7 Keys to Competency-Based

Performance Management
by Joseph Jaynes | Apr 20, 2016

READ TIME: 4 minutes.

For high-performing organizations, a competency-based
performance management system is an essential part of an overall
competency management plan. With a competency-based
performance management system in place, you can better motivate
staff, align training with company goals, clearly define roles and the
skills needed to perform each job well, as well as optimize the
hiring process. Here are seven key components to optimizing your
competency-based performance management plan.
1. Determine Goals
When it comes to performance management, determining goals
should be step one. Having set goals at all levels allows everyone
involved to have something to strive toward, measure and be
accountable for. By planning out specific goals and setting
expectations, you will motivate employees to work effectively, help
management to communicate clearly and allow tasks to be
completed in an efficient manner.
Whether you’re setting goals individually or at a team level, make
sure they’re geared towards developing the core competencies of
the company and supporting your organization’s mission, vision and
values.
2. Communication
One of the most important elements of a performance management
plan is communication. By clearly communicating what your plan is,
what your goals are and why, you can get employees on board and
motivated to participate.
Why. Make sure the purpose is communicated clearly, and often. If
employees don’t see the point, they may not do their best to
progress toward your goals.
What and When. It’s also important to set clear expectations. If
you’re planning on setting deadlines for individuals or teams to
complete training or to give feedback, let staff know that you’re
expecting them to complete the activity at that time and it’s not
just a suggestion.
How. Give staff clear steps toward any goals you have set. With a
step-by-step guide, the process will be as effortless and possible.
One great benefit of performance management is that the feedback
gives HR better clarity when recruiting, which saves time and
resources. This is why it’s so important to clearly define each job.
3. Define Job Types
Great employees want to excel in their positions–and understand
what is needed to move up. Make it easier for them by outlining
what skills are needed to perform to the best of their ability. By
understanding job responsibilities and expectations, employees can
be more confident in their position, as well as their future, within
the company.
In addition to your current employees, it’s also important to plan for
the subsequent workforce. With your organization’s core
competencies in mind, define what job types you would like to hire
 for in the future. Complete the communication loop by speaking
with HR about these decisions. This will help you hire the most
competent people to fulfill needs within your company.
4. Identify Skill Gaps
Once you agree upon and outline the skills needed for each job type,
you can better understand where skill gaps exist. Whether it’s
through surveys, interviews, performance reviews, or coaching
sessions, learning what your employees need to know in order to
perform well in their position is invaluable.
Additionally, by identifying skill gaps you can begin to see a clearer
picture of where there may be job-type holes in your workforce.
There may be job types that you’ve never hired for previously that
would be the perfect addition to your team.
RELATED ARTICLE: Is the Skills Gap a Myth?
5. Coaching and Development
After you’re able to identify your skill gaps, the next step is to
nurture staff and bring them up-to-speed. Whether it’s by way of
company-wide training days or simply management-to-team member
weekly one-on-ones, the best way to encourage continued learning
is by setting up a coaching development program.
With a coaching and development plan, your organization can
accomplish multiple goals: bridging skill gaps, vetting employees for
future positions and putting them on track for a planned career
trajectory.
6. Monitor, Document and Give
Assessments
Three key elements of all successful evaluation programs are
monitoring, documenting and assessments.
 Monitoring continued learning activities, enables you to understand
where to make changes,
 Diligent documentation will make it easier to make data-backed
decisions moving forward, and
 Assessments allow you and others to better understand what is
working and what needs to be changed.
While some feel that conventional, annual assessments are
tiresome, anxiety-inducing and many times, fruitless, it’s still
important to have some kind of progress touchpoint in order to set
up your workforce for success. Move away from monthly or annual
evaluations and toward a process of continuous coaching and
 improvement. With actionable, constructive criticism, you can
position your workforce to perform to the best of their ability.
For some organizations, creating a unique performance
management system is in order. Depending on your organization, a
performance management program may mean you’ll have frequent
face-to-face evaluations or it could mean virtually zero. The more
organized and planned out your program is, the less face time will
be required. We’re experts at mapping out successful competency-
based performance management plans. For more information on
developing a customized performance management plan, contact
us.
With the data you gather through defining job types, evaluating skill
gaps and the results of continued learning activities, you can put
together the evaluation program that works for your company.
7. Revise and Recognize
With feedback from management and staff, it’s important to
regularly revise your performance management plan. Be sure to:
 Tie all activities back to reaching company goals and company core
competencies,
 Listen to management and staff feedback and make changes to the
plan accordingly,
 Motivate staff by putting an emphasis on career trajectory,
 Give recognition and reward your workforce.
8. (BONUS) Stay Organized with
Performance Management Software
The most comprehensive performance management plan in the
world won’t be effective if everyone involved doesn’t have adequate
access, can’t easily give feedback, and data can’t be collected and
viewed by leadership. In order to keep everything organized across
the organization, performance management software is a must.
While creating a competency-based performance management plan
can sometimes feel like a balancing act, performance management
software can help keep you organized and on track to meet your
goals. Not only does performance management software help to
identify, analyze and manage skills gaps within your workforce, it
provides an overview of progress, an opportunity to compare
continued learning techniques and the ability for leadership to
analyze a large amount of data in a comprehensive way.
Learn more about Avilar’s competency-based performance
management software.
https://www.youtube.com/watch?v=lRffCtVi-OY

