After its introduction to pay and rewards in a flash of promise, paying for competencies is now struggling at best. In its simplest form, paying for competencies means that pay is influenced strongly by the competencies (capabilities required to both perform a role and run a company) a job needs and an employee offers. Support for competency pay came from advocates favoring the use of competencies the company needed to deliver capabilities close to the core of the enterprise´s business. But paying for competencies got into serious trouble quickly. In our view early exuberance and unsubstantiated sponsorship has turned a once-promising and potentially powerful human resource tool into a big question mark. </p>
The belief behind competencies was that companies differ in the capabilities they most urgently require to gain competitive business advantage (for instance, some companies need competency/capability in the technical area, some in manufacturing, others need marketing and sales). Some definitions of competency focus on what´s necessary for effective customer care or product and service quality, but some other competencies are even less readily described in specific terms. Companies often include competency and capability in their training and development efforts, focusing effort on internally creating the capability the company needs. Recruitment and succession planning also sometimes emphasize competency and capability. Companies attempt to hire those who already have the competency profiles they need to help the company perform. All of this is often set in motion with the development of a company´s "competency model" that commonly lists and defines the core competencies the company wants to drive its business and define itself as an employer.</p>
<b>Selecting Core Competencies<br />
</b>What competencies should a company choose to gain competitive advantage? How should companies identify competencies? Does your company need a customized and proprietary competency model? Early in the competency game advisors encouraged companies to develop a set of unique competencies to provide unique advantage. But a study of competency usage we conducted in 1996 showed that companies tend to emphasize the <i>same </i>competencies: customer focus, communication, team orientation, technical expertise, results orientation, leadership, adaptability, and innovation. This suggests that advantage comes not so much from differences in competencies but from differences in the success of execution over time. So the secret is more than just choosing the right competencies-it´s getting them into an action-oriented human resource program that really works.(1)</p>
If companies hope to use competencies to help brand their total rewards, they must streamline this process and make it business-friendly and understandable.(2) Although undoubtedly we have not seen them all, the pay solutions built around competencies that we have seen have a number of problems in common. These plans are:</p><ul>
<li>Complex and over-designed</li></p>
<li>Vague and ambiguous </li></p>
<li>Disconnected from the labor market</li></p>
<li>Laborious and time-consuming</li></p>
<li>Tentatively championed and communicated</li></p></ul>
Let´s look at each of these issues and see how it serves, or fails to serve, the practical application of competency-based pay solutions. </p>
<b>Complex and Over-Designed<br />
</b>Because companies that adopted competencies early tended to build incredibly complex and sophisticated competency human resource models, they often felt this investment of time, effort, and expense should be used in the design of competency pay. But in nearly every instance pay is the last element to be added to an already implemented competency HR solution. Typically the reasoning behind this is to get the complex competency applications for training, development, career development, succession planning, and performance management in place first and then the pay solution can be added, more positively. Good thinking? The problem is that by the time the company gets to the pay application, the competency program is massive and cumbersome (And many companies have not communicated at all to employees that pay will eventually be associated with the competency program).</p>
Because the company had often done such an excellent job of accommodating the "softer" competency applications, it had not designed the application to be pay user-friendly. Because the competency design did not initially have the needs of a pay system in mind, it often turns out to be convoluted. And not keeping pay in mind from the start is a root cause of all the other problematic symptoms we believe exist with competency pay. If competency-based pay had been considered from the beginning-indeed if pay had taken the lead in the competency application-many of these challenges would have been addressed early and effectively. </p>
<b>Vague and Ambiguous <br />
</b>Too-often-vague and ambiguous competency definitions put the entire competency program-ultimately including pay-on a soft footing. Poorly defined competencies and plans for acquiring and applying them are problems for programs such as career planning and development but are tragic for competency pay. Someone said, "You can mess with anything but my kids and my pay." This implies that pay is what some call a "hot-change vehicle"-it gets the attention of everyone quickly and strongly. Pay makes either a positive or not-so-positive impression from the start. So any ambiguity creates the opportunity for negative "noise" about what makes sense and what may not to employees regarding how their pay is determined. Employees may accept, for a time, a career development and training program that is not completely clear to them because the full impact seems so distant. But they are not as willing to accept an unclear and ill-defined foundation for their pay because the repercussions are immediate and evident.</p>
Let´s look at some specifics. What is customer focus as a competency? How do you measure whether people are getting it, and if they are, whether it is adding value to your organization? How about leadership? If you read ten leadership books, you´ll get no fewer than ten different leadership definitions. And that applies to other competencies that companies try to define and use. Participating in a career development plan based on the application of somewhat vague leadership principles and capabilities may be acceptable, but few people are willing to have their pay influenced based on an equivocal evaluation of their leadership skills. So competency pay practicality struggled in the mire of being unspecific and thus a source of confusion and distrust. </p>
<b>Disconnected from the Labor Market<br />
</b>Competency pay is just too often weakly connected with the realities of the external marketplace. Very few, if any, pay surveys compare jobs based on the competencies or capabilities required to perform them. Even skills that are more concrete-specific technical, clerical, computer, and other skills needed for jobs like technicians, administrative assistants, computer analysts, nurses, and others-are not surveyed, but rather the job is surveyed for competitive practice. Surveys focus on the semantics of describing jobs, and this connotes paying job incumbents merely for being assigned to jobs, not for any actual skill and capability to perform them.</p>
