Skip to main content
Two young men in vocational school, taking a class on repairing diesel engines.
Report

Employee development through a ‘Pay for Skills’ program

Editor's Note:

This is the fourth section of "Employer Perspectives on Workforce Development," a series that examines how business leaders are adapting to the future of work.

Batesville Tool and Die Inc. (BTD) is a global supplier of precision metal stampings located in Batesville, Indiana, and employs approximately 450 people. BTD has four other locations, over 1,100 employees worldwide, and like many other employers, they are creating innovative solutions to meet the challenge of developing a robust workforce.

BTD’s approach to workforce development focuses on incentivizing skill-building among current and potential employees. In this post, Lauren Mynsberge, safety and training coordinator in BTD’s HR department, explains BTD’s new, internal skill-building system that is part of its “Pay for Skills” program. The company has also partnered with Indiana’s community college system, Ivy Tech, to create opportunities for employees to earn credentials and degrees. Earning a credential or degree pays off for BTD employees, literally: Employees who complete a program earn a raise as another part of the company’s Pay for Skills program.

The company strives to provide multiple pathways for development and career advancement, recognizing that some pathways are more attractive to younger generations, while others are more attractive to seasoned employees. BTD’s approach is one example of how employers can take a leadership role in building a robust talent pipeline, a crucial element toward addressing the skills gap, as discussed in the introductory post to this series.

A pay-for-skills approach to internal training

Mynsberge describes BTD’s fundamental challenge with respect to workforce development: “[We have] tried various new approaches to attracting and retaining workforce, yet we still can’t find employees.” This challenge is unfortunately all too common, reflecting familiar statistics about the difficulty of finding employees within the manufacturing industry. For example, the 2018 Deloitte Skills Gap in Manufacturing Study finds that “the skills gap may leave an estimated 2.4 million positions unfilled between 2018 and 2028.”

In response to this hiring challenge, BTD has developed the internal Pay for Skills program. A central element of this program is incentivizing skill development among employees through a new, internal training system. This system provides straightforward incentives–pay raises–for mastering new skills. In this system, each department has developed six levels, four of which are mandatory to complete with the remaining two being determined based on the needs of the company. To master a level, employees must pass a series of written and hands-on tests that cover a set of skills and training related to quality, safety, company policy, and technical aspects of their job. If an employee scores 100% on all the tests at one level, they earn a designated pay raise and move to the next level. New employees are required to take their level one tests after six months of on-the-job training. One benefit of this system, Mynsberge noted, is that it makes raises available based on skill level, independent of other factors like attendance and work ethic.

“While … developing the internal training program ‘took a lot of time and effort from all of management,’ designing their own platforms tailored to their needs was ultimately more attractive than relying on content from third parties.”

Mynsberge explains that developing this Pay for Skills program was no small feat: “It’s a very large investment for our company and management team, however, it’s a very important investment to ensure the success of our company moving forward.” They began creating the system in their tooling department two years ago, and the tests themselves are designed by managers within each department. While Mynsberge explains that developing the internal training program “took a lot of time and effort from all of management,” designing their own platforms tailored to their needs was ultimately more attractive than relying on content from third parties. Further, she notes that as technology changes, the company can modify the training platform.

Early results suggest that the investment is worthwhile. Mynsberge notes that within the tooling department, they’ve “already had awesome success with it.” She continued, “We are starting to promote much younger employees into group lead and management positions.” Indeed, this internal pathway for skills development and promotion reflects several of the core strategies that experts recommend to strengthen talent pipelines.

Further, this system is proving valuable with respect to recruiting new talent. Previously, employees were eligible for raises on an annual basis. In this system, however, employees may earn several raises in a year if they master the tests at more than one level, demonstrate soft skills, and earn credentials. In part as a result of this program, Mynsberge describes these opportunities to earn raises and promotions as “very appealing and attainable” to the high school students they recruit.

