Competency-Based Performance Appraisal 101: A Guide to Meaningful Reviews

Are your performance review practices falling short on the effectiveness front?

It may be time to give competency based performance appraisals a chance.

This article contains practical ideas on setting up and conducting the most fruitful competency-based performance reviews.

Our insights and examples will help you discover if your personnel's competencies match your company's needs and what you must do if they don't.

✅ Learn to align performance competencies with organizational goals. 

✅ Set expectations for your employees accordingly. 

✅ And obtain the return on your investments in compensation, rewards and recognition, and corporate training programs.

📈 What is a competency-based performance appraisal?

A competency-based performance appraisal is an approach to evaluating an employee's performance based on their demonstration of specific skills, knowledge, behaviors, and attributes deemed essential for their role within an organization.

Instead of focusing solely on end results or objectives, this review method emphasizes how an employee's actions align with the company's defined competencies and values, ensuring both role effectiveness and cultural fit.

Keep this in mind: The purpose of competency-based performance reviews is the future. Therefore, you should use the results of each competency-based performance review to understand which behaviors the employee must work on and grow.

How do competencies become a part of performance reviews? 

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

Example: The competency model for an HR manager would include performance competencies such as relationship building, flexibility, results orientation, influence, communication, and knowledge of clients' businesses.

Then, to assess these competencies, you'd run a performance review for all HR managers simultaneously, at least yearly. However, you'd do it slightly differently.

You'd evaluate their performance over the past year but focus on their career path moving forward. And you'd investigate the need to design new or update existing training programs.

🆚 What is the difference between a standard performance review and a competency-based assessment?

🪜 Get started with competency-based performance reviews in 5 steps

Follow these steps to set up, execute, and process your next competency performance assessment.

Get your managers on board

Introducing competency-based performance feedback into your company will shake things up. And as with any other organizational change, resistance is right around the corner.

Competency reviews disrupt the installed way of evaluating staff performance. And that requires learning what performance competencies are, how to describe them, how to map them to employees, and how to assess them.

That's quite an investment when most appraisers focus on workers' attitudes rather than their competencies. And that's why you must educate them on the perks of giving feedback on performance competencies.

Define an action plan

A competency-based performance review aims to evaluate behaviors at work transparently. It takes subjectivity away from both the employees and the manager's sides.

Employees know what managers expect from them, and managers assess employees accordingly. But you need a plan to conduct competency-based performance reviews effectively.

First things first, you must define the competencies you will use to evaluate your employees. You will find that some competencies are vital for all (core competencies), while others are specific competencies relevant to particular job roles.

Which motives, traits, values, attitudes, knowledge, and skills must your employees develop to perform effectively?

That's the question that kickstarts the next steps.

Types of competencies to include in your performance appraisals

These are competency types you can rely on when defining competencies for roles:

• Core competencies—the unique combination of knowledge, skills, and abilities that an organization possesses, which provide a competitive advantage and contribute to its success. These competencies differentiate an organization from its competitors and are essential to achieving its strategic objectives. Example: the ability to plan and conduct a competency-based performance review.
• Leadership competencies—the knowledge, abilities,and skills essential for effective leadership in any organization. Example: managing organizational change processes and assisting others during the transition period.
• Technical competencies—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 the ability to use technical tools (such as software development tools).
• Behavioral competencies—individual attitudes that affect coworkers, teams, and the organization. Example: the ability to build rapport with clients or the ability to learn new things.
• Performance-boosting competencies—a combination of technical and behavioral competencies required to perform a role. Example: the desire and ability to learn to use a tool to automate repetitive manual tasks.

Tip: Build a leadership competency model to define and evaluate the performance competencies of your leaders.

⚠️ Defining all the different competencies for all job roles in your company will definitely be the most challenging part of this process. Fortunately, AI-based solutions like Zavvy can help ensure you never start from an empty state when creating comprehensive competency models.

Set the right expectations

Managers start the competency-based performance review by setting expectations for their team members. And by "setting expectations," we mean these four things:

• Revisit the goals that each role within the team must achieve.
• Reexamine the performance competencies for each role and update them if necessary.
• Explain the process to their team members individually.
• Provide feedback to each team member separately.

This will initiate a dialogue between the manager and each team member. And the outcome of that dialogue is input for creating a career development framework.

Such a framework defines roles, responsibilities, and competencies within the team (or department, company, and hierarchy level). And it clarifies the positions that each team member can progress into, plus the steps to get there.

Employees commit to developing the competencies required for their role. And managers commit to enabling employees throughout the process.

Tip: Create a job-leveling matrix to define roles and career paths within your organization.

➡️ Learn how to write meaningful role descriptions as a foundation for role clarity and people development.

Select competency review tools

You can run a competency-based performance review with one-on-one discussions, pen and paper, mainstream tools, or a specialized HR tech solution. Either way, you must:

• Document goals for roles.
• Create and regularly update a database of performance competencies and match them with roles.
• Prepare assessment questionnaires.
• Write, store, and share feedback (from peers, managers, etc.)

