A payment system that relates salary progression or a cash bonus to the display of ‘competencies’ by individual employees. Systems originate in the identification of competency, understood as the key attributes and behaviours of employees that underlie good performance in a particular organization or job. Competency might include: team management or membership, priority setting or personal organization, networking, customer service orientation, staff and personal development, change orientation, performance management, and communicating information. Individual employees can be rated against a list of this kind through an appraisal procedure and allocated an overall competency assessment. This assessment can then be used to determine the award of bonuses or progression through a pay range or salary matrix. Interest in competence-based pay has risen as a result of the wider use of competency frameworks within human resource management. Its supporters claim that it can reinforce key patterns of behaviour and so raise business performance but, like any system of appraisal-related pay, competence-based pay can be costly to design and administer and is vulnerable to charges of subjectivity and bias. [See merit pay.]
Subjects: Human Resource Management.