of course, skills are also part of the solution. It’s about the inclusion of diverse experiences that are the root of creative innovation and equal access to those opportunities. And it’s just one of the things that skills can shine a light on as part of the data that drives incentives and outcomes
Stay tuned for more insights and actions from our collective journey through the development of the skills-based enterprise. To ensure you don’t miss the next post—or the registration for the next cohort—sign up for the Hitch mailing list.
Kelly Ryan Bailey is an entrepreneur, podcaster, global skills evangelist, social impactor, transformational leader, and mama of three kiddos. For close to 20 years, she has helped people navigate their education and career journey by using data and technology to create innovative skills-based hiring and learning solutions for companies, educators, governments, initiatives, and more. Kelly is currently the Founder & CEO of Skills Baby, hosts a podcast called, Let’s Talk About Skills, Baby, holds advisory roles to Emsi Burning Glass and The Adecco Group’s Innovation Foundation, is a special series editor and host of the Global Talent Summit for Diplomatic Courier, is a Fellow with Salzburg Global Seminar, is a Founding Partner of Equity Cities, is a board member of AdeptID, and also co-owns a number of other companies, including Growth Network Podcasts, FOS Capital, and World in 2050.