Are ‘Skill Based’ Payouts - The New Mode Of Performance Metrics For Employees?
As all organizations continue to navigate the COVID-19 pandemic, many are unconsciously trying to predict the future of talent acquisition, changing business operation models, compensation structures, hierarchy and performance appraisals.
These changing mindsets and models can be only effective provided they are able to measure the current skills and potential. Also, they need to cover the gap between requirements and availability of the right talent. Decisions need to be made to either engage with existing workforce or look out for the apt resource in the market.
So, what is changing in the world of benchmarking the performance of the existing workforce in-house or hiring from the industry?
The candidate and existing employees are being assessed on their holistic skills rather than just industry experience, tenure in the organization or educational qualifications. These determine whether they are hired, continue in the role, get promoted or whether they get paid more based on their skills.
The work culture is changing around us today when it comes hiring, technology, engagement, training interventions, appraisals and promotions. Research supports that investing in skill-building is beneficial to both the employer and the employees.
The newest buzz in the compensation structure is the payout based on skills of existing employees or market talent. Skill based pay out allows organizations to:
1. Review market benchmarking data as per roles & responsibilities
2. Determine pay based on the assessed value an employee has created within an organization with newer skills acquired.
3. Establishing a compensation for every job description based on the employee's skills and knowledge apart from tenure and experience.
The definition of “Growth” needs to be re-defined both by each individual and the organization.
How do we assess an employee?
In the traditional approach, the performance is measured with the pre- defined annual goals, key metrics and KRAs. The current rating systems for most organizations is standard, keeping into account past performance.
Most companies adopt the Bell Distribution 5 rating scale.
Research says no more than 10 per cent of the population gets a rating of 1″ and “10% of the population must be rated a 5.”
In the bell curve there are a large number of people rated 2, 3, and 4. These people are either frustrated high performers who want to improve, or mid-level performers who are happy to stay where they are.
Defining the performance of a year of work to a single number might seem degrading for a few. It creates a defensive reaction and doesn’t encourage people to improve. Ideally performance evaluation should be “continuous” and focus on “always being able to improve.”
The question arises how do you measure the “Potential” and the existing skills of an employee? Is there a measuring tool for that?
The potential of every individual is a subjective point of view and at times can be perceived with a lot of unconscious bias. This bias can come into play at even the time of hiring where we are judging their past experience w.r.t brand names, past designations, certifications, degrees, institutes, communication levels and surprisingly even at times physical appearances. The potential can only be assessed only once an individual is given an opportunity and the freedom to execute his capabilities. Alternatively, the bias can be based on the personal relationship rapport with the assessing manager.
We need to look at potential being subjective to skills. Skills can always be acquired and the knowledge mastered over a period of time. A perfect combination to assess the true work worthiness would be – skills, knowledge and competencies. Skills can become redundant over a period of time owing to changing times, client requirements, technology and automation. Skills are evident in the performance of an individual which also impact the behaviour patterns. Skills should be assessed keeping both IQ, EQ and efficiency.
A person might have the skills but not the EQ to gauge at a work environment which requires flexibility and presence of mind. The application of skills eventually is crucial rather than just having the knowledge.
A skill in practice is worth much more than possessed skill or knowledge. The application of any skill needs to be for the betterment and advancement of the individual, organization and even society at large where the impact can be easily seen or measured. Thus, it needs to be compensated.
Another thought that arises is that we should not be categorizing skills as per a job or role. There has to be an element of multi-skilled orientation which needs to be driven at an early stage in an employee life cycle. This brings in the element of constant up-skilling and growth though process.
Organization must also invest in constantly engaging with the employees to up-skill them in various learnings, opportunities for inter-department roll overs apart from certifications.
Upskilling is a two-way story of inclination and commitment from both the individual and the organization.
A skill-based compensation needs to be driven as a culture for any organization.
Skills can be subjective to every individual depending on individual capacity or sometimes even time. Traditional growth based on tenure needs to be reduced as a bench mark and importance to a variety of skills needs to be encouraged.
Skills growth can be defined as:
Vertical Growth – which requires acquiring a higher degrees or level of the skill. Example, a simple hardware networking engineer moves into the domain of software engineering or programing. This approach encourages a domain change and a job change due to new skills being acquired.
Horizontal Growth – requires a specialization in the same field with a more in-depth knowledge and mastering the current skills. This could be enhanced keeping the same domain in perspective. This is called – Specialization in a specific field.
An ideal approach will be a combination of the above which eventually leads to not just specialization but also opens avenues and opportunities in various fields. While vertical growth might focus on levels, designations and domain, the horizontal approach would mean mastery over a skill which will eventually get you the desired outcome of your choice.
Conventional systems pay each worker to perform one job all the time. With skill-based pay plans, the goal is to have all employees know all jobs so that they can move from job to job as needed. Employees are given a pay increase for learning and demonstrating proficiency in a new skill, regardless of whether they actually use that skill on the job. This is usually connected to an organization’s strategic mission, skill-based pay plans are often part of broad changes that affect many facets of an organization. This also opens up opportunities across the board and can be an element of employee retention.
Let us look at the difference between a Job / Role based assessment vs a Skill based Assessment of any individual. Clearly the Skills based assessment is a holistic approach for gauging the future potential of anyone. While the traditional job/role based approach looks that the current state only.
A few advantages of a skill-based competency decision matrix:
Skills is a broad category and might vary from industry to industry however given the circumstances, growth needs to be linked with up-skilling irrespective of the industry or job role.
Gartner rated the following as the top priorities for all organizations for 2021-22:
“Building critical skills and competencies continues to top the list of priorities for HR leaders in 2021, along with organizational (re)design and change, and leadership upskilling.”
(The ideas and opinions expressed in this article has been crafted by Dominic Pereira, Learning & Development Specialist at Pangalo Group)
