Competency based Compensation

In the 1990s, a new idea gained acceptance in a number of organizations that more closely aligned human resource practices with organizational strategies, missions and cultures. A number of organizations switched from a traditional job-based structure to a competency-based structure that emphasized the development and attainment of behaviors, knowledge and skills compatible with and aligned to the organization’s mission and business strategies.

The focus of competencies is centered on characteristics of the employee, including behaviors, skills and knowledge that can be demonstrated and positively affect the organization. Competencies emphasize the attributes and activities that are required for an organization to be successful. Therefore, human resource practices using Competency Models tap into the employee capabilities that are aligned to the organization mission and business need.

Competency Models when implemented in totality can impact all of the agency’s human resource practices including recruitment, selection, compensation decisions, performance planning, performance evaluation and career development.

Like other alternative pay and job evaluation systems, a Competency-based System is fairly labor intensive and requires the agency’s commitment to designate the necessary staff resources during the development stages. Agencies will also want to consider the financial and human resources required to administer such a system. Additionally, Competency-based Systems should not be perceived as a “one size fits all” approach. It is important that an agency identify the specific work unit(s) where competencies may be identified that directly and positively impact the success of employees and the agency.

What are Competencies?

Competencies are identified behaviors, knowledge, and skills that directly and positively impact the success of employees and the organization. Competencies can be objectively measured, enhanced and improved through coaching and learning opportunities. There are two types of competencies, Behavioral and Technical. Depending on the purpose of the Competency Model, one or a combination of these competency types may be used.

Behavioral Competencies are a set of behaviors, described in observable and measurable terms that make employees particularly effective in their work when applied in appropriate situations. Behavioral Competency Models may be designed to describe common or “core” behaviors that are applicable to employees throughout an agency, or may be more narrowly defined to reflect behaviors unique to an Occupational Family or Career Group.

Technical Competencies are underlying knowledge and skills, described in observable and measurable terms that are necessary in order for employees to perform a particular type or level of work activity. Technical Competencies typically reflect a career-long experience in an agency.

What is a Competency Model?

A Competency Model is a listing of Competencies that apply to a particular type of work. Competency Models can include Behavioral Competencies only, Technical Competencies only, or both. An example of a Competency Model for Human Resource Professional follows:

Behavioral Competencies

  • Agency (implies company) Mission Focus
  • Customer Focus
  • Teamwork
  • Consultation
  • Achievement Orientation

Technical Competencies

  • Compensation Expertise
  • Recruitment/Selection Expertise
  • Employee Relations Expertise
  • Employee Benefits Expertise
  • Training and Development Expertise

In Competency based compensation management system, employee compensation is based on an evaluation of the following pay factors:

  • Agency business need;
  • Duties and responsibilities;
  • Performance;
  • Work experience and education;
  • Knowledge, skills, abilities and competencies;
  • Training, certification and license;
  • Internal salary alignment;
  • Market availability;
  • Salary reference data;
  • Total compensation;
  • Budget implications;
  • Long term impact; and
  • Current salary

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