IV. “How-To”: Competency Analysis
The bottom part of Exhibit 6.6 shows the basic decisions in creating a competency
based structure. The first decision, and by the far the most important, is to clarify the
objective of the plan.
A. Objective
One of the pitfalls of competency systems is trying to do too many things
with ill-suited systems
Competencies may have value for personal development and
communicating organization direction. However, the vagueness and subjectivity
(what exactly are this person’s motives?) make competencies a “risky
foundation for a pay system.”
The competency structure may exist on paper by virtue of the competency
sets and scaled behavioral indicators but bear little connection to the work
employees do.
B. What Information to Collect?
A number of schemes for classifying competencies have been proposed.
One of them uses three groups:
1. Personal characteristics: Employees are expected to come into the
organization with characteristics like personal integrity, maturity of
judgment, flexibility, and respect for others. They are then expected to
develop and demonstrate these characteristics in increasingly complex
and ambiguous job situations.
2. Visionary: These are the highest-level competencies. They might be
expressed as possessing a global perspective, taking the initiative in
moving the organization in new directions, and able to articulate the
implications for the organization of trends in the marketplace, in world
events, in the local community.
3. Organization specific: These are tied specifically to the particular
organization and to the particular function where they are being applied.
They generally include leadership, customer orientation, functional
expertise, and developing others.
Because they stem from an organization’s mission or strategy to achieve
competitive advantage, people might conclude that the core competencies
would be unique for each company. In fact, they are not. One analysis showed
that most companies appear to choose from the same list of 20 core
competencies (Exhibit 6.10).
C. Whom to Involve?
Like compensable factors, competencies are derived from the executive
leadership’s beliefs about the organization and its strategic intent.
However, anecdotal evidence indicates that not all employees understand
that connection.
Thus, the initial promise of simplicity and flexibility in person-based
structures remains unfulfilled.
D. Establish Certification Methods
The heart of the person-based plan is that employees get paid for the
relevant skills or competencies they possess, whether or not those skills are
used.
If people are to be paid based on their competencies, then there must be
some way to demonstrate or certify to all concerned that a person possesses that
level of competency.
Although consultants discuss competencies as compatible with 360-degree
feedback and personal development, they are silent on objectively certifying
whether a person possesses a competency.
E. Resulting Structure
Competency-based structures generally are designed with relatively few
levels—four to six—and relatively wide differentials for increased flexibility.
A generic structure, such as shown in Exhibit 6.11, could be applied to
almost any professional work.
F. Competencies and Employee Selection and Training/Development
In the case of competencies, there is clear evidence that ability (broadly
defined to include personality traits) is related to general competencies.
Exhibit 6.13 shows a set of generic competencies, called the Great Eight,
that seem to capture in an efficient way the themes found in the array of
competency frameworks. What Exhibit 6.13 adds are hypotheses regarding how
these competencies relate to the individual characteristics of personality (“Big
five”), motivation, and ability.
Based on Exhibit 6.13 , if employers wish to have managers who are
competent in leading and deciding, they need to select or train and develop
people high in need for power, need for control, and who have extroverted
personalities.
oFailure to adequately screen employees on these individual characteristics
would not only put more pressure on training and development, but also
potentially de-motivate employees who are seeking to acquire and
demonstrate these competencies, but who may not be well-suited to do so.
oCompetency-based pay would be less likely to succeed in this situation.
G. Guidance (and Caution) from the Research on Competencies
While the notion of competencies may have value in identifying what
distinguishes typical from truly outstanding performance, there is debate on
whether competencies can be translated into a measurable, objective basis for
pay. But, that can cause difficulties if they are not developed for that purpose.
An area of research with potential application to competencies deals with
human capital and knowledge management.
oViewing the competencies of employees as a portfolio similar to a
diversified investment portfolio highlights the fact that some competencies
deliver greater returns than others.
oThe focus then changes to managing existing competencies and developing
new ones in ways that maximize the overall returns to the organization.
Only one study has analyzed the competencies/performances relationship
for managers. Manager’s competencies are related to their performance ratings,
but there is no relationship to unit-level performance.
The basic question remains: “Is it appropriate to pay you for what I
believe you are capable of doing versus what you are doing?”