🖋️ Get actionable tips on how to write performance reviews for your people. For extra inspiration, check out 40+ performance feedback examples (for all levels of performance).

• Make the right training and development resources available to the right employees.
• Design competency development plans.

With the assistance of HR software, you can streamline all the processes above. You might even conduct self-reviews and surveys to determine the performance competencies each team needs.

Create a follow-up process

What happens after the performance review? Here are the steps.

Identify training gaps

When competency-based performance feedback is ready, it's time to analyze that information. Now, your goal is to identify competency gaps you can help fill with learning and development programs.

Then, deliver training through multiple methods, such as coaching, mentoring, and job rotations. Adapt those methods to each employee's learning style. And match training topics to the lacking competencies or the competencies identified as unsatisfactory.

Create a competence development process

Growing 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.

Competency development might require an employee to pursue professional certification or enroll in a graduate program. Conversely, it might also involve informal training methods like social learning.

Design your competency development process to satisfy the training needs you previously identified and include the learning initiatives we'll discuss next. But most importantly, base your process on growth cycles to incentivize your staff to learn and grow continuously in their roles and move along their career paths.

➡️ Learn what proper competence development looks like in practice, step by step, with tool support and our insights.

Implement competency-based learning initiatives

Ultimately, competency assessment leads to designing and implementing learning initiatives. And because the entire process down to this point was competency-based, so must the learning be competency-based, too.

➡️ Learn how competency-based learning improves essential competencies for specific roles!

Whether you design the training solutions yourself or outsource that effort, it's up to you to implement them. And don't forget to monitor that implementation to ensure effectiveness.

It'll all come down to personnel adopting new behavioral patterns. But the learning experience is something you must keep an eye on, too, by surveying your learners about it.

❓ 17 Competency-based performance review questions + Template

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

First, we recommend developing questions tailored to your company's competency model. 

Then, adapt each competency-based performance review question to the employee and their role.

But although you must aim for the highest level of customization, here are a few general ideas.

Use them as a starting point for customizing your competency-based performance review questions. 

For some questions, we included variances for self-evaluations, manager (downward), and peer feedback.

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. [Alternatively, you can add a rating scale] 

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

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? 

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 where the employee had to adapt to a change in their work environment. How did they handle it, and what was the outcome?

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.

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.

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?

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.

📝 For more competency-based evaluation questions, check out our competency-based performance appraisal template.

👀 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.

🚀 Learn how to improve performance in your workplace with 17 methods.

🔬The advantages and disadvantages of competency-based performance appraisals

📏 How do you evaluate competencies: 7 Challenges of assessing competencies

Assessing competencies can be challenging, as they involve behaviors and traits that are not as easily quantifiable as metrics like OKRs. 

Competency-based performance reviews can quickly evolve into cumbersome processes. 

Especially, if you run them based on pages and pages of competency definitions. And needless to say, reviewers must get acquainted with those before conducting the assessments.

Here are seven challenges of assessing competencies you should be aware of.

Subjectivity 

Assessing competencies occurs through subjective observations and interpretations, which can lead to biased evaluations. 

For example, a manager might perceive an employee's assertiveness as confidence, while another manager might see it as aggression. 

The result will be inconsistent assessments of the same employee by different evaluators.

Context dependency

Your people may demonstrate competencies differently depending on the context or situation. 

For example, an employee may be an effective team player in one project but struggle to collaborate in another due to the specific dynamics or challenges of that project. 

Evaluating competencies without considering the context may lead to an inaccurate assessment.

Lack of clear benchmarks

Establishing clear and consistent benchmarks for assessing competencies can be challenging, making it tough to evaluate employees objectively. 

For example, while measuring an employee's ability to meet sales targets may be easy, it's harder to quantify their ability to manage conflicts within the team.

Competencies might take different flavors depending on the context, situation, or problem. And that's true even within the same role! 

So, you must be flexible when describing and evaluating competencies.

Not aligning competencies with business objectives

Neglecting the alignment of competencies with business needs might be tempting. But setting performance competency expectations that don't align with the company's goals is a shoot in the foot.

"It is always with the best intentions that the worst work is done." Oscar Wilde.

But don't expect your employees to hit more competency targets than your business needs. And don't require staff to dedicate time to learning more than they need to master their jobs.

Otherwise, you'll set the foundation for a downward spiral. Personnel will allocate time to learning unnecessary competencies, taking time away from learning relevant ones.

Time lag

The impact of competencies on performance may not be immediately visible, making it difficult to assess their effectiveness in real-time. 

For example, an employee's efforts to improve communication within the team may take months to show tangible results, such as increased productivity or reduced errors.

Multi-rater variance

When multiple sources assess competencies, including peers, subordinates, and supervisors, it can lead to varying perspectives on an individual's performance, creating potential inconsistencies in the evaluation. 

For example, an employee's colleagues might appreciate their ability to innovate. But, at the same time, their supervisor might feel they are not adhering to established procedures.