This strategy may be widely applicable to other companies facing similar challenges in terms of hiring–and retaining–workers with the relevant skills. For example, a 2017 report identifies a lack of internal career advancement options as a barrier to retention. This report describes a survey of middle market executives that finds that 44% of executives identify “candidates do not have the necessary skills” as one of the top three recruiting challenges. BTD provides an example of how employers can take the lead in developing solutions to these challenges.

However, not all companies may have the capacity to invest in the type of internal program development that Mynsberge describes. In this case, external organizations and partners may have an important role to play in supporting the creation of training and promotion programs. Recall from the introductory post that multiple experts recommend cross-sector collaboration between business, education, and government to address the skills gap.

Co-op partnerships

In addition to this internal program, BTD partners with five local high schools to offer a co-op program. In this program, students spend part of their school day working on-site at BTD or other local business partners, getting hands on experience. “[They aren’t] just watching, [but] actually doing the work with one of our toolmakers, even if they are under the age of 18,” Mynsberge says. Students are paid during their second year of the program since they perform more of the daily work of a toolmaker. While this program is not large in terms of the students enrolled–15 students participated last year and over 50 since its inception in 2013–it is a valuable opportunity for local high school students to gain experience working for the company. Indeed, about 20% of these students begin working at BTD straight out of high school.

However small, this co-op program provides value to both potential employees and BTD and is aligned with experts’ recommendations to engage with students at a young age. In discussing employer-led best practices for addressing common workforce challenges that manufacturing employers face, Katherine McClelland, a professional staffer for the House Committee on Education and Labor that works on higher education and workforce investment policy, argues that “[p]roviding early exposure to the wide range of manufacturing careers is a key step in creating a solid talent pipeline for years to come.” She provides examples ranging from one company’s manufacturing day for sixth and ninth graders to another’s on-site training and paid internship program for local high school students. BTD’s co-op program is one example of the many forms this type of entry-level talent development can take.

Partnerships with Ivy Tech

BTD’s partnerships with education institutions extend beyond local high schools. Indeed, Mynsberge says, “We wouldn’t be as successful in recruiting without our partners, both high school and higher education.”

In partnership with Ivy Tech’s Achieve Your Degree program, BTD offers employees the opportunity to earn credentials from a workforce certificate (created through a partnership with BTD and Ivy Tech) to an associate degree in subjects like machine tool technology or industrial electrical. Achieve Your Degree offers tuition deferment for all students, and Mynsberge says that “95% of employees never see a bill.” (For students who earn above a C, BTD pays for all labs, classes, and fees.) Further, she estimates that, of the students taking classes now, “at least 75% of students wouldn’t be able to take classes” without tuition deferment absorbing the cost up front.

“These [tuition-assistance] policies are not only good for companies, but also for employees.”

This tuition assistance strategy is likely to pay off not only for these employees, but also for BTD. Recent research from the Lumina Foundation suggests that employer tuition assistance programs are “a valuable investment that positively impacts organizations’ bottom line.” In an evaluation of the health insurer Cigna’s tuition reimbursement program, the Lumina study found that “every dollar the company puts into the program is returned and generates an additional $1.29 in savings.” Similarly, an analysis of Discover Financial Service’s reimbursement program by Accenture and Lumina found that Discover “reaps $1.44 in savings for every dollar spent on tuition assistance for employees.” These policies are not only good for companies, but also for employees. The study found that compared to employees who did not participate in the tuition assistance program, participants received wage increases that were an average of 40% higher, were 21% more likely to be promoted, and were more likely to remain with Discover.

In the case of BTD, the benefits to employees of earning a credential or degree through this tuition deferment program seem clear. As part of BTD’s Pay for Skills program, employees earn a raise upon completion of a certificate or degree. As Mynsberge states, “You end up getting a raise on top of having the full tuition paid for.”

