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Considering Linking Performance Reviews To Competencies?... Think Twice.

Thursday 12 May, 2005
Thanks in large part to the various corporate scandals now in the public eye, many organizations have begun to focus on HOW work gets done, not just on bottom line results. When we talk about the HOW, we are talking about competencies. This means that competency models are now receiving greater attention than ever before.

In the past, competencies were used primarily for development purposes but now more organizations are attempting to build competencies into their performance metrics. On the surface, that certainly seems to make sense – if we agree that a competency is a group of behaviors that, if done more frequently and more consistently, leads to greater results, then wouldn't we want to measure and rate the level of competency an employee exhibits?

What are the issues?

Subjectivity, rater bias, opportunities to directly observe behavior and other concerns were raised early on as companies were starting to incorporate competency models. There is still also a fundamental question about whether behaviors can be accurately measured in terms of "below, meets or exceeds" standards unless there are very clear "behavioral" examples (what you will see, hear or do that demonstrates the behavior) defined for specific roles and levels.

However, it takes significant time and resources to develop these anchors, and many organizations find the investment too costly. Ultimately, these issues mean that many organizations use competencies for development purposes only rather than performance reviews.

Even those organizations who believe that incorporating competencies into performance management activities is a positive, often find that their work culture may not be ready to do so. Then what should be considered when thinking about including competencies in performance reviews? Some questions to ask follow:

  • How was the competency model designed? Has it been derived from a thorough analysis of the nature of the business, the business strategy and current/desired work environment? Is the correlation clear to employees?
  • Is your leadership team committed to doing business in a certain way, within parameters of core values and principles? To what extent do employees understand and buy into these guidelines?
  • Do the competencies have validated behavioral anchors that accurately describe how a competency is demonstrated? Are there behavioral anchors for every job function or level of the organization?
  • Who will do the measuring and evaluating? What opportunities exist to directly observe behavior and/or solicit accurate information from those who have? Are you confident that the information generated for each individual will be accurate and relatively unbiased?
  • What tools are available to collect behavioral examples?
  • Are managers and supervisors skilled at coaching and feedback?
  • Are you willing and able to educate your workforce and your management team about what competencies are, how they tie in to your organization's strategy, critical activities and goals, what the benefits are, why they are important to your organization etc.? Significant communication, education and training will be required to achieve the best results.

So, if your organization is evaluating whether to link competencies and performance management, proceed with caution.

Where might it work?

Consider and contrast Company A and Company B below.

Company A
Company B
  • Manufacturing company (50+ years in business) with fewer than 1,000 employees, and very low turnover.
  • Long service employees, culture is relationship-based, "like family" and seemingly resistant to change.
  • Many mid level and executive level managers are nearing retirement.
  • Now faced with new, increased competition and costs.
  • Minimal performance management; no current competency model or training and development offerings.
  • Minimal documented work processes
  • Introducing interventions to build bench strength, create succession plans.

If this company needs to build up capabilities for efficient, replicable work processes, drive down costs, and build leadership talent, it seems logical that we would introduce a competency model to shape and reinforce the behaviors needed to build that capacity. But are they ready for competencies to be built into performance reviews? Clearly not.

First, a consistent set of performance measures needs to be introduced and implemented. This step would require significant communication and training to build the shared vision, understanding, knowledge and skills needed to achieve the changes and desired results. The competencies would need to be introduced, tested and fully understood as useful in development well before any attempts at measuring and performance rating take place.

  • 100 year old mid size insurance company with fewer than 1,000 employees, and very low turnover.
  • Relatively new (5-7 years) business strategy and differentiators have been highly successful in positioning the organization for growth.
  • A collaborative work environment, based on cultural values and guiding principles, has been evolving over the past year or two, driven by the leadership team.
  • It appears that most of the work force understands company expectations regarding HOW they want to do business, although there is still some uncertainty as to how to teach their methods to newcomers in the organization.

  • The current core competency model is part of the performance management system and includes behavioral anchors.
  • Existing competency models are being revisited to ensure alignment with business strategy, cultural values and guiding principles. This is being driven by the leadership group.

There is a desire to include some kind of competency rating in the performance development review. Is this a good idea? Possibly, and here's why:

  • The organization is highly disciplined in the way it conducts business, how work gets done, how decisions are made, and how people work together.
  • The leadership team is fully invested in the cultural values and guiding principles, understands the importance of competencies for achieving their goals, and wants to build on what they've already accomplished through this focus.
  • Self responsibility, collaboration and learning from mistakes are emphasized in their cultural values and guiding principles, with true stories available that illustrate how to develop solutions and make decisions and how results are affected when you do or don't follow the process.
  • The leadership team wants to ensure that everyone fully understands how the values and principles translate to behaviors and apply throughout the organization.
  • The organization already has a competency section in the performance review tool and want to improve it.
  • The organization recognizes the need for employee development and mentoring processes in their talent management system.
  • This organization has set the stage for successfully incorporating the new competency model into the culture and the performance management system.

Author Credits

Beth Williams, Capital H Group. Capital H Group is a consulting firm that takes a value-based approach to helping companies manage, and invest in, their human capital. Partnering with our clients, we focus on creating value through their people. Visit www.capitalHgroup.com
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