People tend to think performance reviews are time consuming, inaccurate, and
demotivating.[1] While managers can see the value behind performance reviews to
reach bigger company goals and set career expectations, less than 45% believe
those meetings actually achieve their purpose.[2]

This is because creating detailed processes for staff appraisals isn’t enough if
you’re rating your team on a scale of one to ten. A single score lacks nuance and is
highly dependent on the subjective views of the manager and the recent months
prior to the meeting.

As an alternative, introducing skills-based assessments lets employees get a

more balanced, realistic, and actionable evaluation of where they are in terms
of knowledge and skills. This can help them decide what areas they need to focus
on and create a plan for future development.

In this article, we’ll examine the problems with the most commonly used
performance reviews and explain how adopting a skills-based approach can
improve your company’s review season and benefit team engagement.

Quick definitions:

Traditional performance reviews: A manager and their direct report meet to talk
about results. Usually, the manager reflects on previous targets and shares their
perspective by going over perceived strengths and weaknesses. Then, they rate the
direct report’s performance on a scale of one to ten, though the scale may differ by
organization.

Skills-based performance reviews: The manager and their direct report meet to
review performance indicators, skills, and expected behaviors for the role rather
than personal perception. By talking about skills gaps and future development,
 managers can provide more objective reviews to employees. Along with skills-
based hiring, this approach to performance reviews can help you improve diversity
and retention – which lowers your overall hiring costs.
Table of contents

 More than a number: The problem with performance reviews

 Benefits of a skills-based approach to performance reviews

 Evaluate people fairly and set them up for success with skills-based performance reviews

More than a number: The problem with performance

reviews

Picture this: You meet Andy, your direct report, for her yearly performance review.
You only worked with her during the first three months of the year and then moved
to a different project. Now, you only get to collaborate with her in team meetings.

At the beginning of the year, Andy struggled to make decisions and take initiative.
You remember and write this down in her performance review sheet. However,
when you left, Andy had to take the lead in a cross-departmental project, and she’s
now making decisions on a daily basis. Your perception isn’t only subjective but
also outdated.

The problem with traditional performance reviews is that they’re based on a

single viewpoint, not objective, measurable skills. This makes them one-
dimensional, vulnerable to human error, and potentially misleading.

“The main difference between traditional performance appraisals and skills-based

ones is that the traditional evaluations aren’t associated with key behaviors or
specific actions. They’re much more high-level,” Pedro Mirabal, executive director
at Human Management Consulting, says.
For example, let’s say that Andy’s project was expected to reach $50 million in
sales, and the team reported $40 million – not quite there. As Andy’s manager, you
might view her performance only on a results vs targets basis, and consequently
give her a low rating.

