In many ways, it seems like an obvious question: Why are employers spending more on workplace skills than on salary?
Yet a new study from Gainwell Technologies Corporation (GTC) and U.S. Bureau of Labor Statistics (BLS) suggests that the answer may lie in the way companies are structuring their compensation packages.
According to the report, workers who receive an above-average salary are more likely to have their compensation matched by their employer when compared to those who earn below-average salaries.
“The most important factor in determining an employee’s compensation is not just their salary, but also their position,” said Dr. James W. Littman, vice president of research at GTC.
“Employers are paying their workers for a combination of skills that they bring to the workplace, and they are paying them for a position that they hold in the workplace.”
For example, workers at firms that offer higher pay for experience and experience-related skills are more inclined to be promoted.
“People who get promoted to higher pay levels tend to have more skills that are related to that position, and that tends to be related to experience,” Littampman said.
“You can’t just say, ‘This is the way it’s going to be in a year or two or three.'”
Littamons findings have implications for the compensation landscape for workers at many firms.
“I think people should be thinking about how much the pay for these positions is actually tied to the experience,” said Littow.
“There’s a lot of information out there that’s saying that people who get higher pay at a higher salary level have more experience, and I think that’s a mistake because experience is really important in the workforce.”
It is also the case that employees with more experience tend to be able to manage more effectively.
This can mean that they are more productive at work and more effective at their work-life balance, said Lipps co-author, David R. Leckman, professor of management at the Kellogg School of Management at Northwestern University.
“They’re going to work longer, and there’s a real benefit to that in terms of quality of work,” he said.
Lipp said that although the data are still preliminary, the findings suggest that employees who receive above- or below-market pay for skills are not necessarily more productive or that they have a greater opportunity to improve their performance.
“We’re looking at different kinds of skill and this has some relevance for how companies should pay their employees,” said Leckmans co-authored paper.
“It’s not necessarily the salary but the experience that is driving the compensation.”
The study also examined how employees who received higher pay were more likely than those who received below- or middle-pay pay to have experience at the company.
“When people are paid higher pay, it is the experience and the ability to handle those responsibilities that they were brought in for,” said Mimi Cagle, senior research analyst at the BLS.
“In some ways, there is an incentive to invest in people who have been there for a long time and to make them better.
We’re seeing a lot more of that in the economy, which has created this shift from having low pay to having higher pay.”