Also, are competency-based systems susceptible to discrimination?
V. One More Time: Internal Alignment Reflected in Structures (Person-Based or
Job-Based)
The purpose of job- and person-based procedures is to design and manage an
internal pay structure that helps the organization succeed.
As with job-based evaluation, the final result of the person-based plan is an
internal structure of work in the organization. This structure should reflect the
organization’s internal alignment policy (loosely versus tightly linked, egalitarian
versus hierarchical) and support its business operations.
Further, managers must ensure the structure remains internally aligned by
reassessing work/skills/competencies when necessary. Failure to do so risks pay
structures that open the door to bias and potentially unethical and misdirected
behaviors.
In practice, when evaluating higher-value, nonroutine work, the distinction
between job-based versus person-based approaches blurs. The focus is on what factors
(both job and person) create value for the organization.
The person influences the job content in managerial and professional work.
Skill-based fits more easily with manufacturing work. Yet caution is advised: Much of
the work required in contemporary manufacturing cells requires tacit, nonroutine
knowledge (problem solving, interacting, negotiating, etc.).
VI. Administering and Evaluating the Plan
Whatever plan is designed, whether job-based or person-based, a crucial issue is
the fairness of its administration.
Sufficient information should be available to apply the plan, such as definitions of
compensable factors, degrees, or details of skill blocks, competencies, and certification
methods.
Communication and employee involvement are crucial for acceptance of the
resulting pay structures.
There is vast research literature on job evaluation compared to person-based
structures. Most of it focuses on the procedures used rather than the resulting structure’s
usefulness in motivating employee behaviors or achieving organization objectives.
In virtually all the studies, job-based evaluation is treated as a measurement
device; the research assesses its reliability, validity, costs, and its compliance with laws
and regulations. Any value added by job evaluation (e.g., reducing pay dissatisfaction,
improving employees’ understanding of how their pay is determined) has been largely
ignored.
In contrast, research on person-based structures tend to focus on their effects on
behaviors and organization objectives and ignores doubts on reliability and validity.
A. Reliability of Job Evaluation Techniques
A reliable evaluation would be one where different evaluators produce the
same results.
An important caveat is that, most organizations now use market pricing,
where many jobs are matched directly to jobs in pay surveys to determine
salaries. In such cases, job evaluation results often have less influence on
salaries.
oNevertheless, when job evaluation points do play a significant role in salary
setting, even seemingly high reliability between different raters may still
leave room for very different resulting salaries.
Reliability can be improved by using evaluators who are familiar with the
work and trained in the job evaluation process.
Some organizations use group consensus to increase reliability.
oEach evaluator makes a preliminary independent evaluation. Then, they
discuss their results until consensus emerges.
oHowever, some studies report that results obtained through consensus were
not significantly different from those obtained either by independent
evaluators or by averaging individual evaluators’ results.
oOthers report that a forceful or experienced person on the committee can
sway the results. So can knowledge about the job’s present salary level.
The reliabilities for job evaluation scores are higher than those for job
analysis ratings.
oOne possible reason is that those conducting job evaluation may already
know the pay for the jobs, which may result in greater consistency across
raters.
oAnother factor is that job evaluation research has often had raters rely on job
descriptions to assign job evaluation ratings. That may again result in
greater consistency.
oIn any case, even high reliabilities in job evaluation can still produce
different pay rates for jobs that vary as a function of the rater/raters.
As part of efforts to reduce costs, job evaluation committees are
disappearing.
oInstead, managers do the evaluations online as part of the organization’s
“HR Toolkit” or “shared services.”
oThe reliability and validity of the results obtained this way have not been
studied.
B. Validity
Validity refers to the degree to which the job evaluation assesses what it is
supposed to—the relative worth of jobs to the organization.
Validity of job evaluation has been measured in two ways:
1. The degree of agreement between rankings that resulted from job
evaluation with an agreed-upon ranking of benchmarks used as the
criterion
2. By “hit rates”—the degree to which the job evaluation plan matches
(hits) an agreed-upon pay structure for benchmark jobs.
In both cases, the predetermined, agreed-upon ranking or pay structure is
for benchmark jobs. It can be established by organization leadership or be based
on external market data, negotiations with unions, or the market rates for
benchmarks held predominantly by men (to try to eliminate any gender
discrimination reflected in the market), or some combination of these.
