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COMPETANCY BASED PAY

Fiona Neathey and Peter Reilly,IES

Presented By

ABHISHEK.S.KULKARNI (753)

http://www.employment-studies.co.uk/pdflibrary/mp25.pdf

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What is competency?

A competency is defined as a behavior or

set of behaviors that describes excellentperformance in a particular work context

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What is competency-based pay?

Competency-based pay can be defined as paying for the development and applicationof essential skills, behaviours and actionswhich support high levels of individual, teamand organisational performance.

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continued...

Armstrong and Baron, gives the following as someof the distinguishing features of competency-based

pay: It is based on an agreed framework of

competencies

It is not based on the achievement of specific

results, such as targets or projects completed.However, it is concerned with the attainment ofagreed standards of performance.

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How are reward and competency linked?

Brown and Armstrong (1999) summarise two

main ways of linking competency and reward:

1)Job-focussed process

- which uses competencies wholly or

partly as a way to evaluate jobs

2) People-focussed process

- links individual pay to level of

competence

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Introducing competency-based pay

3 Steps :

1. Establishing a competency framework

2. Assessment of competencies for rewardpurposes

3. Introducing the competency-based rewardsystem

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Benefits Improves employee motivation

Encourages better performance

Providing greater objectivity in pay determination

Competency-based pay also recognises that howthe job is done is as important as the end result

Provides greater flexibility and responsiveness tochanging business needs

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When is it appropriate to introduce

competency-based pay?

A well-established competency framework

already in use for development and recruitment Established criteria for measurement/assessment

of competencies

The organisation has a specific objective of

increasing the level of competence amongst itsworkforce

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The organisation plans to move to a broad-banded pay structure or already has such a

structure in place The organisation wants to move to a flatter

structure.

continued..

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How effective is competency-based pay?

CBP can

Promote need for greater competence Facilitate lateral career development

Help to integrate role and generic competenceswith organisational competences.

Boost co-operation and teamwork

Provide a framework for salary progressionwhere promotion opportunities are limited

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Increase employee satisfaction through the

provision of development opportunities Provide a link between reward strategy and

overall corporate objectives.

Lead to a focus on the totality of the job rather

than just what is achieved

continued..

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Potential problems and pitfalls The likely impact of competency-based pay on

other competency initiatives

Fears concerning employees reactions Doubts in general about linking competencies to

pay

They can be time-consuming and expensive to

implement

The objective measurement of competencies isdifficult to achieve.

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continued..

If competency is linked with other means ofdetermining reward, the link with pay may be

unclear, which will reduce any motivationalimpact of competency-based pay

If not properly controlled, there is a risk of paydrift without performance improvement

Competency-based pay systems makeconsiderable demands on line managers, whorequire considerable training and support.

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Conclusion Competency-basedpayhasbeenfoundbysome

organisationstobringsubstantialbenefitsin

changingorganisational

culture

and

in

supporting

broaderHRstrategies.

Employersmaybewaryofthepotentialpitfallsof

competency-basedpay,whichincludeescalating

costs,heavydemandsonmanagementtime,problemsofassessment,employeeresistanceand

equalopportunitiesconsiderations.

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