How to Implement an Effective Competency-Based Performance Appraisal in Your Organization

Are your performance reviews failing to contribute to employee development? It may be time to give competency-based performance appraisals a chance.

Effectively rolling out a competency-based appraisal process requires thorough preparation, clear communication, comprehensive training, and continuous improvement. 

By following the steps in this guide, you can ensure a smooth implementation of your new system, alignment with business objectives, and employee personal development and performance improvement.

Additionally, our evaluation questions and template, review examples, and tips will help you every step of the way.

1. Prepare the groundwork: Develop your competency framework

Identify the specific skills, behaviors, and attributes employees need to achieve these goals. 

The main questions to answer at this stage are: 

• What types of competencies should you evaluate employees on?
• Which motives, traits, values, attitudes, knowledge, and skills must your employees develop to perform effectively?

This preparatory step will require collaboration between human resources, team leadership, and your organization's executive team.

Select all the relevant competencies for your organization

Define specific competencies for all departments or roles in your organization. 

You should aim for a combination of technical and soft skills:

• Core competencies are an organization's unique combination of knowledge, skills, and abilities, which provide a competitive advantage and contribute to its success. Examples: product knowledge and industry-specific knowledge.
• Leadership competencies are the knowledge, abilities, and skills essential for effective leadership in any organization. Examples: managing organizational change, growing others, coaching, defining performance expectations.
• Technical competencies are the knowledge and (hard) skills required to perform a particular role within a company. Examples: subject matter expertise, such as route optimization in logistics or survey design in HR, or the ability to use technical tools, such as software development tools, HRIS, and CMS.
• Behavioral competencies are the individual attitudes that affect coworkers, teams, and the organization. Examples: the ability to build rapport with clients or the ability to learn or acquire new skills

One way to approach this task is to start with job descriptions for each role and map competencies to tasks. However, you should ensure that they are updated and reflect current roles.

You can use our competency mapping template to simplify this task.

Create definitions for each competency 

Once you have identified all relevant competencies for your organization, it’s time to develop clear and cohesive definitions for each. 

For example, define written communication as “the ability to convey ideas, information, and messages effectively through written language. It includes clarity, coherence, conciseness, and correctness in written documents, emails, reports, and other forms of written communication.”

Identify the behaviors and actions that showcase competency mastery

Finally, identify specific behaviors and actions that demonstrate each competency in practice. 

Clearly outline the behaviors and skills associated with each level to provide clarity to employees and evaluators.

For example, a basic mastery of written communication would imply writing simple and clear messages with basic grammar and spelling accuracy. In contrast, an expert would set standards for written communication across the organization, ensure consistency and quality in all written materials, and develop guidelines for effective written communication practices.

This final step ensures reviewers have clear benchmarks and objective and measurable evaluation criteria.

If you need to automate this step, AI-based solutions like Deel Engage can help ensure you never start from an empty state when creating comprehensive competency models.

2. Design the performance appraisal process

The key question to consider at this step is: How will we evaluate employee competencies?

Evaluation methods

Pick the method(s) for evaluating competencies. Choose between self-assessments, peer reviews, and manager evaluations. Alternatively, mix multiple evaluation methods for a more holistic understanding of each employee.

Qualitative or quantitative reviews? Or both?

Next, decide on qualitative versus quantitative evaluations or a mix of the two. 

Quantitative reviews with rating scales make analyzing and comparing results within and across teams easier. Create rating scales that are consistent, easy to understand, and accurately reflect different levels of competency. Ensure the evaluation criteria are objective, relevant, and applicable to each role.

You can also use quantitative competency reviews as a data source for your skills gap analyses.

Conversely, qualitative reviews collect more nuanced information about each employee, allowing more space for suggesting improvements and sharing constructive feedback.

Appraisal forms

Now, it’s time to create your competency appraisal forms. These should be user-friendly and aligned with the competency framework. 

3. Select competency review tools

The key questions to ask: 

• How are we implementing the new process? 
• Can we automate any tasks? 
• What tools will support us at every implementation stage?

You can run a competency-based performance review with one-on-one discussions, mainstream tools like Google Docs or Forms, or a specialized HR tech solution. Either way, you should:

• Create and regularly update a database of competencies and match them with roles
• Define levels and behavioral indicators for every single competency
• Prepare assessment questionnaires
• Document the process and train relevant stakeholders
• Write, store, and share feedback (from peers, managers, etc.)
• Make the training and professional development resources available
• Design competency development plans as follow-ups to the reviews

With the assistance of HR software like Deel Engage, you can streamline all the processes above.