However, since traditional performance reviews lack nuance, they don’t really tell
you anything about Andy’s areas of improvement or what was really behind those
results.

Maybe she single-handedly made $25 million in sales, identified a gap in the team,
and designed a negotiation training session that helped team members increase
their sales by 3%. You wouldn’t know this just by seeing the results.

Of course, you should always make your best effort to gather feedback from others
and come up with the most accurate appreciation of your direct report. However,
since traditional reviews measure perceptions and hard metrics, they might be
subjective and influenced by personal biases.

"A skills-based assessment, on the other hand, is closely associated with indicators
and behaviors that measure a person's success in the role. These are more fair and
accurate," Pedro says.
Reviewing people based on their skills reveals their strengths and weaknesses,
allowing you to plan for their growth with clarity.

We’ve seen how traditional performance reviews can be biased and misleading,
and can cause people to feel demotivated. Adopting a skills-based approach across
your employee lifecycle, including team evaluations, might be a better solution.
Let’s take a look at its benefits.

Benefits of a skills-based approach to performance

reviews
A skills-based assessment is more objective and reliable because it allows you to
standardize evaluation factors and measure employees against similar criteria. It’s
partly for this reason that 75% of businesses are in favor of using them to
evaluate their people more accurately.[3]
 Having a more complete review of your people isn’t the only benefit of skills-
based performance assessments – others include:

 Better accuracy. Skills assessments give you more accurate insights into your
employees' capabilities by eliminating subjectivity and biases. A skills-based
performance review tells you where a person excels and which skills they need to
continue developing.
 Personalized development. Assessments give your employees insight into their
strengths and areas for improvement, allowing for targeted skills development and
growth. Having a clear sense of direction and growth makes people more engaged
at work.[4]
 Meaningful feedback. Ongoing feedback and development plans enable a more
constructive dialogue between managers and employees. This helps people feel
more engaged because their managers care for their development and encourage
continuous improvement.
 Fairness and transparency. A skills-based approach fosters unbiased and
objective evaluations. This enhances trust and employee morale by giving
everyone an equal opportunity to develop irrespective of any individual’s
perception of them.
 Improved diversity and inclusion (D&I). Evaluating people based on skills, and
not on subjective perceptions, invites managers to give ratings based on specific
prompts. This can help you build a diverse leadership team because promoting
people based on their objective results rather than subjective or two-dimensional
perceptions of their performance reduces the impact of unconscious biases.
“A skills-based assessment is supposed to be much more objective and reliable
than traditional ones because you get to standardize reviews and measure
everyone against similar parameters,” Pedro Mirabal, executive director at
Human Management Consulting.
7 ways to make performance reviews about your employees’ skills

We’ve covered how skills-based performance reviews are fairer, keep people
more engaged, and support team growth. How do you make the shift from a
traditional approach?
Here are seven ways to focus your performance reviews on skills:
1. Define the key skills related to each role

“Before you start evaluating your people based on skills, you have to analyze your
company and establish what your company-level, department, and role-specific
skills are,” Pedro says.

You can do this by asking people to complete a survey of the skills they
consider crucial to their roles. Then, you can create skills maps with levels of
proficiency, seniority, and expectations per role. For example, a marketing
assistant might need to have basic copywriting skills, while a marketing manager
would need to be an expert in that area.

2. Create role-specific talent assessments

Standardizing skills-based reviews helps ensure fairness across your workforce.

This means setting expected skills per role and department but adjusting the
expected results according to level and seniority.

For example, let’s say you want to measure initiative. Below we look at Pedro's
suggested approach before turning to a simpler, more immediate alternative.

“You can define it in actions, so ‘amount of times a person makes decisions or

comes up with ideas in their role.’ Then, you can set targets per month based on
the previous skills mapping. For instance, you can measure ‘times employee
demonstrated initiative’ and set targets for low, good, and high initiative,” Pedro
says.
For example, behaviors that showcase initiative could include leading a meeting,
proposing to train employees on a topic, or making measured decisions.

