Today’s workforce is evolving rapidly as artificial intelligence (AI) and other new technologies reshape roles and accelerate the pace of change. For HR leaders, this shift has created new pressures to build adaptable teams and redesign traditional talent strategies. As organizations work to keep up, many are embracing skills-based pay (SBP) — a compensation approach that rewards employees for the skills they have or can develop, rather than relying solely on job titles or years of experience.

With 23% of organizations now adopting a skills-based reward program, SBP is emerging as a practical way to address talent shortages and strengthen workforce agility, while improving pay transparency in a modern skills-based compensation model.

Why organizations are choosing SBP

Skills-based pay is gaining momentum because it helps employers directly confront the widening skills gap. Technology is advancing quickly, and organizations are using SBP to keep pace as new competencies emerge.

A 2024 study found that 45% of HR leaders are rewarding skill acquisition1, positioning SBP as a top strategy to build critical capabilities and close gaps efficiently. Unlike traditional approaches grounded in tenure or education, a pay-for-skills model recognizes that today’s most valuable competencies often come from continuous learning, certifications and real-time development.

A competitive advantage in attracting and retaining talent

Skills-based strategies also help HR leaders expand their talent pool by focusing on capability and potential. Employees are increasingly looking for workplaces that invest in their growth, and recent data reflects this shift.

In a 2022 survey, 73% of professionals said skills-based approaches would improve their work experience, and 66% reported they would be more likely to join — and stay with — organizations that make decisions based on skills rather than degrees.2

By connecting compensation to clearly defined skills, organizations support employee development while strengthening succession pipelines and retaining top talent through a transparent, skills-informed compensation strategy.

Supporting pay transparency and fairness

SBP strategies can also help organizations improve pay transparency and reduce bias. A skill-based pay structure creates a transparent system in which compensation is tied to defined criteria rather than subjective annual reviews. This enables employees to see how acquiring priority skills directly influences pay, which builds trust and fosters a more equitable environment. For some organizations, this approach supplements or replaces traditional competency-based pay models with added flexibility and clarity.

How to create and implement an SBP strategy

Developing a successful skill-based compensation strategy requires planning, clear communication and ongoing oversight. HR leaders can use the following steps to build a focused approach and implement it effectively:

  • Identify priority skills and assess gaps. Determine the competencies most critical to the organization’s current operations, goals and future strategy, then map where shortages exist.
  • Define how employees can build those skills. Establish clear pathways for skill acquisition, such as certifications, training programs, licensing, conferences or hands-on experience.
  • Determine how and when skills will be rewarded. Decide how skills will translate into compensation and at what point rewards are triggered — whether through base-pay adjustments, bonuses, one-time incentives or structured pay progression tied to performance reviews or completion milestones.
  • Pilot the model on a small scale. Test your approach with a specific team or function, gather feedback and refine before expanding.
  • Communicate consistently and clearly. Ensure employees understand which skills matter, how they influence pay and where to access development opportunities.
  • Monitor and update the strategy over time. Regularly review and update your framework to stay aligned with organizational goals and market changes.

What this means for HR leaders

Skills-based pay offers HR leaders a powerful tool for navigating today’s fast-changing workforce. By encouraging continuous learning and linking compensation to meaningful skill development, organizations can improve transparency, support employee growth and strengthen overall competitiveness.

As technology continues to accelerate and workforce expectations evolve, adopting a skills-based compensation model positions organizations to meet emerging challenges with agility, confidence and a stronger pipeline of future-ready talent.

HUB International’s People & Technology experts are here to help you work through a full range of human resource strategy and support services in such areas as human capital management, total rewards and HR technology, including skills-based pay programs to address talent shortages and workforce challenges.  

1 WorldatWork, “The Rise of Skills-Based Rewards, and What You Must Do About It,” May 13, 2025.
2 WorldatWork, “Organizations Are on the Skills Bandwagon; How TR Can Drive It,” December 10, 2024.