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In 1997, a project team was established to explore the potential for a 'payment for skills' scheme to replace the classifications of the Local Authorities Award at Western Water, a Victorian water and wastewater service organisation. This article describes and comments on the establishment of the Skills Based Classifications project and the transition towards the introduction of a skills-based classification system to support self-managing teams. It describles the process involved in planning the methodology, gathering information, agreeing on key principles, task and competency analysis and the development of the classification structure. Western Water now has a Computer-Based Skills Register which generates Training Needs Analysis and records skill and competency details to assist with training plans. Competency assessment now complements attainment of team targets as the means of recognisin increased usefulness of employees to the organisation.The Skills Based Classifications Project achieved most of its objectives, with the Western Water workforce involved in the development of the new structure.