Competence Related Pay Dr.

Gunjan Mathur

competency-based pay

With competency-based pay, an employee is paid for the range, depth and types of skills and knowledge he/she is capable of using in the job rather than for the position they hold. The "new pay" approach to compensation attempts to address organizational needs to motivate employees and support organizational strategies.

Differences Between Performance-Related and Competence-Related Pay

CRP looks forward - it implies that when people have reached a certain level of competence they will go on using it effectively into the future - PRP looks backwards at what you have just achieved and this is the reward for achieving it (Armstrong, 2003)

What is a competency framework?

A competency framework defines the behavior needed by an employee to achieve effective job performance. The framework should enable employees to be clear about what is expected of them in terms of their behavior and specific job role.

Objectives of CRP

Provide clear link to business plan, core values, and professions. Apply valid and transparent performance standards. Provide fair, accurate and nondiscriminatory assessments of performance.

Objectives of CRP

Reward high-performers and identify “Below expectations” performers.

Disadvantages of CRP
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Disadvantages However carefully competences are defined, there may be still be problems in measuring them
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Translating measurements into an overall assessment may prove difficult CRP ignores the fact performance is about delivering results (Armstrong, 2003)

Competencies as defined by the experts are those demonstrable characteristics of the person, including knowledge, skills, and behaviors, that excellent performers exhibit more consistently and more effectively than average performers.

Definition of Competency • A combination of skills, job attitude,
and knowledge which is reflected in job behavior that can be observed, measured and evaluated.

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Competency is a determining factor for successful performance The focus of competency is behavior which is an application of skills, job attitude and knowledge.

Understanding Competency Skill
Job Attitude Knowledge


Observable Behavior

Job Performance

Competency Based Performance Management

A system for effective performance management starts with the identification of critical positions, agreement on the top hard and soft skills required for those positions It then provides the hiring, promotion, training and evaluation practices necessary to put the right people in the right job

Competency and Job Description JOB DESCRIPTION COMPETENCY
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Looks at what to do Studies the elements of the jobs Defines the job into sequences of tasks necessary to perform the job

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Looks at how to do Studies the people who do the job well Defines the job in terms of the characteristics and behaviors of these people

Types of C ompetency

Fun ctional

Man age ri al

Types of Competency
Functional competency (Hard Competency)  This type of competency relates to the functional capacity of work  It mainly deals with the technical aspect of the job.  Examples: market research, financial analysis, electrical engineering, etc.

Types of Competency
Managerial competency (Soft Competency) This type of competency relates to the ability to manage job Develop an interaction with other persons Example : problem solving, leadership, communication, etc

Exampl es of Com pet ency
Adaptability • Maintaining effectiveness when priorities change and new tasks are encountered, and when dealing with individuals who have different views and approaches. • Effectively performing in different environments, cultures, and locations, and when working with different technologies and levels of individuals.

Exampl es of Com pet ency
Seeking Understanding: • Makes efforts to better understand changes in the environment • Actively seeks information or attempts to understand nature of individual differences, logic, or basis for change in tasks and situations.

Examples of Competency
Embracing change:

Approaches change or newness with a positive orientation Views change or newness as a learning or growth opportunity.

Examples of Competency
Embracing change:

Approaches change or newness with a positive orientation Views change or newness as a learning or growth opportunity.

Indiv id ual Perfo rma nc e E lem ent

Individual Performance elements has two main categories:

1. Performance Results: Hard or quantitative aspects of performance (result)

2. Competencies: It represents soft or qualitative aspects of performance (process)

Indivi dual Perfo rma nce El ement

1. Performance Results Score

2. Competencies Score

Overall Score

Will determine the employee’s career movement, and also the reward to be earned

How can competencies be assessed ?

Competencies are assessed through a regular appraisal process to facilitate pay progression within a grade. The best approach is probably to describe each job in terms of the competencies needed to do it. These can be taken from a set of common or ‘core’ competencies. More complex individual competencies will need to be added for more complex senior roles.

Assessing Comp ete ncy through Assessm ent C enter Assessment Center Characteristics:
• A standardized evaluation of behavior based on multiple inputs. Multiple trained observers and techniques are used. Judgments about behaviors are made, in major part, from specifically developed assessment simulations. These judgments are pooled in a meeting among the assessors or by a statistical integration process

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Ty pes of T est i n A ssessme nt C enter

In-Basket Exercise

In-trays or in-baskets involve working from the contents of a manager’s in-tray, which typically consists of letters, memos and background information. You may be asked to deal with paperwork and make decisions, balancing the volume of work against a tight schedule.