4. Communicate the change to your organization

Your system is ready, so it’s time to bring your organization on board with the change. 

The key question to ask here is: How do we ensure that all stakeholders have clear expectations of what they need to do and when?

Start with a communication plan outlining the new appraisal system's purpose, benefits, and implementation timeline.

Create avenues for employees to ask questions and provide feedback throughout the rollout process. This feedback will come in handy at the end of the review cycle when it’s time to evaluate the effectiveness of this new appraisal system. 

5. Train managers and employees

As with any other organizational change, you might encounter resistance, confusion, and doubts from leaders and employees.

Offer managers, supervisors, and other evaluators training on assessing and evaluating competencies effectively. This training should include guidance on using the appraisal system, interpreting competency levels, providing feedback, conducting performance discussions, and planning for competence development.

Don’t forget about your employees, either. Train employees on the competency framework, the appraisal process, and how to engage in self-assessments.

Offer resources such as guides, FAQs, and example scenarios to help employees and managers understand the new system.

6. Run a pilot test before full implementation

It’s time to roll out the competency-based appraisal system. Before a global rollout, start with a pilot test for one department to identify any issues or areas for improvement. Based on the pilot feedback, make necessary adjustments to the process, forms, and tools.

7. Kick off the first competency-based appraisal cycle

All your preparation has led to this step: kicking off the first competency-based evaluation cycle. Gather performance data through the chosen appraisal methods and tools. Invite reviewers to assess each employee's performance against the defined competencies and behavioral indicators.

Check in regularly on the implementation process and address any issues promptly. Be ready to answer questions and share relevant resources for stakeholders who need help navigating the new process.

8. Follow up with employees on competency and performance results and plan for improvement

The key questions to ask: 

• How will you communicate the results to your employees? 
• What happens next—how can you support employee development?

This step will largely depend on your performance management process. However, a good rule of thumb is for managers to reserve one-on-one time with their teams to share the results of their appraisals and plan for the future.

A performance review meeting is the perfect setting for sharing constructive feedback based on the appraisal results. It is also ideal for discussing accomplishments, challenges, strengths, and areas for improvement.

Incorporating growth conversations in your performance management cycles will encourage your staff to learn and grow continuously in their roles and progress along their career paths.

9. Analyze data at a team/department/organization level

The key questions to ask are:

• Are there any trends or gaps to address at a team/department/organizational level? 
• What programs could address critical gaps?

Identify skills gaps

Each appraisal cycle clarifies which skills, knowledge, and characteristics your company may lack. 

Identify and prioritize competency gaps that might prevent your organization from achieving its goals or those that will keep your organization future-proof.

For example, your competency-based reviews highlight a lack of leadership skills in your organization, as most employees have a mid-seniority level. You could recruit experienced leaders to cover competency gaps or devise a leadership training program enabling internal career progression and succession planning.

Create a competence development program

Design your competency development process to satisfy the training needs you previously identified. Match training topics to the competencies that are lacking or identified as unsatisfactory. Adapt development methods to each employee's learning style.

Competency development might require an employee to pursue professional certification or enroll in a graduate program. It could also involve social training methods like peer learning, coaching, mentoring, and job rotations.

Developing competencies doesn't comprise training only—although it's a significant part of the process. It also includes practicing the newly learned competencies or the competencies selected for improvement.

10. Review and refine the system if necessary

Once the review cycle is complete and employees and managers have discussed their next steps, it’s time to assess the new appraisal system. 

The key questions to ask: 

• Did everything go according to plan? 
• Did the employees and the managers receive the necessary information for a productive evaluation? 
• Is there anything that you could have done differently or better?

Collect feedback from employees and managers on the effectiveness of the appraisal system.

Refine the competency framework, appraisal methods, and processes based on the feedback and analysis to improve the system and ensure its ongoing relevance and effectiveness.

For example, was the new process too time-consuming? If so, the competency framework may contain too many competencies. Did the evaluators struggle to assess competencies? You may need to offer more examples.

11. Monitor and evaluate performance

Continuously monitor and evaluate the performance of the competency-based appraisal system. 

Track key metrics such as completion rates, satisfaction levels, and changes in employee performance over time. 

Use this data to assess the impact of the system and make data-driven decisions for future enhancements.

Competency-based performance review questions + Free appraisal form

Review questions to assess competencies aren't "one size fits all." 

First, develop questions tailored to your company's competency model. Then, adapt each competency-based performance review question to the employee and their role.

