AI’s Impact on Skill Building and Skill Based Pay

Public sentiment around AI remains mixed, but as barriers to accessing information and knowledge continue to fall, some wonder if formal degrees will continue to provide the wage growth and career mobility they have in the past. As AI tools can perform some of the basic tasks included in entry-level roles, organizations are grappling with job redesign and compensation structure considerations. For example, AI has led to changes in the availability and structure of entry-level roles. Traditional entry-level roles help employees build knowledge through practice and experience, which support the development of additional skills and deeper expertise. Changes to those roles may also affect how workers gain experience, develop their skill set, and in turn increase their earning potential.

With the growing adoption and use of large language models (LLMs) and “vibecoding” (web coding in natural language), employees and organizations are re-evaluating what skills are needed to perform excellent work, what future training initiatives may be necessary to develop highly desirable skills, and how to appropriately evaluate and compensate for them. Some organizations provide additional pay for gaining job-relevant certifications or important skills that are directly tied to the organization’s business needs, such as public speaking, conflict negotiation, and ability to meet revenue goals. Skill-based hiring and skill-based pay have become popular topics once more, although the practices are still unevenly distributed and not widely implemented.

The specific debate around using skill-based pay has fluctuated over decades. Using a skill-based pay program can be administratively complex, difficult to define, challenging to objectively assess and reward performance, and require frequent updates in rapidly changing environments. If an organization decides to adopt skill-based pay, it is important to be definitive and consistent with organizational guidelines to avoid the possibility of employees simply collecting skills and/or certifications to increase their earnings and potentially creating pay inequities within comparable roles by following inconsistent skill valuation approaches. At minimum, the skill-based pay approach should be well-defined and anchored to market data for appropriate valuation and regularly reviewed to monitor the fluctuations of skill premiums. Training evaluators on how to appropriately assess skill-based performance is another essential piece of skill-based pay programs to be effectively implemented and to reduce as much bias as possible.

Not many workers have had this level of access to such powerful information synthesis tools in our technological history. As AI proficiency becomes more broadly distributed across the workforce, current pay premiums for AI skills may begin to decline like in previous technological adoption cycles, such as the normalization of spreadsheet or data analytics skills over time. The rise of usable artificial intelligence tools could lead to higher pay for the unique abilities of human creativity, judgment, trust-building and contextual understanding, as these skills remain very difficult to replace by machines or through machine learning tools.

Deciding how to respond to these pressures is challenging and depends on what job-related skills your organization requires to operate effectively and competitively. As this landscape continues to evolve, an internal analysis can help determine whether entertaining a shift to skill-based pay is manageable and worthwhile for the organization to pursue or if other adjustments to current compensation practices are warranted, such as upskilling training or offering premiums for specific, mission critical skills. Before making widespread changes, reviewing your current job leveling practices, competencies and skills required in job descriptions, how mission critical skills and/or “hot skills” are already being compensated, and the design of your organization’s current roles are especially important.

Collaborating with an experienced partner can be a very useful part of evaluating your current state, and we’d be honored to support you. Reach out to our Compensation team for a chat or consider taking our Compensation Check-up to quickly identify areas where you can strengthen your current approach to compensation at your organization.