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Wondering How to Pay Fairly? Consider Using Skills Differentials. [Infographic]

We’re in an age of information overload. New jobs are being created seemingly overnight. Skills that were unheard of just a year or two ago can quickly become in-demand. Conversely, many jobs will start disappearing.

Organizations must maintain a pulse on different skills needed to successfully compete in a global economy. As a business leader, the best way for you to gain an edge on your competition is by creating a skills-based workforce.

Whether you’re recruiting from outside the company, or filling a role internally, the number one most important thing you can do to build a skills-based workforce is to ensure you’re compensating your employees correctly.

But how do you do that? One way is by considering skills-based pay.

Your employees have many different skills and talents. But which ones do you need to pay a premium for? Which ones aren’t worth paying for? To determine the right pay for each position, you need a framework to understand how to evaluate different skills and factor these skills into a salary benchmark.

How does one define a skill differential?

Holding comparable factors constant, the skill differential evaluates the impact a skill alone would have on compensation.

So how does one measure the value of a skill? One useful way to determine how much a skill is worth is to put it into one of four categories:

  • Essential for the role
  • Useful for the role
  • Assumed for the role
  • Unrelated to the role


It’s not necessary to compensate for assumed skills because these skills are the basic skills everyone in the job should have. Thus, there wouldn’t be a pay premium for these skills. Similarly, with unrelated skills, there’s no reason to compensate for them. For example, if a developer got a certificate in social work, the certificate would add no value to the role.


On the other hand, we do compensate for the two remaining categories. However, the way to compensate for them differs. Depending on the type of skill you’re looking at, you’ll either be moving the entire range, or simply the individual employee’s position on that range.

For more information, take a look at the infographic below.

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