Use these appraisal questions as a starting point for customizing your competency-based performance evaluation form. For some questions, we included variances for self-evaluations, manager (downward), and peer feedback.

Technical skills

Self: How effectively have you applied your technical skills to meet your job responsibilities? Please provide an example.

Manager: How effectively has the employee applied their technical skills to meet their job responsibilities? Please provide an example. (You can also add a rating scale here) 

Peer: On a scale of 1-10, how would you rate the employee's technical skills in their job responsibilities? Please provide an example.

Collaboration

Self: How have you contributed to the team's overall performance? Can you provide an instance where your collaboration led to a successful outcome?

Manager/Peer: How has the employee contributed to the team's overall performance?

Adapting to change

Self: Describe a situation where you had to adapt to a change in your work environment. How did you handle it, and what was the outcome?

Manager/Peer: Describe a situation in which the employee had to adapt to a change in their work environment. How did they handle it, and what was the outcome?

Communication skills

Self: How have you demonstrated communication skills with internal and external stakeholders? Please give a specific example.

Manager: What are the top three strengths of the employee in addressing internal and external stakeholders?

Peer: How has the employee demonstrated strong communication skills with internal and external stakeholders? Please give a specific example.

Critical thinking

Self: How have you demonstrated your ability to think critically and strategically in your role? Please provide a specific example.

Manager/Peer: Using the options "Below expectations," "Meets expectations," or "Exceeds expectations," how would you rate the employee's ability to think critically and strategically in their role? Please provide a specific example.

Time management

Self: Can you provide an example of when you had to manage competing priorities and how you ensured the timely completion of tasks?

Manager: Can you provide an example of when the employee had to manage competing priorities and how they ensured the timely completion of tasks.

Leadership

Self: Tell us about an instance when you took the initiative to identify and solve a problem at work. What was the situation, and what steps did you take?

Manager: Can you share an instance where the employee had to provide constructive feedback to a coworker? How did they approach this situation, and what was the outcome?

Manager: How has the employee demonstrated leadership within their role or as part of a team? Please provide a specific example.

Competency-based performance appraisal examples

This article wouldn't be complete without showing you what competency-based performance review examples look like.

Decision-making

• Competent decision-maker: Jane consistently follows a structured process to analyze and solve problems. She carefully weighs the aspects impacting the outcome of her decisions and chooses the best way to address them.
• Basic decision-maker: Alex follows a standard process to analyze problems and seeks advice before making decisions.

Autonomy

• Basic autonomous staff member: Chris completes tasks as directed but often checks in with the manager to ensure accuracy.
• Highly autonomous staff member: Mike independently applies his knowledge and skills to complete tasks effectively, rarely seeking advice.

Collaboration

• Basic collaborator: Sam participates in team activities and communicates with colleagues when required.
• Effective collaborator: Sarah listens actively, disagrees constructively, offers help, and shares information, making her contributions highly valued by her team.
• Exceptional collaborator: David enhances the team's competencies and resolves conflicts, fostering a positive work environment.

Customer focus

• Basic customer-focused worker: Jordan addresses customer inquiries and resolves issues with some guidance.
• Advanced customer-focused worker: Lisa meets customer needs, is always available to answer questions accurately, and solves problems efficiently, ensuring high customer satisfaction.
• Expert customer-focused worker: Tom anticipates customer needs and proactively finds ways to fulfill them, constantly improving processes to enhance the overall customer experience.

Flexibility and adaptability

• Basic flexibility and adaptability competency: Kelly accepts changes when instructed and makes efforts to adjust to new methods.
• Advanced flexibility and adaptability competency: Alex embraces changes in tasks and the environment, adapting to new methods, processes, and procedures without hesitation.
• Exceptional flexibility and adaptability competency: Maria perceives change as an opportunity to learn and grow, encourages others to embrace change, and develops new methodologies to execute work.

Grow your people's competencies and performance with Deel Engage

With Deel Engage's all-in-one talent development suite, you'll turn your people into a high-performance workforce. Our software supports you with:

• Competency library—to determine which competencies managers and colleagues can leave feedback on
• 360-degree feedback tools—to run the evaluation process and offer timely, meaningful, and actionable feedback
• Career frameworks—to clarify roles with clear career paths
• Learning management—to create and manage training programs
• An extensive training library—offer courses developed by prestigious organizations to your employees

With Deel Engage, your staff will grow professionally, and the business will reach its goals. Two strong reasons to book your demo today!