Organizations can overcome these challenges by implementing multiple assessment methods such as self-assessments, peer reviews, 360-degree feedback, and behavioral interviews. 

Additionally, providing clear expectations and guidelines for assessing competencies and regular training for evaluators can help reduce subjectivity and improve the accuracy of competency evaluations.

Using valid data

One final challenge of competency-based performance reviews worth mentioning is using valid data. 

Focus on obtaining qualitative competency-based performance review data because the nuances of competency mastery are hard to quantify.

And trying to quantify them will most likely generate unrealistic conclusions. 

After all, competencies are behaviors, and behaviors aren't numbers.

➡️ Take a look at a more in-depth discussion of how to measure employee performance.

🕵️‍♂️ 13 Reasons why you should consider competency-based performance reviews

Providing performance feedback based on competencies carries advantages for both organizations and workers.

Benefits of competency-based reviews for your company

A competency-based performance review is a powerful instrument to assist you in managing talent. And you need it to:

1. Make grounded decisions while recruiting personnel, from sourcing and screening to selecting and onboarding, and even while writing job descriptions.
2. Assess competency gaps you must fill with appropriate training programs and individual employee development plans.
3. Figure out which staff members to promote or eventually transfer to a different team or department with a new role.
4. Predict the success of new roles within the company, especially as you become an experienced competency reviewer.
5. Select the best tools and resources to support your workforce in improving their competency-based performance individually.
6. Understand if your organization is growing in the right direction with the effort and dedication of your employees.
7. Discover whether your learning and development efforts are working or whether you need to hire.
8. Reduce employee turnover costs by raising employee engagement and timely preventing quiet quitting.
9. Educate and motivate your workforce by clarifying the impact of their individual behaviors on their jobs.

Benefits of competency-based reviews for employees

Gallup reported that only 14% of employees get highly inspired by their performance reviews.

But competency-based performance feedback boosts workers' ability to excel at their jobs. 

Here are a few ways in which that feedback does it:

1. Pinpoint the individual behaviors positively impacting the organization's bottom line, motivating personnel to develop competencies and advance their careers.
2. Clarify how each staff member must do their job to get promoted by establishing performance competency benchmarks for them to work towards.
3. Create an opportunity for managers to recognize the achievements of their team members, which increases employee satisfaction.
4. Raise staff's confidence in their future within the company by knowing precisely what managers expect from them and how they will support the process.

➡️ Grow your people's competencies and performance with Zavvy

With Zavvy's performance reviews, 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.
• Growth plans—to couple goals with action items.
• Learning management features—to create and manage training programs.
• A training library—to make those courses available.

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

❓ FAQs

What are the competencies in HRM?

According to competency mapping expert Seema Sanghi, a competency entails five things:

• Motives—the thoughts and wishes that trigger specific behaviors, which, in turn, guide us toward specific goals.
• Traits—the physical and mental characteristics that determine how we react to particular scenarios or information.
• Self-concept—our values, attitudes, and the image we hold of ourselves.
• Knowledge—the information we acquire and correlate over time about specific topics.
• Skills—the abilities we learned and perfected throughout life to execute specific tasks.

What are performance competencies?

Performance competencies are the innate abilities, knowledge, skills, and behaviors that allow achieving certain performance levels at work. And whereas a skill refers to an activity or a task an employee can do, a competency relates to how they can do it.

Simply put, effectively applying a skill to perform work and produce the expected outcome indicates performance competency.

What is an example of competency employee comments?

Competency employee comments are specific feedback statements from managers or peers, highlighting an employee's proficiency or areas for improvement in a particular competency. 

Here are four examples of competency employee comments:

Jane consistently demonstrates exceptional collaboration skills, actively participating in team discussions and supporting her colleagues. Her ability to mediate conflicts and maintain a positive work environment has been crucial to our team's success.

John could improve his teamwork competency by actively seeking input from team members and involving them in decision-making. In addition, by fostering open communication and collaboration, John can contribute to a more cohesive team dynamic.

Mark excels at clearly presenting complex ideas. His presentations are always well-organized and engaging, making it easy for the audience to understand and retain the information shared.

Susan could improve her written communication skills, particularly in crafting concise emails. By improving her writing and proofreading abilities, Susan can avoid misunderstandings and ensure she communicates important information effectively.

What are the 4 steps in a competency-based analysis?

1. Self-assessment—which the employee can do by filling in an online form or providing evidence of competencies they mastered
2. Reviewers' assessment—by managers or HR professionals and eventually colleagues
3. Identification of competence development areas—which may lead to the creation of a career development plan
4. Training—whether it occurs on the job (such as shadowing) or off the job (via, for instance, a training course)

What are the 5 Cs of competency?

• Critical school competencies—or academic skills.
• The concept of self and self-esteem—the perception of ourselves at work and how we compare ourselves with our peers.
• Communication with others—or building and maintaining positive relationships with colleagues and supervisors.
• Coping ability—or the ability to effectively cope with anxiety and stress on the job.
• Control—or decision-making skills and the ability to delay gratification and concentrate on short-term, realistic goals.