While this could yield the insights you and your teams need, it’s a complex
solution that necessitates a lot of preparation on the management side, requiring
you to: Map all skills per role and level, determine which behaviors show evidence
of each skill, and determine the corresponding performance indicators.
A simpler, but equally effective approach is to use a skills-based assessment
platform like TestGorilla to measure your team on skills like coding with
Swift, English proficiency, or marketing analytics.

With TestGorilla, you can create custom assessments for people to take before the
performance review, then use the quantitative results to drive your meeting
discussion.

You can also use talent assessments to evaluate people's progress by asking them
to complete the assessment at the beginning of the year and then again at the end of
it.

3. Encourage self-assessment

Inviting employees to assess their knowledge in certain skills allows them to self-
reflect on their strengths and areas for improvement. This fosters self-awareness
and helps people feel more confident in their abilities.

Self-assessments allow individuals to get a clearer picture of their

performance in comparison to how their managers see their work. Having
open conversations about development helps people manage expectations and
understand exactly what they need to do to keep growing.

4. Make reviews about future development

Give general feedback about your direct report’s strengths and areas of
opportunity throughout the year, being sure to focus on goals and next steps
rather than past performance. Any feedback you do provide on specific
behaviors or choices should be while issues are still fresh and haven’t lost their
relevance.

Use these reviews to collaborate with employees, create individual development

plans that address specific skills gaps, and set actionable goals. You can tie these
plans to talent assessment results and build pathways to strengthening those skills.
 “Evaluating people based on their skills helps you set career and development
plans because when you can identify the gaps, you can design a learning path to
close them,” Pedro says.
5. Incorporate peer feedback

You won’t always get to work alongside your direct report in all of their daily
activities. Since they’re likely to have many more interactions with peers, you
should ask them for feedback. Peers can give you a unique view of your direct
reports’ skills and hidden talents as well as any gaps you may have missed.

Using a system to collect peer feedback helps you gain a more comprehensive
view of your people’s skills. Ways to gather their insights include:

 Including peer feedback surveys in your performance reviews process

 Asking employees to rate their peers’ work based on skills
 Implementing a yearly peer review process where workers get to assess their
teammates' work based on your preferred parameters
6. Make accommodations

For your skills-based reviews to be effective, they should be adaptable to your

team's preferences and make accommodations for people with specific needs.

This means designing for neurodiversity or people with disabilities, and adjusting
the reviews or related materials accordingly.

For example, let’s say your review process included a mix of in-person sessions,
recorded feedback, and written materials.

You should give people the chance to prepare for any tasks in advance by
providing them with information on what to expect; keep instructions short and
simple with clear examples; and help individuals remain focused by scheduling
natural breaks in any programmed work.
7. Take a holistic approach

Rating people takes more than assigning a number on a performance review

sheet. You should adopt a holistic view of evaluations and balance qualitative
and quantitative evaluations. Using company values to drive that qualitative
evaluation helps ensure relevance and fairness across your organization. This helps
you create a more complete breakdown of each employee’s skills proficiency.

For example, you can use talent assessments as a starting point to drive the
conversation and have a discussion about what your employees are doing well and
where they need to improve. You can also mix skills-based assessments with an
overall performance rating by doing a weighted average of each competency.

Evaluate people fairly and set them up for success with

skills-based performance reviews

Most people understand the value behind performance reviews for personal
development and reaching company goals, but they don’t think theirs are serving
that purpose.[2]

Traditional performance reviews are highly influenced by managers’ perceptions

and can ignore people’s abilities. This can leave employees feeling unappreciated
and disconnected from their managers.

A way to solve this problem is by having performance reviews that focus on skills.
Skills assessments are more accurate, fair, and personalized, as they set a
standardized way of evaluating performance based on relevant data. In turn, this
allows for a richer, goals-oriented discussion based on the test results.

Meanwhile, standardizing your review processes also allows you to make

accommodations for neurodiversity and disabilities.
Switching from traditional to skills-based performance management doesn’t need
to be complicated. You can start by mapping your organization’s skills, creating
evaluations per role and type of abilities, encouraging self-assessments, and
gathering employee feedback.

