Skill-Based Pay 2.0 & Manufacturing: A Match 30 Years in the Making

For many years, the pay structure for most American manufacturing roles has stuck to a predictable, job-based standard. The rate of pay is determined by the specific role performed: there might be different set starting salaries for a forklift driver, an assembly line worker, and a shift supervisor, for instance. Under this structure, raise, bonuses and promotions are usually determined by assessing an employee’s performance and on-the-job experience.

There are some strong advantages to that kind of job-based compensation. It sets clear expectations for job performance, rewards workers for loyalty and longevity, and can be relatively easily adjusted to reflect fluctuations in the market and your particular industry. It’s also the way most businesses have handled payroll for a long time, and there is something to be said for the “if it isn’t broke, don’t fix it” philosophy. All of that said, skill-based pay has been growing in popularity in the manufacturing industry for the past three decades, for a number of excellent reasons.

Making the Case for Skill-Based Pay

Skill-based pay isn’t a new concept — in fact, it dates back at least to assembly line workers in the 1940s — but it’s one that has been gaining new traction across a wide range of industries in recent years. Advancements in on-the-job learning management software, more sophisticated manufacturing technology, and progressive ideas about employee motivation and payroll models have combined to make skill-based pay more appealing than ever. The concept differs from job-based pay in that an employee’s pay rate is based on their specific set of skills, training, certifications, and/or knowledge. For example, a new hire who is certified as a quality engineer may bring quality-control skills and education that existing employees lack. Under a skill-based pay system, the certified employee would command a higher salary than a non-certified employee in a similar role.

This type of pay system impacts your workforce management strategy by putting an emphasis on processes, knowledge, and technology specific to your business. Rather than setting salaries based on the market rate for, say, a drill press operator, your organization can choose to offer a higher rate to a worker with experience using the specific drill press technology your company relies on. In the multifaceted and often complex environment of a busy manufacturing facility, putting a premium on that kind of specialized skill can save a great deal of time and effort compared to trying to make do with passing those tasks on to less experienced workers.

Why is Skill-Based Pay Good for Workers?

One of the biggest selling points for a skill-based pay system is how much more it motivates and empowers your employees. Whereas many office-based and white collar employers can motivate employees with opportunities to “climb the ladder” by earning promotions and bonuses, that compensation system doesn’t carry as much weight for manufacturers. Tying higher wages to broadened skill sets, on the other hand, gives manufacturing employees a tangible goal to work toward, as well as a sense of being an indispensable, highly trained member of the team.

By attaching higher pay rates to specific, attainable goals, your organization can encourage your workers to pursue on-the-job training and take advantage of educational opportunities that might otherwise go unused. With the help of a strong learning management system, those types of training programs can boost engagement, improve morale, and encourage collaboration. Rather than expecting a worker to perform the same set of tasks in the same way every day, which can lead to burnout, giving workers a reason to develop new skills keeps their workdays more interesting and engaging. For example, a production line worker whose job mainly involves assembling parts could easily be trained to pick up other skills such as labeling, handling raw materials, or performing quality control duties. Considering that 40% of American workers say they spend around a quarter of their week on repetitive tasks, this can be an opportunity to re-energize your workforce and diversify your skill sets.

Having the option to arn higher wages on their own terms also gives employees incentive to stay with your organization, thus improving your employee retention rates. In a high-turnover industry like manufacturing, that can be a tremendous asset for your overall operations.

Why is Skill-Based Pay Good for Employers?

Many of the same reasons skill-based pay is a positive for workers also have benefits for employers. By encouraging existing employees to develop new skills, complete training programs, and earn certifications, your human resources team can avoid the more costly and time-consuming process of seeking out new hires with those particular qualifications. This pay structure makes especially good sense manufacturing, which often relies on specialized skills specific to the industry. For instance, a glass manufacturing plant might demand training in operating equipment that is used only in the glass industry. Since that training won’t translate easily to other jobs, incentivizing workers with a higher pay level can help the glass company improve productivity and retain a core of experienced equipment operators.

Taking a wider view, many employers look at skill-based pay as a means for developing a more flexible and diversely skilled workforce. If multiple employees take the incentive to get trained in on a specific piece of equipment, for instance, that means that your team has that many more options for scheduling and filling in gaps if one of your skilled workers leaves their role. That diversity of training creates a more interchangeable workforce that allows you to fill in potential gaps before they become a problem. In the manufacturing industry, where the lack of a qualified employee to run a certain piece of machinery or perform a specific task can result in costly production delays, that is no small consideration.

Making the move from job-based pay to skill-based pay is a considerable undertaking, and it won’t be the right move for every employer. If your organization is considering shifting your pay structure, it pays to have tools in place that help you automate and streamline the day-to-day payroll and scheduling functions that will be impacted.

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