Getting ahead of the 2021 shift to skills-based pay & benefits
Companies now have a more diverse pool of talent to pick from—and it's opening the doors to a new model of work.
With remote work looking like a staple in the new normal, companies are starting to rethink the employment and benefits process entirely. It began somewhat subtly, with a shift to variable pay based on location; with organizations like Facebook announcing that, although employees can work from home for the next 5 to 10 years, their salaries are likely to be adjusted in line with the cost of living in an individual’s chosen location. Now, the compensation structure is changing as well.
As everyone settles into the COVID-ushered remote-working revolution, businesses, looking to cut costs wherever possible, are hiring from cheaper sources overseas. Remote learning is expediting the globalization of expertise, leading to a situation in which companies have a more diverse pool of talent to pick from—and it’s opening the doors to a new model of work: skills-based remuneration.
Related: Redefining compensation strategies in the remote work era
According to global advisory firm Willis Tower Watson companies are edging toward this new remuneration scheme in which skills are comparable to a globally traded commodity and where employers bid for workers based on tightly defined abilities and experience.
Not unlike freelancers or contingent workers, contract terms will be shorter. Employees will be recruited for a certain project based on their skills, with teams being dissolved after completion. With the foundations already in place, and with the potential boost it could bring to company margins, the promise of skill-based pay will be hard for companies to turn down. And greater profit isn’t the only benefit.
The advantages of skills-based pay
This new working model holds tremendous potential, not just for companies but employees too. On the outset, it could decrease employer expenses and stimulate higher worker competency.
Additionally, being hired on skillset alone would not only grant greater employee recognition and boost morale but it could cap bias in selection, as well as incentivize the maintenance and development of in-demand skills.
With the fourth industrial revolution set to displace over 800 million workers worldwide in line with an increased reliance on tech, a skill-centric future has never been better timed for those looking to avoid the chop. It’ll also enable businesses to adapt to technological advances as employee abilities meet tech demand.
Akin to how remote working enhanced the private lives of many, skill-based remuneration could foster greater employee freedom. Employees can also ensure employment security by working for more than one company or leverage adaptable working hours to take more time off to spend with family, pursue hobbies, or test out new skills and trades.
The issue is, while promising significant financial and personal advantages, the impacts on equality may be far too much for HR to handle in its current state.
Considerations for HR
By replacing job and grade hierarchies with something more flexible based on dynamic rates for permanently shifting skills, we lose the basic data structures by which we compare reward across people attributes such as gender, ethnicity, social background. Pay equality may come under huge strain if skill-based pay is entered into lightly, and the tax complications could become a burden that more than outweighs the potential benefits.
The threat to equity will be a significant pain point for the HR function. Without the ability to adequately trace earnings, grade, and job equivalence, HR will have an even tougher time accounting for inequalities and bias—consequently reducing transparency and hindering the ability to track pay trends. This is especially true for companies still leaning on legacy systems that silo and fragment data. A shift to a market of skills-based remuneration is simply not supported by current generation reward and pay systems.
Fortunately, in line with the move toward the adoption of new skills, companies need to embrace new digital reward software that creates real-time total reward databases to analyze this new method of remuneration. While covering every aspect of reward, these novel systems also relay definitive pay equity data—stamping out any inequality qualms before they spread.
The process to consolidate data from multiple reward systems (covering salary, incentives, pensions, benefits and shares) has now been digitised, replacing the spreadsheets that made this task so onerous.
While a comprehensive shift to a market of reward based on skills is likely some way off, it’s looking more and more inevitable in the long run. In the meantime, it’s essential that HR makes the first move.
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