Through its partnership with Ivy Tech, BTD has not only made attending classes more affordable, but has also made it more convenient. Since Ivy Tech did not have the space to add more machinery, BTD and Ivy Tech partnered to build an on-site Ivy Tech lab at BTD that employees and non-employees use. The benefit for BTD’s employees is clear: As Mynsberge states, “For our employees, they don’t even have to leave work to go to school.” Furthermore, with an on-site lab, non-BTD employees in the community now have easier access to Ivy Tech’s training facilities.

From Mynseberge’s perspective, the partnership with Ivy Tech is key to BTD’s efforts to build a robust talent pipeline. The value of this partnership is no surprise; as discussed throughout this series, experts strongly recommend that employers build these partnerships, which help employers communicate the skills they need and create opportunities for potential employees to develop these skills. For example, discussing a survey of over 900 academic and industry experts, Marri and Reyes note that 57% “believe that collaboration between the two sectors is necessary to effectively deliver postsecondary and vocational education to students.” BTD’s approach illustrates how robust, long-term partnerships between employers and community colleges can result in the development of innovative solutions that benefit not only one company’s employees, but the wider community as well.

Flexible options for advancement

In BTD’s internal development and promotion system, individuals have the opportunity to choose the path for advancement that works best for them. This flexibility is important, as Mynsberge acknowledges that more experienced workers may not be interested in returning to school. The new, internal skill-based training and promotion program is open to all and may be more appealing to veteran employees than going back to the classroom. Further, traditional promotion avenues, such as through demonstrating work ethic, remain viable. Mynsberge observes, “Seasoned employees [are] dominating work ethic. … That’s what’s nice about it–everyone has an opportunity” for advancement. This system thus provides opportunities for employees, both new and seasoned, to select the development and promotion pathway that works best for them.

“[BTD’s internal development and promotion system] provides opportunities for employees, both new and seasoned, to select the development and promotion pathway that works best for them.”

More generally, identifying career pathways that are effective for adult learners is an important task for policymakers, educational institutions, and employers alike. Fortunately, recent research offers helpful insights, such as this report from Jobs for the Future that reviews evidence on promising programs for adult learners and offers recommendations for implementing effective approaches.

Conclusion

BTD’s approaches are among the strategies experts recommend that employers take up: developing internal training and promotion systems and partnering with local educational institutions. Adopting these practices takes planning and investment, to be sure. But in BTD’s experience, this investment is not only feasible, it is highly valuable to the company and employees alike.

“[P]olicymakers should identify and implement strategies for supporting employer-educator partnerships.”

More broadly, BTD’s partnerships, and those of the other employers interviewed for this series, illustrate the power in working with local education institutions to provide training and education aligned with employers’ needs. Such partnerships are not necessarily as widespread as one might hope–recall from the introductory post, for example, the findings from a 2017 report that only 30% of middle market firms partner with educational or training organizations. There is clearly room for growth in developing these alliances, suggesting that policymakers should identify and implement strategies for supporting employer-educator partnerships. The partnerships discussed in this series indicate that there are plenty of good examples to learn from and build on.

Similarly, not all companies will dedicate limited resources to developing an internal training program like BTD’s Pay for Skills program. Policymakers should investigate how to incentivize and support employers’ efforts to create internal pathways for skill development and promotion. While the approaches across different companies will certainly vary, the case of BTD illustrates the type of powerful innovation that can occur when employers take a leadership role in addressing workforce development challenges.

Read the next section of “Employer Perspectives on Workforce Development,” or visit the series homepage.


The Brookings Institution is a nonprofit organization devoted to independent research and policy solutions. Its mission is to conduct high-quality, independent research and, based on that research, to provide innovative, practical recommendations for policymakers and the public. The conclusions and recommendations of any Brookings publication are solely those of its author(s), and do not reflect the views of the Institution, its management, or its other scholars.

Viewed as a leading, independent voice in the domestic policymaking sphere, the Governance Studies program at Brookings is dedicated to analyzing policy issues, political institutions and processes, and contemporary governance challenges. Our scholarship identifies areas in need of reform and proposes specific solutions to improve governance worldwide, but with a particular emphasis on the United States.

Get daily updates from Brookings