JOIN OUR WEBINAR Back by popular demand, Duncan will be discussing skills-based pay with Innecto CEO Deborah Rees-Frost in a webinar taking place 5th October 2018 at 12:30pm. They'll be joined by Marie Powers, Head of Reward at the National Crime Agency, to discuss the practicalities and benefits of implementing skills-based pay.

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Does your organisation pay for skills and competence?

 ‘But of course, higher skilled and more competent people get paid more in our organisation!’

At a general level in most UK employers that’s true: people in bigger jobs requiring more and higher level skills get correspondingly higher rates of pay for their job. On pay progression, according to the CIPD’s latest reward survey, the majority of employers report competence (61%) and skills (57%) as second only to employee performance as being the most influential factors.

But do you really pay for skill? If I get an additional skill or qualification over the year, are you going to pay me more in 12 months’ time?

‘Well, that depends…. ‘

And the factors that pay progression and awards have been dependant on in recent years have tended to take predominance over rewarding skills development, notably pay cost controls and the removal of pay increments, meaning that there has not been a lot of pay progression around for many employees over the last decade.

So, beyond the odd few examples, such as a pay ‘bump’ or upgrade for an accountant becoming fully qualified, or an engineer chartered, most employees in this country don’t receive specific pay awards for the acquisition of new skills from their employer. Despite the fact that skills and career progression in itself regularly emerges from surveys as the most important factor driving employee engagement; and that lack of personal and pay growth is a major cause of employee turnover in many of our clients.

This lack of relationship between skills and pay is worrying, for three reasons in particular. First, most of the research evidence is overwhelmingly positive, that investing in growing the skills of your staff and paying them accordingly pays off for both parties: the economic gain to the employer is generally much greater than the training costs involved; and higher skilled and qualified staff tend to retain their pay premia up to retirement.

For example, a US study of 97 skill‐based pay plans found that two‐thirds of these plans were rated as successful on a wide range of outcomes, including increased flexibility and productivity, higher quality, and lower turnover, despite higher average wages.

Second, because we don’t train our employees enough in this country and pay them accordingly, we are over-reliant on external recruitment to meet our resourcing and talent needs. This has created the unattractive phenomenon which the Resolution Foundation has termed ‘the disloyalty bonus’: that is employees realise that they can get a much bigger pay increase by moving employers in many sectors than you can staying with the same one. A kind of anti-retention reward strategy if you like.

Third, from the national perspective, a key reason for the UK’s poor productivity is we have increasingly become a low wage, low skill economy: France and Germany for example, produce the same output in four days as we do in five. Higher skills lies at the heart of this government’s industrial strategy for increasing levels of productivity and innovation and Warwick University research indicates low wages rather then lack of training per se explain the huge skills gap in STEM skills in this country. It is because employers hadn’t been training or paying for skills, despite all of this economic evidence, that government passed the higher National Living Wage and apprenticeship levy, to try to force this positive upward investment spiral.

Specific pay-for-skills schemes originated in manufacturing companies, paying workers to up- or multi- skill in settings such as assembly line manufacture, where the cost savings and quality improvements from such flexibility could be significant. Now we are seeing a new wave of skills-based pay schemes emerging, in settings ranging from retail and the John Lewis Partnership, to the Civil Service and National Crime Agency.

Skills pay is no ‘silver bullet’ solution to your pay and productivity problems. There are potential risks and downsides including: overly complex skills and competency definitions; assessment disputes; and pay cost escalation. And as Falstaff puts it in his monologue in Henry IV Part 1,‘Skill is nothing, a  mere hoard of gold, til it is set into motion and action’.

But in our current low skills, low wage, low productivity UK economy we believe that far more employers should be investigating, implementing and benefiting from effectively designed skills-based pay plans.

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