“By the way, what do they pay you?” was a question from a colleague a while ago, and we started talking. I don’t know if you agree, but I have noticed a growing trend towards transparency and openness around salary. Compensation in the workplace is no longer a tabu but just another subject for coffee table talk.
Show Me the Money
One reason for this shift is the growing focus on pay equity and fairness, particularly in the context of gender and racial disparities in pay. By discussing salaries openly, we can identify and address potential inequalities in income. And then, there is the EU Pay Transparency Directive, which aims to give employees access to the information needed to determine whether they are being treated fairly compared to employees in the same company and gives employees the necessary tools to claim their right to equal pay.
The traditional compensation model for leaders has been based on factors such as tenure, job title, and performance reviews. However, as organizations evolve and focus more on developing a skilled and agile workforce, alternative compensation models are emerging. Would skills-based compensation how we could transform the way leaders are compensated?
Show Me the Skills
The skills-based compensation system is not a new thing. It’s already used in organizations like Kone, Maersk, and Nordea. The compensation system rewards employees based on their skills and competencies rather than just their job title or seniority. Under a skill-based compensation model, an employee’s compensation is tied directly to the skills and knowledge they bring to the organization.
The approach is based on the idea that employees should be rewarded for the specific value they provide to the organization rather than just their position or job title. A skill-based compensation model aims to promote a more equitable and performance-driven approach to compensation by linking compensation to skills and competencies.
Why Pay for Position When You Can Pay for Performance?
Thinking about the skills and competence needed in my line of work, I can quickly pinpoint a few: strategic thinking, business acumen, people leadership, communications, change management, problem-solving, security… and the list would go on and on. All of the above are areas where you’d need someone else’s opinion about your success. To take it to extremes: Would I be comfortable putting my raise or salary level in the hands of my team members and peers? Is that a better option than HR and my boss?
Of course, it’s not the whole story. While peer and team member evaluations can undoubtedly be one aspect of a skills-based compensation system for leaders, it is not necessarily the only or even the primary factor in determining a leader’s salary. Other factors should also be considered, such as the leader’s level of responsibility, the size and complexity of their team or organization, and their track record of success.
How to Identify Your and Your Co-workers Superpowers?
In the skill-based compensation model, employees are evaluated on their skills and competencies through a formal assessment. Structure and transparency are good ways to attract top talent, but the downside of the model is that it can be complex and requires careful planning and management to ensure its success.
You’d need to start by identifying the relevant skills to get the model working. It might sound easy peasy, but it requires a deep understanding of the role and organization’s strategic goals to gather the winning combination of the needed skills. The second stop is developing and selling a reliable and objective evaluation process. There will always be people that don’t think this is a good idea😉
But it doesn’t stop there. We’d still need to balance the skills, tenure, and experience and maintain fairness and equity. Ensuring that the evaluation process is transparent, consistent, and unbiased is essential.
Is It Time to Ditch the Status Quo and Embrace the Unknown?
But hey, why bother? Is there any point in changing the compensation model that is said to be complex and requires a lot of work? I would go for it! While implementing a skill-based compensation system for leaders can be complex and challenging. However, by overcoming these challenges, organizations can create a more performance-driven and equitable approach to compensating their leaders.