Pay Management using Skills-based Approach


One of the most significant responsibilities of human resources is pay management. Without a clear and objective way to manage salaries, managers are frustrated, employees are disappointed and organizations risk losing employee engagement. Traditional approaches use “merit” increases tied to individual performance don’t really work well, failing to achieve the key objectives of the process – to motivate and retain staff, and to differentiate between staff based on performance.  We think there is a better way.

As we explained in our article about Pay for Performance, pay management consists of two critical parts – recognizing the accumulation of skills and knowledge for the job, and rewarding individual and team achievement.  In this article, we will explore our ideas about how skills and knowledge can drive pay.

Skills, Not Time

If you ask any manager who their best employees are, they will know.  Dig a little deeper, and you will hear things like “Sophia is very experienced” and “Marc really knows the job well.”  In a lot of cases, these star employees have been in their jobs for a while.  Managers often use time as a proxy to measure experience – the longer the time in the job, the better the employee gets at doing it.  Sometimes, though, an employee with a short tenure excels at their job – their level of skill is one typically observed after a longer period.

Birches Group believes pay movement should reflect the value of an employee’s experience in their role.  Over time, employees gain experience through the accumulation of skills and knowledge.  It follows that growth in salary should be a recognition of growth in skills and knowledge.  The challenge is how to measure it, and how to apply the measurement to salary management.  Time is a terrible way to measure experience. 

Responsible pay management should be based on a framework that can clearly measure an employee’s capacity, rather than their achievement. As an employee grows and develops a deeper understanding of their role over time, the required skills and expected outputs naturally become bigger and more complex. Staff need to continuously learn and develop new skills to enable them to engage and deliver work at higher, more intricate levels.  In this model, growth in skills and knowledge drives increases in pay.

The Five Stages of Knowledge

Birches Group has developed Community™ Skills, a tool to measure experience.  In the Skills tool, we have identified five Skills Stages at each grade level:

  • The Basic stage reflects the minimal acceptable understanding of the job and is capable of addressing simple issues in standard operational settings.
  • The Proficient stage reflects the level of understanding of work where more complex issues can be addressed and the employee can adapt to most operational settings.
  • The Skilled stage is achieved with a complete conceptual understanding of the job and the ability to be effective in all types of operational settings.
  • The Advanced stage shows the level of knowledge that enables a high degree of independence in the job and reflects a broad understanding of concepts that also overlaps with the next higher grade level.
  • The Expert stage indicates the highest level of understanding of the job and overlaps with the next higher grade level. The level of understanding found at the master stage also allows for advising on process and systems improvements, which in turn results to better outputs and stronger capacity.

These Skills Stages were developed using the Birches Group Community™ Jobs approach as the underlying foundation.  For each Birches Group level, milestones are defined by Skills Stage for each of six Indicators – two Indicators for each job evaluation factor – as shown in the chart below:

Birches Group Community™ Jobs approach

With six Indicators and five Skills Stages, there are a total of thirty (30) milestones to measure skills and knowledge per grade.

Aligning Skills to Pay

In a salary range, there are three important points – the minimum, the midpoint, and the maximum. The midpoint of a pay range represents full capacity for that particular role, while the minimum reflects entry level experience for that grade, and the maximum shows a highly developed level of skill that may overlap with the next higher grade. Using these three points in the pay range, we can easily establish a mapping of the Skill Levels to pay ranges:

The illustration above can be applied to most grade levels.

Pay Management Using the Community™ Skills Solution

With the five Skills Stages mapped to the salary range, it is possible for any organization to easily manage pay clearly and objectively. Using Birches Group’s Community™ Skills solution, pay increases are linked to increases in Skills Stage.  Organizations can determine the specific set of rules to govern these increases.

For example, you can grant pay increases when a new Skills Stage is fully achieved.  Another approach is to grant an increase for partial achievement, with a proportionate reduction in the increase amount.  You can also require that growth be broad and encompass milestones from each of the three factors, to ensure well-rounded growth is being rewarded.  Organizations could even pay per milestone.

This innovative approach to pay management eliminates the guesswork for managers and HR and assures that pay increases are explicitly tied to an employee’s growth in their job.  Organizations can objectively measure experience and ensure that higher salaries are paid to those employees who are the most capable in their job.  At the same time, the skills-based approach to pay management is motivating and empowering for staff.  There are clear milestones to strive towards, and managers can conduct meaningful discussions with their staff about how best to grow their skills and grow their career.

Finally, an objective and deliberate framework that can truly allow for an engaged workforce. Contact us to learn more about Community™ Skills.

Bianca manages our Marketing Team in Manila. She crafts messaging around Community™ concepts and develops promotional campaigns answering why Community™ should be each organization’s preferred solution, focusing on its simplicity and integrated approach. She has held various roles within Birches Group since 2009, starting as a Compensation Analyst and worked her way to Compensation Team Lead, and Training Program Services Manager. In addition to her current role in marketing and communications, she represents Birches Group in international HR conferences with private sector audiences.

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