What happens in most all instances is the competency pay result is compared to the external market on the back-end of the study process. This amounts to ranking the job relative to the marketplace and essentially ignoring the differences in competency levels among the individual incumbents. The absence of a link between the competency pay solution and the market worth of jobs, or specifically the market worth of competencies, is a major problem. What is the difficulty with this? It is the potential for accelerated pay inflation. Because of the already discussed problems of complexity and over-design, plus vagueness and ambiguity, it is difficult to determine whether or not employees have actually acquired and applied a competency. So companies will give employees the benefit of the doubt-this tends to make competency pay expensive. </p>
<b>Laborious and Time-Consuming<br />
</b>It´s been our experience that when a process is new and untested, numerous conferences, planning sessions, meetings, detailed drafts, and lengthy instructional documents characterize the initial installation. Because it´s new, competency pay implementations tend to take extended periods of time, and even though workforce involvement is required for any major pay change, paperwork and constant reviews and discussions beleaguer these implementations. Consider the time competency programs that impact succession planning, development and training, recruitment and selection, and career tracks take, even without the pay-a huge task. Then think about adding pay to the formula on top of that.</p>
<b>Tentatively Championed and Communicated<br />
</b>Few executives have ever been paid under competency-based pay solutions-in fact, many competency pay solutions do not even apply to members of the executive team. People sponsor what they like and are accustomed to. It is very hard to champion a pay solution that you are not part of. It´s very difficult to persuade others something is worth doing if you are not doing it yourself. Most executives who would be called upon to sponsor and communicate a pay solution have been paid based on the job they hold rather than the competencies they have. Would you suggest to employees that they should highly value stock options when you do not have options yourself? The credibility of what you are suggesting is at stake.</p>
So although executives commonly provide strong championship at the start of a competency pay initiative, we often see the advocacy wane. One reason is the executive needs help concerning how best to give continuing sponsorship for competencies. Education on how competency pay works and on how to educate others, communicate, and advocate needs to be developed to ready people to sponsor meaningfully. In too many instances the lead supporters deliver the same message over and over. Keeping sponsorship fresh and interesting is the name of the game. You must keep everyone interested and focused-and that means the champions as well as the employees to whom the primary communications message is directed. </p>
<b>Competency Pay Going Forward<br />
</b>The future of paying for competencies rests with our ability to address the issues we have summarized. The overall concept must be more business practical and user-friendly.(3) The most pressing challenge to competency pay is the lack of linkage with the external marketplace. The few surveys that try to exchange data based on skill and competency are very difficult to work with. And providing data to the surveys is complex and highly burdensome. Managing competency pay systems is a task for everyone involved. So although these systems sound great and are certainly focused on the "right stuff" from the standpoint of what companies should pay for, they are extremely hard to live with.</p>
So, "Where´s the beef?" What´s in it for a company to maintain a system that pays for competencies and not just for jobs? This question goes too often unanswered. Although we can show that companies that provide incentives for achieving certain goals that are within the influence of employees are more likely to see these goals met than are companies that do not pay for goal achievement, the same cannot be said for paying for competencies. And the real problem is the possibility that companies will continue to design and implement competency-based human resource solutions for other uses (performance management, training and development, succession and career development, and the like) and not use the same systems to drive their pay solution. This means the pay solution will be based on something other than what other people management systems are aimed at. (4)</p>
Companies often need little concrete evidence of viability to deploy human resource programs of various sorts <i>except</i> where those solutions impact pay. The litmus test of all human resource applications may be to determine whether the company is willing to use the same foundation for pay as it does for anything else related to people. And if the company decides that whatever systems it would like to use for other applications don´t fit for pay, then whatever pay solution it is using will greatly erode everything else it does since pay and other communications messages are not aligned. For example, pay may be based on "jobs" and an annual "merit" system may have nothing to do with the competencies the company is encouraging people to obtain and apply in performing their work. It´s more likely people will do whatever they believe will most influence their pay rather than emphasize a human resource learning experience that is difficult and seemingly unrelated to pay.</p>
So the future opportunity will be to take a great concept-paying for competencies-and make it practical and usable. If companies considered competencies as a tool to determine pay at the start of the evaluation process, it´s more likely we would see more competency-based human resource solutions. The way it is now, competencies are valuable but clearly lack the business substance to serve as the strong foundation for an entire human resource strategy-which, of course, must include linking pay and benefits to business goals.
Endnotes</p>
1. Zingheim, P.K., and Schuster, J.R., "Competencies and Competency Models: Does One Size Fit All?" ACA <i>Journal</i>, Spring 1996, 56-65.</p>
2. Zingheim, P.K., and Schuster, J.R. "Creating a Powerful Customized Workplace Reward Brand," <i>Compensation & Benefits Review</i>, 2001, 33 (6), 30-33.</p>
3. Zingheim, P.K., and Schuster, J. R. <i>Pay People Right! Breakthrough Reward Strategies to Create Great Companies. </i>San Francisco: Jossey-Bass, 2000.</p>
4. Schuster, J.R., and Zingheim, P.K. <i>The New Pay: Linking Employee and Organizational Performance</i>. San Francisco: Jossey-Bass, 1996. </p>
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