Many studies report that when different job evaluation plans are compared
to each other, they generate very similar rankings of jobs but very low hit rates
—they disagree on how much to pay the jobs.
The definition of validity needs to be broadened to include the impact on
pay decisions. How the results are judged depends on the standards used. For
managing compensation, the correct standard is the pay structure—what job
holders get paid—rather than simply the jobs’ rank order.
C. Acceptability
Several methods are used to assess and improve employee acceptability.
oFormal appeals process—employees who believe their jobs are evaluated
incorrectly should be able to request reanalysis and/or skills reevaluation.
oEmployee attitude surveys—can assess perceptions of how useful evaluation
is as a management tool.
VII. Bias in Internal Structures
The continuing differences in jobs held by men, women, and people of color, and
the accompanying pay differences, have focused attention on internal structures as a
possible source of discrimination. Much of this attention has been directed at job
evaluation as both a potential source of bias against women and a mechanism to reduce
bias.
It has been widely speculated that job evaluation is susceptible to gender bias—
jobs held predominantly by women are undervalued simply because of the jobholder’s
gender. But evidence does not support this proposition.
oAdditionally, there is no evidence that the job evaluator’s gender affects the results.
One study found that compensable factors related to job content (such as contact
with others and judgment) did reflect bias against work done predominantly by women,
but factors pertaining to employee requirements (such as education and experience) did
not.
A. Wages Criteria Bias
The second potential source of bias affects job evaluation indirectly,
through the current wages paid for jobs.
If job evaluation is based on the current wages paid and the jobs held
predominantly by women are underpaid, then the results simply mirror bias in
the current pay rates.
Several recommendations seek to ensure that job evaluation plans are
bias-free, including the following:
1. Define the compensable factors and scales to include the content of jobs
held predominantly by women.
2. Ensure that factor weights are not consistently biased against jobs held
predominantly by women.
3. Apply the plan in as bias-free a manner as feasible. Ensure that the job
descriptions are bias-free, exclude incumbent names from the job
evaluation process, and train diverse evaluators.
All issues concerning job evaluation also apply to skill- and
competency-based plans. Unfortunately, no studies of gender effects in
skill-based or competency-based plans exist.
VIII. The Perfect Structure
Exhibit 6.15 contrasts job-, skill-, and competency-based approaches.
Pay increases are gained via promotions to more responsible jobs under job-based
structures or via the acquisition of more-valued skills/competencies under the
person-based structures.
Logically, employees will focus on how to get promoted (experience,
performance) or on how to acquire required skills or competencies (training, learning).
A job-based approach controls costs by paying only as much as the work
performed is worth, regardless of any greater skills the employee may possess. So, as
Exhibit 6.15 suggests, costs are controlled via job rates or work assignments and
budgets.
Skill-/competency-based plans pay employees for the highest level of
skill/competency they have achieved regardless of the work they perform. This
maximizes flexibility.
oBut it also encourages all employees to become certified at top rates.
oUnless an employer can either control the rate at which employees can certify skill/
competency mastery or employ fewer people, the organization may experience
higher labor costs than do competitors using job-based approaches.
oThe key is to offset the higher rates with greater productivity.
oIn addition to having potentially higher rates and higher training costs,
skill/competency plans may become as complex and burdensome as job-based
plans.
oAdditionally, questions still remain about a skill/competency system’s compliance
with the U.S. Equal Pay Act.
The best approach to pay structures depends on the situation.
oThe best approach may be to provide sufficient ambiguity (loosely linked internal
alignment) to afford flexibility to adapt to changing conditions.
oToo generic an approach may not provide sufficient detail to make a clear link
between pay, work, and results; too detailed an approach may become rigid.
oBases for pay that are too vaguely defined will have no credibility with employees,
will fail to signal what is really important for success, and may lead to suspicion of
favoritism and bias.
A pay structure supports improved organization performance.
An internally aligned pay structure, whether strategically loosely linked or tightly
fitting, can be designed to:
1. help determine pay for the wide variety of work in the organization.
2. ensure that pay influences peoples’ attitudes and work behaviors and directs them
toward organization objectives.