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How Much Should Skills Affect Compensation?

Employees today are eager to sharpen their job skills. Evening certificate programs, online learning and software training are just a few of the ways the market is trying to keep up with the insatiable demand for knowledge. Keeping skills current is a vital part of career growth.

High performing employees are always striving to learn new skills that will take them to the next level. These are the exact employees we want on our teams. Consequently, these high achievers are asking for raises to compensate for their newly learned skills. While we are eager to encourage employee growth, the topic of salary increases must be approached deliberately.

The goal of this article is to equip you to better handle these conversations with greater ease and transparency.

Hard vs Soft Skills


Skills are either technical or non-technical. Technical skills would include programming languages, software and machinery. These skills are easy to observe and test for. Non-technical skills would include relational skills, planning, time management and people management. These skills are equally as important, but harder to test for. Typically, whether a worker has these skills or not will only become apparent over time.

In our technology-driven world, most employees are concerned with honing their technical skills. Over time, this has created a gap in softer, less technical skills. In the Workforce Skills Preparedness Report, PayScale asked managers what skills new graduates lacked. Soft skills topped the list. Sixty percent of managers think new graduates lack critical thinking/problem solving and 56 percent lack attention to detail. Both soft and hard skills are valuable in the workplace today, and it is important to understand this when framing how we think about skills.

Skills Most Lacking

Type         Skill  % of Managers Who Feel
New Grads Lack Skill
Soft Critical thinking/problem solving .   60%
Soft Attention to detail 56%
Soft Communication 46%
Soft Ownership 44%
Soft Leadership 44%
Soft Interpersonal skills/teamwork  36%

 

Type         Skill % of Managers Who Feel
New Grads Lack Skill
Hard Writing proficiency 44%
Hard Public speaking 39%
Hard Data analysis
(Excel, Tableau, Python, R, etc.)
36%
Hard Industry-specific software
(Salesforce, CAD, Quickbooks, etc.)
34%
Hard Mathematics 19%
Hard Design 14%

 

Skills Framework


Not all skills are created equal. You should not compensate for all types of skills. Some skills are completely unrelated to the employee’s job. If your software developer tells you they can now notarize documents, you can comfortably tell them that this does not make them better at their job, and, therefore, their compensation will stay the same. You should also not compensate for skills that are assumed to be part of the employee’s job. If your marketing specialist tells you that Microsoft Word is part of her skill set, you can comfortably tell her that this is assumed for their job and you will not be compensating them extra for possessing that skill.

Of course, you will need to compensate for certain types of skills. But how you do it will depend on if the skill is essential for the role, or just makes your employee better at their job. If the skill is essential and defines the role, not the individual, you will have to move the job’s salary range. If you have a software developer role that requires JavaScript, you would have to adjust that entire job’s salary range. 

If the skill is not required for the job, but having that skill makes your employee better at their job, you can reflect this value-add through increased range penetration. If you have a data analyst who knows how to program in Python, while the rest of the team is working in Excel, you would have to move the data analyst with Python skills further into the range than the rest of the team.

 

Skills Further Define a Job


The idea that a skill can be essential for a job is particularly important for broad job titles. For example the job of a human resource generalist who works in ADP is very different than the job of a human resource generalist who does labor relations. And those two jobs are compensated differently. A software developer who knows JavaScript makes on average $134,000, while a Software Developer who knows Ruby on Rails makes on average $158,000. If you are not compensating appropriately for certain skills, you will lose your top talent.

Jobs that are Defined by Skills

Job Skill Value $ Skill Value $$$
Software Developer C++ Machine Learning
Data Analyst Data Entry Python
Administrative Assistant Filing Event Planning
Human Resources Generalist ADP Labor Relations
Financial Analyst Accounting Forecasting

 

 

Communicating With Employees


It is important to convey how you think about compensating skills to your employees. Transparency in how you think about and compensate for skill development is both helpful in keeping them motivated as an employee. It can also inform career pathing. Imagine that data analyst who knows how to program in Python. After acknowledging how useful the skill is, you can transition to a conversation about how those types of skills could lead to a career as a software developer.

Or imagine you are talking to that marketing specialist about their Microsoft Word skills. You can shift the conversation from being about how that is an assumed skill for her role to a conversation about how she has been building cross-functional relationships. Leadership skills like this can help move them toward a management position. In both situations, you’re elevating the conversation from being about a pay bump, to being about a higher paying career.

Ultimately, you need to be ready when an employee comes to you asking to be compensated for their skills. You must have a clear understanding about how to think about skills. Having researching data that speaks to the market value of the skill will help you create a plan for how to communicate it all to your employee.

Learn More About Our Compensation Software


 

You Don’t Have to Do It Alone 


Knowing that you need to compensate for certain skills is one thing. Knowing
how much to compensate for them is another. The best way to know is to equip yourself with the right tools. PayScale has been collecting data on the relationship between compensation and skills for over a decade. As the importance of technology jobs, which are heavily reliant on hard skills, increases in the market, PayScale recognizes the need to provide this data to its customers. We have created a new product that surfaces the impact a skill has on compensation. Our Differential Engine will provide its customers the ability to see both the skill differential for a given job and prevalence of that skill in that job.

 

Heather Taylor
Read more from Heather

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