How Can Skills & Competencies Inform Compensation Decisions?

Compensation and benefits must be fair for all your employees. But how do you ensure you’re doing that? Your organization can use skills and competencies to inform compensation and benefits decisions. A skills-based organization turns away from job-based talent practices to using skills frameworks and individual development plans.

In this article, we discuss the benefit of using skills and competencies to inform compensation and benefits decisions. Read on if you’d like to know how this will develop talent to best fit your needs and future-proof your business.

Mapping Skills and Competencies to Business Priorities

Being familiar with your employee’s skills and competencies is crucial to informing any compensation decisions you make. You should map your team’s skills and competencies to the organization’s business priorities.

Take this example – your business is prioritizing advancing product development for a new app. Map the skills and competencies of your employees to look for tech-focused abilities, like coding skills or mobile design knowledge. Offer these individuals compensation and benefits to incentivize them to develop and implement their skills within your organization. Remember, their skills will likely be in demand by others within your industry.

When you understand what specific skills and competencies you need, and offer competitive rewards, you create a team that works together toward a common goal. You also secure your company with important talent that will be highly sought after by others.

Aligning Performance Management to Skills and Competencies

Employees deserve to be compensated for their skills and competencies as well as their effort and performance. To do so, you’ll need to align your performance management processes.

Start by defining your organization’s core competencies. Base them on your company’s mission. What are your core values? What company culture do you want to facilitate? Answer these to determine individual and team goals, gearing them toward developing core competencies. You can set standards that everyone should meet.

Identify skills gaps and nurture your team’s development. Regularly monitor their performance and how they’re responding to the provided skills coaching. Monitor the learning process and note what is and isn’t working. Ensure to emphasize individual career trajectories and reward their development efforts.

Determining Relative Value of Skills and Competencies

It’s a good thing to know what skills and competencies your employees have and help to develop them, but you also need to determine the relative value of them. To accurately make compensation and benefits decisions, you need to be able to accurately assess the worth of each skill and competency.

Here are three things to consider:

1. Score each skill or competency based on their importance for success in a role. Skills that are absolutely essential for a role will be weighted higher.
2. Access external market data and surveys to assess the overall value of each skill or competency. Specifically determine its value according to the industry, location, company size, and any other relevant factors.
3. Be mindful of internal equity by looking at roles at similar levels within the organization. Determine any necessary adjustments according to internal values and external compensation practices.

Designing Compensation Structures Around Skills

Employers can design compensation structures tailored to each employee. This is a holistic approach to determining employee worth. When you use skills and competencies as the basis for compensation decisions, you make employees feel valued and maintain fairness in the workplace.

Consider the following:

• Evaluate existing employees’ skillsets on a regular basis to understand where they need further training or development assistance.
• Provide competitive compensation and benefits packages based on the scope of an employee’s responsibilities and expertise.
• Utilize performance reviews as an opportunity to discuss skills gaps or areas of improvement and then improve compensation practices.
• Regularly review compensation strategies against industry standards to ensure competitiveness and relevance.

Offering Targeted Benefits Based on Skills and Competencies

When you offer benefits based on skills and competencies, you’re rewarding your employees for their specific contributions. Some attractive benefits you could offer include educational opportunities, flexibility, remote work options, and bonuses.

But for employees with unique talents, more targeted benefits to reward their efforts are key. These employees will require incentives such as career advancement opportunities. They’ll need appropriate recognition within the organization and performance bonuses. Put simply, if they aren’t offered valuable benefits, they may seek them elsewhere.

Utilizing skills and competencies to inform compensation decisions will help your organization build a loyal, satisfied workforce. Aligning employee rewards with their unique and attractive qualities drives optimal job performance. The result? You have improved end products and services to help the business succeed.

In Conclusion

As Michael Griffiths and Ina Gantcheva of Deloitte explain, “A skills-based organization provides an integrated system that ensures that the workforce is aligned, capable, effective, adaptable, efficient, and inspired by shifting from managing employment and supervising work done in jobs, to dynamically orchestrating and cultivating ever-evolving skills and work.”

As new technology emerges and the market changes, required skills shift, too. When you choose to use skills and competencies to inform compensation and benefits decisions, you’re developing a forward-thinking workplace. Compensating employees based on skills and competencies gives you a competitive edge and puts the right people into the right roles.