TR2050 Global Panel Discussions:
TR2050 have initiated a series of global panel discussions on the future of reward that have seen us in London, New York, Dubai, Stockholm and Boston. We were recently in Cambridge, Massachusetts, in the USA, at the headquarters of Moderna.
Our panel in Cambridge is: Asha Nataraja – head of total rewards at Shopify, Manjit Gill – senior vice president of global total rewards at Otis Worldwide, Billy Schultz – global vice president of total rewards at Mars, Stacey Rapacki – vice president and head of compensation at Northwell Health, and Hem Patel – vice president of total rewards at Moderna. The panel is expertly moderated by Dr. Ben Shenoy, a visiting professor at the London School of Economics and a TR2050 academic in residence.
We are exploring:
- Skill-based pay and its implications
- Balancing technology and human interaction in rewards
- Generational differences and their impact on rewards
Skill-Based Pay
The panel opened by discussing the dynamic nature of skill-based pay, which requires frequent updates as new skills emerge. This approach could lead to greater differentiation in the marketplace, with some organisations paying a premium for high-demand skills, potentially making traditional pay bands less relevant. As this shift unfolds, there may be increased emphasis on learning and development, as well as new methods for skills benchmarking. The discussion then turned to how organisations should adapt their reward strategies to accommodate this evolving model.
The panellists emphasised that implementing skill-based pay requires understanding an organisation’s unique position, industry context, and workforce type. For some organisations, the initial focus is on building a comprehensive skills library and establishing consistent methods for assessing skills. This includes defining how jobs and their required skills are evaluated, potentially deconstructing traditional roles to align with a skill-based pay approach. The organisation should plan to prioritise critical skills and roles, starting with foundational steps like skills cataloguing, assessment consistency, and identifying key segments to pilot skill-based pay.
TR2050 So, there’s clearly a hierarchy or an evolution in this, get a foundational library, prioritise it, and, of course, underpinning all of this is we need data, so an interesting challenge.
The panellists highlighted that linking skills directly to pay is a complex and somewhat controversial topic, even within their own team. Skill-based pay isn’t a new concept – it’s reminiscent of the 1970s and 80s factory model, where learning additional skills often resulted in higher pay. However, there’s debate on whether skills should have a formal pay linkage. One perspective is that deconstructing jobs into benchmarked skills, like analytical or communication skills, could replace traditional job-based pay structures. However, this approach lacks available benchmarking data and surveys, making it challenging to scale.
The central question remains: does skills-based pay address a real gap in current compensation models, or can traditional methods, such as applying premiums for in-demand ‘hot jobs’ continue to meet needs effectively?
TR2050 It was noted that while skill-based pay works well in sectors like tech, it faces challenges in fields where behavioural skills are critical. Measuring and valuing competencies like behavioural skills is complex, as these skills are harder to quantify and assess compared to technical skills. We are seeing a focus on softer skills as being truly important elements of leaders of the future, things like empathy, things like listening, hard to quantify, hard to measure, probably hard to benchmark against.
Skill-based pay is generating a lot of interest and has potential applications, but it’s still early in its evolution. As organisations explore this concept, they’ll need to determine which skills are critical for their future success and consider paying premiums selectively for those with high impact. Skill-based pay won’t likely be a one-size-fits-all solution – it may apply differently across roles, skills, and workforce segments. Additionally, as this approach matures, benchmarking practices will need to adapt, providing more granular insights to help companies make data-driven decisions. The shift toward skill-based pay may be gradual, but it could offer new ways to recognise and reward specialised talents.
Skill-based pay can be viewed as an evolution of traditional pay-for-performance. The key lies in connecting skill depth with measurable impact on an organisation’s goals. If employees focus on mastering skills that directly benefit the organisation, their increased expertise should yield exponential output and higher ROI. However, skills that aren’t relevant to the organisation’s needs might not justify higher pay. This is similar to the old factory model, where cross-training on unnecessary machinery wasn’t always useful. Companies need to be strategic, identifying and rewarding depth in critical skills that align with organisational objectives, while setting boundaries for less impactful skills.
A concept like ‘Mastery’ could help organisations reward employees for deep expertise in essential skills, even if they’re not in management roles. Traditionally, career advancement – and higher pay – often meant moving into management. However, if an employee is passionate about honing their craft instead, recognising this growth through rewards can drive better organisational outcomes. Whether in management or technical roles, the idea is to allow professionals to excel and be compensated for impactful skill development, fostering both personal fulfilment and business value.
TR2050 Building on key themes discussed, there are essential considerations in skill-based pay: First, what problem are we solving? Defining the value of skills and the exponential impact of critical skills is crucial, as greater value should be reflected in rewards. Second, as employees progress, there’s often a shift from technical mastery to more strategic, interpersonal roles that ‘glue’ the organisation together. This transition -often seen in companies like Shopify – requires different skills, and organisations must consider how to adjust rewards to recognise both technical expertise and leadership capabilities.
In the financial industry for instance, many top-performing professionals face a dilemma as they advance. Skilled dealmakers and experts are often promoted to management roles, even when they lack the empathy and coaching skills needed for those positions. This system forces talented individuals into paths that don’t align with their strengths, reducing their impact and personal fulfilment. A better approach is to value and reward deep expertise, allowing people to advance and earn more within their craft without the need to switch to management roles that may not suit them.
Pushing people into management who aren’t suited for it can harm the organisation, creating toxic relationships and negatively impacting team morale. Research shows employees want fair pay, career growth, and a positive relationship with their manager. When the wrong people are in management, it disrupts these needs and risks creating a top-heavy structure that doesn’t serve the organisation’s goals. Recognising and rewarding craftsmanship – alongside skilled management – can foster a healthier, more productive work environment.
TR2050 In closing, it’s essential to tailor your approach to skill-based pay to fit your organisation’s unique needs and goals. In the end, compensation is a significant investment, and the return on that investment hinges on the value employees bring to your mission. Whether through skill-based or traditional pay, the key is identifying the right skills, rewarding the right people, and ensuring fair compensation that drives maximum impact.