What is a competency-based performance appraisal

A competency-based performance appraisal evaluates an employee's performance based on their demonstration of specific skills, knowledge, behaviors, and attributes deemed essential for their role within an organization. These may include technical skills, behavioral attributes, leadership abilities, communication skills, problem-solving capabilities, and other job-related proficiencies.

Unlike traditional performance appraisals that focus primarily on overall job performance or outcomes, competency-based appraisals assess the extent to which employees demonstrate competencies that are critical for success in their role.

For this method to be effective, each competency must be clearly defined. This will ensure evaluators can assess employees based on observable behaviors and actions demonstrating proficiency.

How do competencies become a part of performance reviews?

Competencies become a part of performance reviews by integrating competency models or frameworks with performance appraisals.

For example, the competency model for an HR manager would include competencies such as relationship building, flexibility, results orientation, communication, and HRIS proficiency, as well as expected levels of mastery and concrete indicators.

The performance review will include specific questions to assess every competency. The evaluation results point out strengths and weaknesses and the need for development initiatives to bridge gaps.

How does competency-based assessment differ from other types of assessments?

Unlike traditional assessments that focus on overall job performance or specific tasks, a competency-based assessment assesses competencies relevant to a role, providing a more targeted and comprehensive evaluation of employee capabilities.

Traditional performance review

• Focus: Overall performance and achievements
• Evaluation criteria: Job duties and performance goals
• Feedback: General performance feedback
• Development opportunities: Identifies improvement areas, not always specific
• Performance measurement: Quantitative metrics
• Subjectivity: May be subjective, based on manager's perception

Competency-based performance assessment

• Focus: Specific competencies and behaviors
• Evaluation criteria: Pre-defined competencies and indicators
• Feedback: Feedback on specific competencies
• Development opportunities: Identifies skill gaps, provides targeted development
• Performance measurement: Qualitative assessment of behaviors and skills
• Subjectivity: Reduces subjectivity with clear definitions

What are the benefits of a competency-based performance appraisal system?

Using competency-based appraisals offers several benefits in modern employee evaluations, primarily by providing a structured framework for assessing and developing employees' skills and competencies.

Organizations can foster alignment, address skill gaps, and ultimately drive employee growth by leveraging competencies as the foundation for appraisal processes.

More focused and objective evaluations

Your organization can minimize bias and subjectivity in the evaluation process by defining clear and measurable competencies, leading to fairer and more accurate assessments.

As a result, performance is no longer something that each manager defines on their terms; it relates to observable behaviors and demonstration of particular skills critical for success in the role.

Improved strategic alignment

Competency-based appraisals help align employee performance with organizational goals and priorities.

By assessing competencies directly linked to strategic objectives, organizations can ensure that employee efforts are directed toward achieving desired outcomes and driving business success.

Focused employee growth

Based on the results of competency-based evaluations, managers and their teams can co-develop tailored development plans to address their identified skill gaps.

These development plans can include targeted training programs, coaching, mentorship, or on-the-job experiences to help workers enhance their competencies.

Streamlined skills gaps analysis

Leadership and HR teams gain valuable insights into areas where employees may need additional training or development by directly assessing employees' competencies during performance evaluations.

As a result, there is no need for an additional skills analysis step; organizations will have updated data on employee skills at their disposal. Additionally, the more frequent the review cycle, the more up-to-date the data will be.

Shortcut to training effectiveness evaluations

Beyond evaluating employee performance, competency-based appraisals can be instrumental in evaluating training effectiveness.

By comparing employees' competencies before and after training, L&D teams can gauge the effectiveness of specific training initiatives in enhancing the targeted skills.

For example, you can use the insights gained from these evaluations to prioritize training initiatives, (re)allocate resources effectively, and tailor training programs to address specific skill gaps.

What are the pros and cons of competency-based performance appraisals?

While there are many benefits to competency-based performance appraisals, they may not be the best fit for any organization. For example, they may not fit smaller organizations with limited HR resources, as they are resource-intensive in setting up and training all stakeholders.

Pros

• Focusing on specific skills and behaviors
• Providing clear performance expectations
• Supporting targeted professional development
• Encouraging skill enhancement
• Aligning with job requirements
• Offering an objective and standardized evaluation

Cons

• Time-consuming to develop comprehensive competency models for all departments, roles, and levels
• Potential for inconsistency in ratings
• May not capture all aspects of performance in a job
• Difficult to measure soft skills
• Can lead to oversimplification of performance
• Switching to this model requires intensive training for managers

What are some frameworks and models to structure competency-based appraisals?

You can use various frameworks and models to structure competency-based appraisals that effectively assess employee performance, identify areas for development, and support organizational goals and objectives.

Behaviorally anchored rating scales (BARS)

BARS is a performance appraisal method that combines traditional rating scales with critical incident techniques. This framework involves defining specific behavioral anchors or descriptors for each level of competency, allowing for more objective and detailed assessments.

Complementary resource: Behaviorally Anchored Rating Scale Examples for Various Competencies and Roles

Competency database/framework

Many organizations develop custom competency databases or frameworks that outline the critical competencies required for success in various organizational roles. These frameworks typically include a list of competencies and behavioral indicators or descriptors for each competency at different proficiency levels.

Depending on the industry or the organization's size, the competency frameworks can include core, functional, leadership, and technical competencies to cover all aspects of job performance in different roles and levels.

360-degree feedback

360-degree feedback involves gathering input from multiple sources, including managers, peers, subordinates, and customers, to assess an employee's competencies and performance. This comprehensive feedback helps provide a more holistic view of an employee's strengths and areas for improvement.

Job analysis and job descriptions

A job analysis involves identifying the key competencies and requirements for specific organizational roles. This information feeds into detailed job descriptions that outline the competencies employees need to perform effectively.

These job descriptions can then be the basis for competency-based appraisals—the ideal state for each skill set.

Complementary guide: How to Conduct a Job Analysis in 9 Steps and Avoid Common Challenge

Balanced scorecard

The balanced scorecard is a strategic performance management framework that measures organizational performance across four perspectives: financial, customer, internal processes, and learning and growth.

Data from competency-based appraisals is relevant for the learning and growth perspective that focuses on employees' development and skill acquisition.

Simplify competency-based appraisals with Deel Engage

Setting up a performance management system with company-wide competency frameworks, appraisals, and learning is labor-intensive and time-consuming, not to mention connecting the dots between all the elements.

With Deel Engage, you get an integrated suite that combines career management with career paths and competency frameworks, 360 feedback and competency-based performance reviews, and an LMS with competency-based learning—all streamlined in one user-friendly platform.

Request a demo to learn how to launch competency-based appraisals in your organization.