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Performance Reviews vs. Competencies – Should they be linked?

December 24th, 2009

The Trend

Thanks in large part to the various corporate scandals, 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. Competencies being defined as a group of behaviors that, if done more frequently and more consistently, will lead to greater results. Based upon that definition, 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 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 rather than performance reviews.

Even those organizations who believe that incorporating competencies into performance management activities is a positive, they 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 consider:

  • How was the competency model designed?
    • Has it been derived from a thorough analysis of the nature of the business, the business strategy and the current/desired work environment?
    • Is the correlation clear to employees?
  • Is your leadership team committed to doing business within the parameters of its 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 measure and evaluate this process?
    • What opportunities exist to directly observe behavior and/or solicit accurate information from those who exhibit the desired competencies?
    • 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 and how they tie in to your organization’s strategy?
    • Can you communicate how the competencies effect the 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.

Where Might It Work?

Consider and contrast Company A and Company B below:

Company A

  • 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.
  • Faced with increased competition and costs.
  • Minimal performance management; no current competency model, training, or 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, they are clearly not ready for competencies to be built into performance reviews.

Why?

Because they have a minimal performance management practice in place, introducing competency modeling into a performance review may not have the intended results. A better approach is to develop a consistent set of performance measures 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.

Company B

  • 100 year old mid size 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, driven by the leadership team, based on cultural values and guiding principles has been evolving in recent years.
  • It appears that most of the work force understands company expectations regarding how they want to do business; however, 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. The existing competency model 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. True stories that illustrate how to develop solutions, 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.

If your organization is evaluating whether to link competencies and performance management, it is integral that you review your current practices and make sure that the organization is ready for this type of performance review. To implement competency based performance reviews you will need time, training and a strong leadership team.

Jessica Nelson is the Managing Partner at HR Remedy, LLC. HR Remedy is a human capital consulting firm that works with our clients to attract, retain and develop their talent. HR Remedy takes a pragmatic and practical approach to helping companies manage their human capital. For additional information regarding HR Remedy and their services please contact Jessica Nelson. You can reach Jessica by contacting her at jessica@yourhrremedy.com or 281-528-1266 or visit our website at www.yourhrremedy.com.