Paying for hot skills – a playbook

There is a mantra out there that, for certain hot skills, we really need to be paying differently.?Often the conversation gets no further.?As in, the point is accepted – but paying differently is not as straightforward as it sounds.?In fact, even identifying “hot skills” is not as straightforward as sounds!?

So what can an organisation do??It knows it is missing a trick – but cannot seem to create a pay outcome that ever hits the mark.?Will it be forever chasing hot skills and falling short?

The answer to the conundrum rests on assessing appetite to do things differently.?Without an appetite to look at the question (and answer it) in a different way, the holding pattern will continue.

So, with a suitable appetite for change, what can be done?

Many things.?In fact, you can adjust the entire package to better manage the issue.?This week, I will have a look at possible base pay interventions.?Next week (yes, this is a two part holiday extravaganza), I will look at variable pay and benefits.?

Base pay

The most important feature to land well.?This is because a reasonable percentage of hires will look no further than this headline number, a reasonable percentage will not understand (or have an appetite to understand) variable pay in whatever form you present it.?And of the percentage remaining, they understand only too well that variable pay is, well, variable.

So the answer tends to sit in three spaces.?Or all three, potentially.

Positioning

It’s not clever or pretty, but shifting desired pay positioning for hot skills to the 75% percentile (or upper decile if you already pay at the 75% percentile) is one answer.?Expensive though it may be, you wish to get to a place where you take certain people off the market.?Paying them more than they can find elsewhere locally is, clearly, one way of doing this.?

It is, of course, baked in cost, forever more.?But we know that. ?This?means that you will need to apply this positioning to certain roles only, unless you are feeling very generous indeed. ?The identification of these roles becomes the key question – I cover this below.

Global

What if your local market is being overly impacted by global players poaching your people on “work from anywhere” contracts.?Pay rates in San Francisco are such that a UK hire offers a cheap option to a US tech firm.?

This takes you to the place where you adopt global pay bands for certain roles.?Again, it is expensive, but if that is the issue you face, then accepting it and planning for it would be a logical step.?The concept of a global pay band is of course slightly erroneous.?It is a pay band positioned by reference to the most expensive market you can find.?

If you find this somewhat unattractive as a fix, the hybrid solution would be to adopt one set of global pay bands, but vary them regionally to reflect the local cost of living.?This is potentially a much more progressive approach that seeks to strike a balance between high global demand and local cost differentials.

Note that it would be silly to designate all of your roles as global in nature.?Again, the key is that you will need to apply this positioning to certain roles only…

Premiums

Pay premiums should form part of any consideration.?You want to be able to click on or off a supplement in the same way that Uber applies surge pricing during a busy period.?The concept is not difficult.?But the application in practice can be much more challenging.

But, as with all difficult things, the answer is to pick off the easier concepts that make a pay premium work.?It may be you are left with fewer questions than you think.

What are the easier questions?

Time-framed – you don’t want it to last for ever.?So accept that your pay premium should only really apply until such time as you have established whether the pay tension for a particular skillset (or your demand for that skillset) is going to be with you for the longer term.?You can make this as complicated as you wish, but simply mandating that they have a life of one year, or until the next pay review, if shorter, will cover most eventualities.?

Equitable – if you just use this as a recruitment tool, you will (usually) create as many problems as you are seeking to fix.?You would logically apply the premium to the skill set or role, whether it be a new hire or an employee with long service.?This is the piece we often forget.?If you just want to apply a pay premium to your new hires, then you are looking for a sign-on bonus.

Governance framed – this is key in two respects.?First, the exercise you go through to judge whether a skill is “hot” and the value you ascribe to it.?And secondly, the decision or determination to turn the premium off must be real and divorced from personalities.?It is, often, ?this second point that causes much of the tension.?

Targeted – Well, here we are again.?You would apply a pay premium where it is needed the most.?Where is that?

What on earth is a “hot skill”?

You can see that the key to managing base pay for hot skills is not a pay question.?The pay answer is straightforward.?It is a skills or capabilities question.?

Put simply, you need a process to identify what you need, how much you need it and how hard it is to find.?If you can crack this piece, paying this limited population more is not as challenging as it sounds.

We would look to build the answer to fit the organisation – but there are three things to bear in mind:

• You need a cross functional group to determine this, operating with an agreed methodology and clear terms of reference.?To put it another way, this is where talent, finance and the business intersect.?You can't let one group alone hold the key.
• You need some real time inputs that you can trust.?Pay data can help – but don’t forget attrition data, exit interview outputs and market intelligence from your talent acquisition team.
• The gold plated solution would be to look at market activity in certain skill areas in real time.?There are some interesting data solutions here which can look at recruitment activity in the public domain (in terms of scale and frequency) – which can inform how demand is growing for certain roles.

Finally, there is always a jurisdiction with better skills at a cheaper cost than the one you are sitting in.?It is not for every role – but harnessing these skills will prove a more effective tool for you than applying any of the above.?Set up a working group to see how straightforward it would be to recruit out of a place where you can find that skills and cost arbitrage.?It will save you money in the long run.

Next week, we cover what variable pay needs to look like to address a hot talent market.?And have a look at whether (and how) your benefits proposition should adjust.