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A presentation report on Competency based pay

Prepared by: Pravin V.Divraniya (41) Guided by: Ankita Suthar Mrs.Kruti Bhatt Bhoomika

COMPETANCY BASED PAY What is competency? A competency is defined as a behavior or set of behaviors that describes excellent performance in a particular work context. What is competency-based pay? Competency-based pay can be defined as paying for the development and application of essential skills, behaviors and actions which support high levels of individual, team and organizational performance. Armstrong and Baron, gives the following, as some of the distinguishing features of competency-based pay: It is based on an agreed frame work of competencies It is not based on the achievement of specific results, such as targets or projects completed. However, and it is concerned with the attainment of agreed standards of performance. How are reward and competency linked?

Brown and Armstrong (1999) summaries two main ways of linking competency and reward:

1) Job-focused processWhich uses competencies wholly or partly as a way to evaluate jobs? 2) People-focused processLinks individual pay to level of competence Introducing competency-based pay There are mainly 3 Steps: 1) Establishing a competency framework 2) Assessment of competencies for reward purposes 3) Introducing the competency-based reward system Benefits Improves employee motivation. Encourages better performance. Providing greater objectivity in pay determination. Competency-based pay also recognizes that how the job is done is as important as Provides greater flexibility and responsiveness to changing business needs.

the end result.

When is it appropriate to introduce competency-based pay? A well-established competency framework already in use for development and Established criteria for measurement/assessment of competencies. The organization has a specific objective of increasing the level of competence The organization plans to move to a broad-banded pay structure or already has such The organization wants to move to a flatter structure.


amongst its workforce. a structure in place.

How effective is competency-based pay? CBP can Promote need for greater competence Facilitate lateral career development Help to integrate role and generic competences with organizational competences. Boost co-operation and teamwork Provide a framework for salary progression where promotion opportunities are Increase employee satisfaction through the provision of development opportunities Provide a link between reward strategy and overall corporate objectives. Lead to a focus on the totality of the job rather than just what is achieved

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Potential problems and pitfalls The likely impact of competency-based pay on other competency initiatives Fears concerning employees reactions Doubts in general about linking competencies to pay They can be time-consuming and expensive to implement The objective measurement of competencies is difficult to achieve.

If competency is linked with other means of determining reward, the link with pay If not properly controlled, there is a risk of pay drift without performance Competency-based pay systems make considerable demands on line managers, who

may be unclear, which will reduce any motivational impact of competency-based pay improvement require considerable training and support. Conclusion

Competency-based pay has been found by some organizations to bring substantial benefits in changing organizational culture and in supporting broader HR strategies. Employers may be wary of the potential pitfalls of competency-based pay, which include escalating costs, heavy demands on management time, and problems of assessment, employee resistance and equal opportunities considerations.