Competency based Compensation system- As strategic HR

Critical Review

Komal Sarwar
4172
Human Resource Management
Submitted to: Ms. Tehzeeb Amir
Submitted on: 13th Oct’ 2012

Introduction and Overview of the article:
The article that was provided was based on the compensation plans that an organization creates according to the capability and competency of its employees. It states the path that the organizations have taken to change how the traditional compensation plan were formed in the older days to the strategy they now apply to allot the compensations and incentives to the employees. Compensation management is one of the most important function of the organization, keeping in mind both the parties, as it gives a push of motivation to the employees towards their work and commitment towards the organization, making them work more effectively and efficiently.
The draft gives an overview of what competencies are. Competency is actually the whole process on how things are done, rather than the outcome or result. It relates to the value that is added by each individual while performing any given task. It is further elaborated that there are three key categories of competency i.e. (a) organizational competency, that acts as a key factor in the success of an organization, making it competitive by figuring out the strengths and working more efficiently to enhance it; (b) job related competency, they vary from organization to organization, and from one task to another. At times job related competencies are a tool that can be used by HR managers for selection, building up the employee and allotting them the targets and goals and (c) personal competency include competency for growth, to learn, to lead and control. Personal competency further includes competencies such as interpersonal competencies, information oriented competencies and people management competency. Personal competency helps a person out show him/herself among a crowd of co workers.
Compensation is a reward that an organization may use for accomplishing the organization’s objective indirectly. In the older days what used to happen was that compensation was distributed with respect to the job rather than the person who is performing the job. But now, the scenario is completely inverse. Now, the salary and compensations are paid in accordance with the skills and competency of the employee, and they expect to be paid with respect to the proficiency that they show.
Compensation is now taking place as a strategic issue that is used in order to improve and enhance the future performance. Effective pay for performance has two parts; Compensation Management and Performance Management, but the real challenge for the HR management is to integrate both these processes.
The advantage of this method is that this will help creating a learning organization, as the employees would be empowered to take charge of their own training and growth as the employees are paid according to their skills and market value. And it will help in filtering the most potential employees and then retain them by giving compensations according to their skills.
Points of Agreement and Disagreement: Due to this study, most of the employees will be working on polishing the skills that they demonstrate, and they will be awarded compensation accordingly. This might get them motivated to work more efficiently. This study works for the overall increase in the productivity of the organization as well as it will create a learning environment, a growing environment and more possible a more innovative organization. But the negatives would include that the compensation method is more capable in an innovative and flatter organization where employees are allowed to maximize their potential. But not every organization has a flatter structure. In a more stable and complex organization, this might not result in the maximum potential. Once the employees reach their maximum potential, and if the compensation is less than they think of their value, they might change jobs.This system will increase the expectations of employees especially the new ones and the organization might not able to come up to their expectations which in terms will de motivate them. It will create a very negative impact if there are some biasness among the employees. They will fear of favoritism, Sometimes money is not the only motivation factor, they might give them flexible timings, provident funds, health insurance etc.
AREAS OF IMPROVEMENTS:
They system can include non monetary rewards as well. Flexible timings, appreciation. Car loan, fuel, provident fund. Etc. this might also work to enhance the motivation level of the employees.

CONCLUSION: Competency based compensation involves the employees to work beyond the lines to polish and enhance their skills , to be more competitive and work for the best outcome for both, the organization as well as themselves. They will be highly motivated to learn new technologies, and they will work on their growth. They will in fact turn into the best asset the organization might have. But competency based compensation might also bring a very competitive environment among the employees. So the organization should take step in training the employees. And once they are trained and skilled enough they should try their best to retain them as if they are not satisfied they might change their jobs.