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Most organizations probably have tried at least one of the new wave of human resources strategies that have made a splash in the marketplace in recent years. Re-engineering, downsizing, total quality management, teams and a wealth of other processes are being tried as organizations seek a competitive edge in an ever-changing business climate. One of these innovative strategies is the use of organizational and individual competencies to focus an organization on its critical success factors and to develop individual behavior that supports "core competencies." Competency development at both the organizational and individual levels has been used to support organizational change in selection, development, human resources planning and performance-management systems.
Organizations are discovering, however, that while many of these innovative processes, including the development of competency models, are useful in advancing their missions and achieving their goals, without the support of equally innovative compensation strategies, effectiveness is not as great as it might be (Tucker and Strickland 1991). Traditional compensation approaches frequently fail not only to ensure a competitive advantage but also to deliver necessary performance returns. While a number of approaches to competency-based pay have been tried, one combination--competency-based pay on a broadbanding platform--appears to stand out in its ability drive performance in a change-oriented environment.
Individual competencies--those characteristics that predict superior performance and align the individual with the organization's core competencies provide the structure for a flexible, learning organization, and they are effective in driving and supporting major organizational change such as re-engineering and TQM. Furthermore, competencies may be used in the selection, management and development of employees. By using incentives or merit pay to reward the results that are achieved (the "what"), and competency-based pay to reward the way in which the results are achieved (the "how"), employees may gain a clearer vision of the organization's direction and strategy while becoming empowered to be accountable for their own performance.
COMBINING TWO COMPENSATION STRATEGIES
Just as there are several ways to link pay to competencies, there also are several ways to pay for the person in addition to the job. These include
* skill-based pay, which historically has emphasized highly discrete skills rather than the more broadly defined behaviors and motivational attributes of competencies
* team-based programs, which sometimes are tied to total...