Role Simulation

In a role play, you are given a particular role to assume for a certain task. The task will involve dealing with a role player in a certain way, and there will be an assessor watching the role play.

Types of T est in Assessme nt C enter


You may be required to make a formal presentation to a number of assessors. In some cases this will mean preparing a presentation in advance on a given topic. In other cases, you may be asked to interpret and analyse given information, and present a case to support a decision. In a fact-finding exercise, you may be asked to reach a decision starting from only partial knowledge. Your task is to decide what additional information you need to make the decision, and sometimes also to question the assessor to obtain this information.

Fact-Finding Exercise

Ty pes o f T est i n A ssessm ent C enter

Group Discussion

Group exercises are timed discussions, where a group of participants work together to tackle a work-related problem. Sometimes you are given a particular role within a team, for example sales manager or personnel manager. Other times there will be no roles allocated. You are observed by assessors, who are not looking for right or wrong answers, but for how you interact with your colleagues in the team.

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In a tough situation Action: the action YOU took within that situation/task Result: the results of your Actions during the situation/task

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Assessment Centre activities. more commonly measured skills include: •Verbal Reasoning: generally looks at spelling and grammar. Also may measure your understanding of words, sentences and grammar and exploring logical relationships •Non-Verbal/Abstract Reasoning: generally will involve working out a rule or principle and relating it to another set of instructions or the like •Numerical Reasoning: from simple arithmetic to reasoning tests requiring you to draw inferences from some numerical data and using this to solveanother problem •Clerical Speed and Accuracy: measures speed and accuracy in checking for errors in data etc and/or classification of sets of data •Spatial Reasoning: looks at your ability to rotate shapes in space •Mechanical Reasoning: diagrammatic mechanical problems for you to solve Personality Tests/Self Report Questionnaires

Role plays

Role-plays are used to assess a variety of skills, ranging from customer service to attention to detail. Normally one on one, you will be given a set of information and instructions and time to prepare. You will then be expected to assume the role given. The assessor is generally looking for a desirable outcome to the given situation which is that their needs are met satisfactorily. Some of the qualities the assessors are looking for include: your problem solving skills, how well you build rapport, your understanding of the situation/issues and of course, your communication skills.

Competency Assessment and Rating

Results of Observation Through the Assessment Center

Competency Score


Identif icatio n Process

Clarify Organizational Strategy and Context

Competency Identification

Generate Competency Models

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Analyze Work Role and Process Gather Data through Behavior Event Interview and Focus Group

Validate, Refine and Implement

Conduct Benchmark Study

Benef its of Usi ng Competency Based HRM
• Identify performance criteria to improve the accuracy and ease of the hiring and selection process. • Clarify standards of excellence for easier communication of performance expectations to direct reports. • Provide a clear foundation for dialogue to occur between the manager and employee about performance, development, and career-related issues.

Benef its of Usi ng Competency Based HRM
• Identify the success criteria (i.e., behavioral standards of performance excellence) required to be successful in their role. • Support a more specific and objective assessment of their strengths and specify targeted areas for professional development. • Provide development tools and methods for enhancing their skills.

Designing the pay structure

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There are two established methods of competency based pay structures: broad banding and job families. Competencies within broad banded pay structures The band boundaries are defined using job evaluation and market rates. The employees' position in the band is reflective of their competency within their role. Employees' expectations can be problematic in 'open' broad bands. In some systems employers use market rate and job evaluation factors to split the bands into zones. An employee’s position within the band zone will depend upon their technical competencies.

Advantages& Disadvantages:
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Advantages: employees can develop their careers horizontally on the basis of their experience and competence. Pay progression and career development can be achieved without the need for individual promotion Disadvantages: it can be difficult to manage the expectations of employees, particularly new recruits, who may be under the delusion that they can automatically move to a much higher salary simply by doing their job satisfactorily. In fact, they actually need to develop their competencies. In managing the process, effective communication between line managers and staff needs to be put into place

Competencies within a job family structure Different pay structures can be established for different job families under occupational or functional groupings. As work activities and basic skills are common within these groups it is possible to set out the different levels of responsibility and skills.

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Advantages: career progression based on increases in skill or competence can be planned and individuals have the clarity to perceive how far they can develop within the job family Disadvantages: in instances where these job families are segregated by gender it could appear that pay differentials are gender rather than content biased. In order to avoid equal pay claims managers must explain to employees and their representatives how the pay system is structured and work to encourage a better gender mix across jobs

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