What is Competency-Based Performance Management?

Competency-based performance management uses a list of necessary skills and knowledge, known as competencies, to evaluate an employee's on-the-job performance. This management practice focuses on the skills and characteristics of working employees to determine their on-the-job strengths and identify areas that need improvement. Managers use competency-based performance management to improve employee efficiency and morale, and to reduce the costs of training employees by pinpointing and developing the specific skills needed to perform a business task or job.

This method can be used to improve performance within a position or to place members of an organization in positions well-suited for their skills. Though the main focus of this type of management is raising the level of employee performance, competency-based performance management data can also be used by human resources (HR) to evaluate and place employees in jobs based on their ability to meet the requirements of the jobs. Competencies are characteristics that people possess or develop that help them operate successfully within a position. In some cases, competency-based performance management may require that an employee is removed from a position in which he is consistently unable to meet performance goals.

Physical, mental, and skillset characteristics can all be included as competencies needed to perform a job. Competencies can vary widely among positions of employment. Defined competencies depend largely on the requirements of a particular job. Competency-based performance management essentially creates an outline of the perfect employee skillset and creates an evaluation system, called a competency framework, upon which to evaluate employee performance. Generally, when an employee does not meet the necessary requirements to fulfill the needs of a position, the employee is trained or educated in weak areas to help him perform better in the position.

Competency frameworks used in competency-based performance management should be flexible based on the current skill needs of a position. Requiring skills or characteristics that are unnecessary in the specific position can require an employee to acquire unnecessary skills and knowledge, often at a cost to the business requiring the competencies. For instance, requiring a graphic designer to learn accounting procedures or requiring an accountant to learn graphics programs might both be considered unnecessary competency requirements for managing these positions.

Generally, competency-based performance management measures employee performance based on their improvements since the last competency evaluation. In this type of system, the employee is measured against his own past performance, and he does not necessarily compete with other employees on his competency skill levels. Competency-based performance management also involves rewarding employees who meet or exceed competency requirements. Generally, rewards are used in cases when improvement on one or more competencies is displayed, but rewards can also be given to employees who display consistent proficiency in some or all competencies required for a job.