Compensation & Benefits Review

Organizations must decide the basis upon which they compensate workers. Rewards may be based on results, the capabilities the person brings to the organization, or the job held. The nature of the work performed and what is required to motivate the person to perform the work still have an impact on how rewards are determined. Sales personnel are most often rewarded for making sales, professional/technical personnel are rewarded based on their knowledge and trades, and production personnel are most often compensated for possessing specific, work-related skills. Although all employees may be assigned roles/jobs, what they are paid for will be a function of the nature of the work and of the contribution its completion makes to the organization’s performance. Rewards management strategies should fit the work and the organizational context.

Skill-based pay (SBP) has had a long but chequered history. However, interest in it has intensified recently in the UK, largely as a result of labour shortages and increasing and often unsatisfied demands for skills, which prevailing market-driven approaches to compensation have failed to address. It has become evident that SBP can provide a useful means of supporting organisations to attract, retain, develop and engage the increasing numbers and range of skilled people they need to grow and succeed. In this article we describe the current context within which SBP is being developed; review the historical development of the approach and then illustrate the increasingly varied range of methods now being taken to how SBP is being applied in the UK; and draw some tentative conclusions from our analysis for SBP’s practical application, along with implications for future research.

The focus on attracting retaining, engaging, and rewarding talent with critical skills will only increase in the rapidly changing world we are living in. Organizations are in the best position to thrive when they understand, build out, and leverage the promise of skills-based reward. This article lays out the value proposition and framework for skills-based reward, the challenges inherent in this area and areas to focus on for successful implementation. Skills-based reward applications cover the following: (1) Hiring talent based on skills. (2) Use of job architecture and job leveling processes that utilize skills. (3) Use of career architecture processes that leverage skills. (4) Performance management processes that utilize skills. (5) Base salary increase and pay promotion systems based on skills.