How to Implement Skills-Based Hiring and Compensation

Company’s today face increasing challenges when hiring and retaining employees. Job roles change quickly, with one study from LinkedIn showing skill sets for jobs have changed globally by an average of 25% since 2015. That fluctuation is attributed to the implementation of new technology, automation, and new roles — and it’s only expected to accelerate. Hiring people for specific competencies requires investing (often significantly) in re-training them to meet the requirements for your role.

One solution to this obstacle is skills-based hiring, which prioritizes recruitment based on skills and competencies. This approach broadens talent pools, allows you to draw from more industries, and ensures the people you bring on have the skill sets to succeed in their roles. Companies have taken note of these benefits and are embracing the alternative method, with 40% of hires made on LinkedIn alone relying on skills data.

Adopting the approach first entails understanding what skills you need for a given role. In that regard, your organization needs comprehensive and validated skills and competency frameworks to define each position’s requirements and how to evaluate it against academic achievements.

What is skills-based hiring?

Skills-based hiring uses proven skills and competencies rather than academic achievements to make hiring decisions. Organizations employ work assignments, tests, and interviews to determine how capable an individual is of performing the job.

The shift away from academic achievements enables you to broaden talent pools by looking at different industries and roles. It also opens up horizontal pathways for employees within your organization. Even the U.S. Department of Labor promotes it as a way to make hiring more inclusive for the 70 million U.S. workers who acquired skills outside of formal education.

You essentially search for candidates based on what they can do, not what level of education they’ve completed. That can include soft skills or competencies, hard skills, and on-the-job experience without academic accomplishments (for example, people who received workplace training rather than a university education).

Testing for these normally involves:

• Implementing skills tests and assessments in the hiring process
• Employing work assignments (where relevant) to assess competency
• Using behavioral interviewing and testing to check for soft skills
• Allowing longer trial periods so people can adjust to new roles

Map skills across roles (and your organization)

To hire for skills and competencies, you have to create skills matrices or frameworks for each role you wish to fill. In most cases, organizations complete this in a single large project, often in conjunction with an outside bureau that can bring in industry benchmarks and template frameworks as well as a neutral perspective on how your organization works.

Normally, you start with a framework and then use interviewing, role assessment, and individual job tasks to highlight skills (both hard and soft) needed for the role. Most organizations focus on competencies required at an organizational, team, and role level.

Prioritize hard and soft skills

Every role has unique requirements, and there’s usually no one skill set that leads to success in a position. Differentiation can open up multiple paths to success in the same role, but often, certain skills are must-haves for specific roles.

Prioritizing skills and competencies (soft skills) is critical to hiring because it helps you find people who still need training but are otherwise competent in their role. You can categorize candidates’ capabilities into four tiers:

Tier One: Skills that are required to perform the role and can’t be easily trained in a reasonable timeline (e.g., time management for a project manager, communication for a SCRUM master)

Tier Two: Skills that are required to perform the role but can be easily trained within a reasonable time frame (e.g., a new coding language for a development role where the engineer already knows several languages, a new ERP for a supply chain manager with several years of experience) 

Tier Three: Skills that contribute to success in the role and aren’t easily trained (e.g., time management, stress management, emotional intelligence, work ethic)

Tier Four: Skills that can contribute to a role and are easily trained (e.g., specific tool competency, work methodology such as Agile or SCRUM, specific hard skills that contribute to understanding rather than completing work, such as basic coding for a UX designer). 

Success differs for each position, so you’ll need to prioritize the appropriate skills and soft skills. For example, you might find it’s better to hire based on soft skills for people-facing roles like customer service and facilitating while focusing on hard skills for technical roles.

Implement training and development

According to the LinkedIn Future of Skills study, skills mapped to roles will continue to change at the same rate as that of the last five years. This means that, unless you invest in training and cultivating new competencies in existing employees, their skill sets will quickly lose relevance. That’s especially true as you adopt new technology, change business direction, and remove legacy software and processes from your organization. Options for professional development include:

• On-demand development – Online skills training can help employees learn new technologies and simple skills that don’t require hands-on practice. They also allow you to assess existing skills through tests and then recommend training to remedy any identified gaps.  
• Coaching and mentoring – Coaching and mentoring allows you to teach skills that people in your organization possess to others. This strengthens team cohesion, removes single points of failure for technical roles and skills, and disperses more niche knowledge such as understanding specific company processes throughout the organization.  
• Workshops and live training – Workshops and live training are great for teaching new skills. For these, you bring in an outside expert to give hands-on demonstrations and deliver training within a set time period. This option is normally expensive but may be necessary when introducing new technologies or work methods.  

Integrating personal development, using data to predict potential skills gaps, and actively remediating those issues will ensure your existing personnel stays relevant and capable for their roles.

Reward employees for developing relevant skills

Skills-based compensation is a large part of skills-based hiring and involves you actively rewarding people who develop themselves. That often looks like tying salary to skills that contribute to the role, the team, or the organization as a whole. To determine a skill’s worth, you need robust skills and competency frameworks in place that include prioritization and valuation.

For example, if people who take emotional intelligence workshops add (documented) value to your organization by improving collaboration and productivity, you should reward them for it.

Conclusion

Once you understand how skills contribute to roles, teams, and your organization, you can hire based on those abilities, regardless of academics or past experience. Often, that’ll require implementing some form of training and professional development as part of job roles, not only to ensure new hires catch up but also that existing employees can keep up.

Successful skills-based hiring relies on establishing and maintaining skills matrices mapped to roles to identify fitting candidates. By clearly defining your needs for each position, you’ll improve both your hiring and people management processes, which yield greater benefits for your business in the long term.