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December 23, 2020 | Human Resources | Posted by Ascentis Thought Leadership

Why More Companies are Turning to Skill-Based Compensation

Employers across a wide range of industries are now starting to assess the ways the pandemic era will affect their operations in the long term. For some employers, that means a shift to more remote work and flexible scheduling. For others, it means an increased focus on workplace health and safety measures. And for some, it means a fundamental change in the way we think about payroll.

As businesses scrambled to adjust their schedules and workforces in the face of COVID-19 safety requirements, some innovative ideas that had already been gaining traction before the pandemic moved further to the forefront. Skill-based pay is a prime example. The basic concept of skill-based pay involves setting pay rates based on a worker’s specific experience, training, or education. This differs from more standard pay structures which determine pay rates based on the role the worker will be performing rather than on the skills and knowledge that worker brings to the role.

Why skill-based pay?

The pandemic brought the benefits of skill-based pay into focus for many employers. The need has been especially evident in industries like manufacturing and healthcare, where operations can be seriously disrupted if no workers with a specific set of skills or certifications are available for a certain shift. For instance, a manufacturer that uses a piece of equipment that requires specific training to be operated safely may have to delay production if no one with that training is onsite to run it.

As workforce managers have added shifts and instituted flexible scheduling plans over the past year, the value of always having properly skilled workers on hand has become even more obvious. By tying compensation to those skill sets, employers can attract and retain top-quality employees, helping ensure that highly skilled, motivated workers will be there when they need them most. Even better, higher rates of pay give existing workers more incentive to improve their skill through training and education, leading to higher levels of employee engagement and satisfaction.

Some experts also point to skill-based pay as a driver of flexible innovation within the workplace. When a business places more focus on allowing its employees to develop and apply their specific skills than on a more rigidly defined job description, workers feel more empowered and valued. That mindset helps create a more productive and efficient workplace for all involved.

The role of workforce management software

Your workforce management software can play a big role in transitioning to skill-based pay. As many HR and operations managers have learned over the past year, changing your approach to scheduling employees can expose gaps in necessary skills. For a busy, multifaceted manufacturing facility, attempting to manually schedule enough qualified workers to fill every essential role in every shift can be prohibitively difficult.

By pairing a customizable workforce management system with your organization’s learning management system, your business can keep managers aware any time a required skill or certification is missing. Not only does this prevent production delays and compliance issues, it can also be a huge help in making hiring decisions — if you are consistently coming up short in one skill area, it may be time to hire more workers with the necessary qualifications.

The role of learning management software

A skill-based pay model is also an excellent opportunity to encourage on-the-job learning. By pairing compensation based on specific knowledge, skills, and certification with a robust learning management system, manufacturing employers not only give employees motivation to develop new skills on the job, they can also significantly reduce hiring costs.

It’s an accepted truth of the human resources industry that it costs less to retain a quality employee than to hire a new one. By encouraging workers to move up the pay ladder via obtaining new training and certifications, your HR team can avoid a costly and time-consuming search for new hires who already possess what can be rare skill sets, depending on your industry.

Does a skill-based pay model make sense for you?

Even with all of the advantages a skill-based pay plan presents for many employers, it is not a one-size-fits-all solution. For many businesses, the standard pay models that made sense in the pre-pandemic era will continue to work best in the foreseeable future. For those considering making the move to a skill-based model, a compatible workforce and learning management system is essential.

Learn more about the ways Ascentis workforce management solutions can improve efficiency and productivity, no matter what pay structure your business decides on.

With more than 35 years of experience in providing Software as a Service (SaaS) solutions, Ascentis thought leaders have become a respected source for insights, tips, and innovations in the Human Capital Management (HCM) space.