November 10, 2021

Want to Pay for Skills? 5 Things to Keep in Mind

You’ve heard of “pay for performance.” But many organizations are shifting the way they hire and promote from a job-centric point of view to a skills-centric point of view. Perhaps, then, “pay for skills” is a more appropriate way of compensating people to help attract, build, and retain critical skills.

In a recent Mercer survey of over 400 companies across the globe, 46 percent of participants indicated they do not have programs that link pay to the development of skills.

But, to deliver on the primary objective of attracting and retaining critical skills, employers must increase pay for skills across the employee lifecycle.

Pay for skills can take many forms and should be aligned with your overarching rewards and talent strategy. For some organizations, pay for skills will revolutionize the way workers are paid. For other organizations, paying for skills represents an opportunity to supplement or support existing rewards programs.

When done right, employers leverage skills-based market insights previously unavailable to them to inform the way they determine pay levels.

Increasing transparency in the process allows employees to find out which skills are most valued and what skills they will need for future advancement. And both employees and employers reap the gains that come from actively supporting skills development, including more engaged employees, more stimulating careers, and employees’ increased ability to thrive within organizations for more extended periods.

Here are five tips for succeeding if you’re interested in creating a “pay for skills” program.

Prioritize. Start by knowing what skills will be most critical to your business strategy and the most significant risks to your industry. What skills will matter most in mitigating these risks and in enabling strategy execution? How confident are you in your current talent supply approach, and how successful have your hiring decisions been? Could your efforts be more successful if you relied more on internal talent mobility?

Evaluate alignment. Consider whether your pay-for-skill techniques align with your company’s broader rewards and people strategies. Is there a foundation in place so your pay-for-skills approach will be understood and be consistent with your employer brand?

Make it fit for purpose. Don’t try to roll out an enterprise-wide program. Pick a department, business function, or country. Start with a pilot, and look at the impact of pay for skills on metrics such as retention and vacancies, engagement, and development initiatives. Test and learn, and then go from there.

Remember, it’s personal. Unlike changes in performance management or employee development plans, making changes to pay can quickly become highly personal. Any changes must be supported with communications and change management expertise.

Know the value of critical skills. Be sure you’re “placing bets” on the right skills. Using technology such as Mercer Skills Pricer, employers can evaluate a skill or skill cluster in real time and predict whether the value will increase or decrease over time. With such insights, a company can make informed investment decisions about employee development and the skills to buy or borrow from outside the organization.


Authored by Kate Bravery, Brian Fisher, and Jean Martin of Mercer. To learn more, read “Spotlight on Pay-for-Skills: Future-Proof Your Organization.” In addition, Jean Martin will be speaking on “Skills and Capabilities Are the New Currency of the Workforce” at the upcoming Cultivate Europe event.


Photo by Branko Stancevic on Unsplash