Using a skills-based assessment tool like TestGorilla can help you implement
this approach in your business, create custom tests, and simplify data
retrieval. Additionally, using performance review results to make staffing
decisions can help you improve D&I across all levels of your organization.

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

So here are a few competencies that you might include in your competency
appraisals (depending on the goals of the business and each role):

Decision-making—the ability to follow a process to analyze and solve

problems.

 A competent decision-maker weighs the aspects that impact the

outcome of their decision and chooses how to address those
aspects.
 An expert decision-maker selects the best alternative or course of
action based on their intuition without much thinking.

Autonomy—the ability to apply knowledge and skills to do a task or activity.

 An autonomous staff member knows that external factors might

influence the outcome of their actions or work and asks their
manager for advice.
  A highly autonomous staff member doesn't need to seek advice
(actually, it's quite the opposite).

Collaboration—the ability to contribute to the team's performance and nurture

relationships with colleagues, managers, clients, and vendors.

 An effective collaborator is an optimistic team member who listens

actively, disagrees constructively, offers help, and shares
information.
 An exceptional collaborator improves the team's competencies and
prevents, de-escalates, and resolves conflicts.

Customer focus—the ability to deliver excellent service to customers.

 A worker focused on customer service meets customer needs and is

always available to answer customers' questions accurately and
solve their problems.
 An exceptionally customer-focused worker anticipates customer
needs, figures out how to fulfill them, and is obsessed with improving
processes.

Flexibility and adaptability—the ability to accept and understand the impact

of changes in tasks and the environment.

 A flexible and adaptable employee focuses on the advantages of

change. They don't hesitate to accommodate new methods,
techniques, processes, and procedures, adjust timelines and
expectations, and adopt new behaviors. And they don't mind doing
their jobs without the whole picture.
 An exceptionally flexible and adaptable employee perceives change
as an opportunity to learn and grow, encourages others to embrace
change, and develops new methodologies to execute work.

💡 3 Tips for interpreting

competency-based reviews
Analyzing competency-based performance feedback is crucial for HR
personnel. And that's because your talent management cycle depends on it.

Each feedback clarifies which skills, knowledge, and characteristics your

company may lack. And so, it assists in effectively appraising future
candidates' readiness for a position during sourcing, screening, interviewing,
and selecting.

It also elucidates the performance competencies that call for improvement.

And that's priceless when it comes to planning learning and development
initiatives. But it's also vital for career progression and succession planning.
Here are a few tips on how to spot your next talent management steps from
competency feedback:

Tip #1—for when the employee hit the targets of their role yet didn't perform
well competency-wise: Update either the corresponding competency
descriptions or the competencies required by their position.

Tip #2—for when the employee got positive competency feedback yet didn't
achieve their role-specific goals: Adjust the list of competencies associated
with the employee's role.

Tip #3—for when your company met its goals and your workforce rated on
average well for their competencies: Keep monitoring competency-based
performance feedback to pinpoint the competencies that need improvement.

Strengthen Performance Planning to Drive

Performance Management

March denotes the end of a fiscal year, so April becomes the best time for performance planning
and target setting. A carefully designed performance planning process can boost efficiency and
facilitate the appraisal process at the end of the year.

In the volatile market environment, it is a challenge for each company to determine appropriate
performance indicators and targets that could both cater for the strategic planning of the
company and sufficiently motivate employees. The extent to which Key Performance Indicators
(KPIs) is properly determined and cascaded will directly influence whether performance appraisal
reflect the actual results of the company and the employees. If performance planning tends to
be sloppy, the whole performance management system will doom to be superficial and defeat
the original intention of the system. Proper performance planning are prerequisite to successful
strategy execution, and KPI setting serves as the key engine in driving the performance
management cycle.

