Organizations Are on the Skills Bandwagon; How TR Can Drive It

The unremitting emphasis on agility and innovation in the workplace is prompting some businesses to place skills, rather than job titles and roles, at the center of the organization.

“This is exciting for organizations because it creates new opportunities and pools of candidates,” said Juliana Barela, a global operations executive and senior client partner with Korn Ferry RPO. “Traditionally, [the thinking was] you need X number of years of experience and X degree. As skills in the workplace have changed so much in past years, focusing on skills creates an open lens of how you look at talent and grow talent.”

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As the shift to a skills-based organization encompasses the full employee lifecycle — from recruitment, interviewing and hiring to learning, development and advancement — the total rewards offering (compensation, incentives, promotions and more) is a foundational tool from start to finish.

Why Focus on Skills?

While the practice of rewarding employees based mainly on skills is not yet widespread, placing a greater emphasis on skills in the workplace is a priority for both employers and workers, according to research by Deloitte. In its 2022 global survey of more than 1,200 professionals:

89% of surveyed executives said skills increasingly influence how organizations define work and value employees, and 90% said they are actively experimenting with skills-based approaches.
73% of surveyed employees said skills-based practices would improve their work experience, and 66% said they would prefer to seek out a job at, and remain at, an organization that makes decisions based on skills and potential rather than jobs and degrees.

“Rewarding workers based on their competencies can help close skill gaps and ensure organizations have the capabilities to remain competitive by incentivizing workers to reskill and upskill,” said Sue Cantrell, a human capital eminence leader at Deloitte Consulting LLP. “This approach could also enhance fairness and reduce bias, as hiring, pay, promotions, succession and deployment decisions are based on skills rather than job history, tenure or network.”

This focus creates an environment in which workers with valuable skills can utilize them more flexibly throughout the organization, rather than remaining in a singular role. And a skills-based approach to workplace practices, including compensation, also serves as a tool for employers in the era of greater pay transparency.

“As we recognize that a more transparent world exists, we want better explainers for why there are differences in pay,” said Paul Reiman, founder and managing partner at Novo Insights. “Skills [as a differentiator] is a great one — if we can get it right, if it’s objective and we can say, ‘This person is more valuable because of this skill; they should be paid more.’ A lot of us don’t want pay transparency to result in pay sameness. We recognize that people have a different skill, and we want to be able to reward it.”

How Can the Total Rewards Function Help Drive the Shift?

The experts interviewed for this article shared a variety of tools and strategies total rewards professionals can utilize to help support a shift to a skills-based organization, including:

Develop a system that identifies skills in the workforce relative to the organization’s goals, and create rewards based on those in-demand skills using targeted performance management.
Identify skills gaps within the organization, create learning paths to help fill those gaps, and tie learning and development to compensation.
Create exception-based pay adjustments to address skill gaps by rewarding current employees for acquiring needed skills.
Offer incentives such as paid time off for skill development, funding for conferences or training, opportunities to work on projects that teach new skills, and digital badges or credentials.
Utilize tools and software focused on curating skills-related data to help drive hiring and compensation decisions.

Reiman cautioned organizations to consider the switch to a skills-based workplace carefully, with their specific needs and goals in mind and with a clear-cut structure of the skills that will be rewarded and how they will be assessed.

“There’s no reason the skills-based theory couldn’t apply across the board [in all industries],” he said. “Of course, you want to have capable people who can execute work in certain ways. But be careful of jumping on the train when you don’t know exactly where the train is taking you, because when you’re on the track, trains don’t turn.”

A skills-based system can offer an organization increased adaptability — if the system itself is thoughtfully structured with adequate change management and built to allow for flexibility and agility. For those seeking to become a skills-based organization, total rewards — in function and offering — is likely the driver that will support the change, Korn Ferry’s Barela said.

“How are you training people? Learning and development is an important part of becoming a skills-based organization,” she said. “And, how are you rewarding talent? It all needs to tie together to support the shift to a skills-based organization. At the end of the day, you want your compensation structure to support where you’re trying to go as an organization.”

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