Objective-based performance management and pay systems for posts requiring specialised, applied competence have come under fire in recent years. The popularity of competency-based performance amongst employees, however, has rocketed, largely due to the perceived fairness of their whole effort and ability being recognised. Significantly reduced turnover, improved morale and enhanced bottom line, have all been attributed to competency-based systems in addition to reinforcing cultural transformation. Any organisation considering introducing or re-engineering their performance management and/or reward strategies needs to examine the benefits this relatively new approach could offer them.
Competency-Based Performance
It is worth clarifying at the outset the difference in meaning between the terms competence (plural competences) and competency (plural competencies).
Competences describe what people should be able to do to perform a job well. So, they are concerned with output. Competences can apply to the organisation as a whole, they can be shared by a group of similar jobs and they can be unique to an individual post.
Competencies describe how people behave when they carry out their role well. They can be defined as the ‘demonstrable activities that make an employee valuable to the overall success of the organisation’. They are also referred to as capabilities, core values and behaviours.
There are ready-made competency lists available which can be applied as they stand or tailored to meet the requirements of each organisation. For instance, the Management Standards Centre (MSC) is recognised by the UK Government as the national standards-setting body for all nationally recognised and vocationally related qualifications in the management field. After collating information from thousands of managers it has created an extensive set of standards covering all aspects of management practice. Set up in 2001, it is the successor to the Management Charter Initiative (MCI). The two main benefits of using a ready-made list are that they can save a lot of time and they are generally well researched.
However it is essential that the competencies should fit the culture, context and performance requirements of the organisation. This alignment is critical. Some organisations tailor such lists and others prefer to develop their own list of competencies describing the behaviour they believe to be important.
Irrespective of the degree of tailoring involved, the competencies must be expressed in language meaningful to those who use them. Typically they will be expressed as a competency heading, with the differentiating competencies defined; three or four levels are commonplace. Essentially these lists answer the questions, ‘How do people in this role behave when they carry it out effectively?’ Guard against measuring those factors that are simply easy to measure – they may not be the ones which make a real difference.
Approaches to Analysing Competencies
Armstrong and Baron list a number of approaches you can use to analyse the competencies that are core to the success of your organisation:
Expert members of an HR department compile a list referring to published lists. This is perhaps the least satisfactory approach.
Structured interview with a cross section of jobholders exploring the behavioural characteristics that distinguish performers at different levels of performance. Headings are sometimes used to structure the interview such as ‘interpersonal skills’ and ‘team management’.
Workshops are an excellent approach as they involve the key players such as managers and jobholders. The resulting competency headings and behavioural indicators are therefore likely to be highly relevant, written in a language that is meaningful, and they are owned.
The critical-incident technique can be used with groups of jobholders and their managers to review actual events that have either had a successful or unsuccessful outcome and identify effective or less effective behaviour.
Repertory-grid analysis can be used with a group of people to identify what constitutes good or poor performance in each task or element within a job. It can be time consuming and the facilitator must be experienced to undertake this approach successfully.
The job-competency assessment method can be used to model the competencies for a generic role. First, a panel of expert managers express their knowledge of the job, the success indicators and nominate jobholders that they consider both satisfactory and outstanding. The jobholders are interviewed to identify what they actually do to create success.
Competency-Related Pay
Typically, competencies are in operation in the performance management process for at least a year before a link is made to pay, if indeed a link is made at all.
Brown and Armstrong define competence-related pay as:
Paying employees for the development and application of essential skills, behaviours and actions which support high levels of individual, team and organisational performance.
In contrast to performance related pay which rewards people for the results they achieve (often referred to as outputs), it rewards people for how those results are achieved (i.e. inputs).
An increasing number of organisations on both sides of the Atlantic are linking competencies with pay. The majority are integrating competence-based pay with traditional performance pay approaches rather than replacing them. Brown and Armstrong refer to this practice as 'paying for contribution'.
The reason for this trend appears to be threefold:
Recognition that competencies relating to customer care, quality, innovation and motivation are the key performance differentiator driving business strategy. The link to pay is being used to underpin the importance of the skills that are considered critical to ensuring competitive advantage.
Competencies are being used to drive up standards and develop employees. The link to pay is partly in recognition of this development and partly to reward it.
Addressing the problems and unpopularity of objective based performance-related pay, particularly acute amongst knowledge based and front line customer care employees.
Reference: Kevin Ford, 'Competencies in the Real World: Performance Management for the Relationally Healthy Organisation', Compensation & Benefits Review.
Michael Armstrong & Angela Baron, Performance Management: The New Realities (Institute of Personnel and Development.
Duncan Brown and Michael Armstrong, Paying for Contribution - Real Performance-Related Pay Strategies.
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