Principles for Performance Planning: Emphasize Both Process and Results

In the process of performance planning, senior executives would identify KPIs for their
departments and employees that are consistent with business strategies by adopting the SMART
principles, i.e. Specific, Measurable, Attainable, Relevant and Time-based. Targets should also be
set according to the SMART principles to reflect the actual situations of the company and abilities
of employees. Yet the sole focus on results is apparently not suitable for all departments and
positions. Many companies conduct comprehensive performance assessment with various factors
taken into consideration to ensure both results (achievement of KPIs) and the process
(competencies of employees) are measured.

Apart from key goals and responsibilities, competency assessment is vital for encouraging
positive working attitude, teamwork and prevent relentless drive for results at the expense of
sustainability. Comparing to KPIs with rather short-term focus, competency assessment focuses
more on the long-term development of employees; this will have far reaching implications on
strategy execution of the company.

Setting and Cascading KPIs

Cascading KPIs from the top is a common approach for performance planning. It ensures the
alignment of KPIs to company strategies, balancing short-term profitability and long-term
development. Executives should cascade high level company strategies into specific and
measurable tasks for departments and individuals. For example, if the annual goal of the
company is to raise profits by 30%, it can be translated into increase in revenue and cost
control. Revenue generation could include goals such as “improving revenue from underwriting”,
and “improving revenue from securities brokerage”, etc. Further, to improve revenue from
securities brokerage, Department of Research is supposed to complete publish 10 research
papers on IT companies in the performance year, Department of HR has to ensure vacancies in
Department of Research are 100% filled, and Department of Legal and Compliance has to
complete the necessary declaration on time. As illustrated, cascading of the overall strategy
across different departments and levels of the company can ensure each department to work
coherently towards the realization of company goals.

Department Level: Financial Vs. Non-financial Indicators

In terms of category of performance indicators, KPIs generally consist of financial

and non-financial indicators, both including qualitative and quantitative indicators. The
weighting of these KPIs differ among departments. Front office departments put more emphasis
on financial indicators such as investment scale and profit growth. Some common non-financial
KPIs for front office including market share and customer satisfaction. The roles of back office
departments are more supportive by nature, thus heavier focus on non-financial KPIs. For
instance, HR department has to ensure job vacancies are filled and reduce staff turnover; while
the Legal and Compliance Department has to complete certain legal documentation to support
front office business. Therefore, the weighting of financial KPIs is relatively lower for back office,
with cost control being the main financial KPI.

Individual Level: Considerations on Cascading KPIs

After confirming KPIs at department level, department heads have to define the individual
responsibilities and performance expectation of the employees to cascade the department KPIs
to each individual. OGSM process is a typical top-down model for cascading KPIs, which is shown
as follow:
Cascading of KPIs varies across company scale, grading system and current business situation.
The OGSM model serves as a good reference for those companies with clear organization and
grading structures. Meanwhile, smaller companies or startups implementing flattered grading
structures, can consider to set congruent KPIs for individuals in the same department or similar
positions, but differentiate by assigning different KPI weighting across grades. In such cases, a
department head has to assume more responsibility for achieving KPIs of the department, and
more focus will be put on assessing his/her managing and organizing competency. The focus for
other employees is to complete work assigned by their managers, so more emphasis will be put
on assessing work efficiency and quality. Employees’ abilities and past performance can also act
as a reference in the KPI setting and allocation process.

Moreover, the performance management experience and skills of a department head impacts
how KPIs are set and cascaded, as he or she is responsible for coaching and implementing
performance management at the department level. Every individual is part of the performance
management system, considering different responsibilities, capabilities and limitations among
individuals, while ensuring strategy alignment and fairness of the process. Department heads
have to communicate with each employee to set KPIs and determine targets during performance
planning; subsequently they have to provide coaching and feedback, and make adjustments if
necessary. As mentioned before, proper KPI and target setting can increase efficiency of mid-
year progress review and year-end appraisal, making the results effectively reflect the condition
of core business as well as performance of departments and individuals. It can improve the
sense of responsibilities among employees and creditability of the overall performance
management system. Therefore, department heads have to spare the effort in polishing KPIs
and use them as the important vehicle in performance planning at the beginning of a year.