Competency-Based Performance Management: A Complete Guide

Imagine two employees, both of whom are hitting their targets.

However, one is coaching her teammates and thinking strategically, while the other is coasting.

Under many performance systems, they’d both get the same score.

Competency-based performance management offers a fairer solution. By shifting focus from tasks to behaviors, it helps managers give clearer feedback, and helps HR support real development.

This article breaks down why and how you can start using competencies to measure and manage employee performance.

What Is Competency-Based Performance Management?

Competency-based performance management (CBPM) is a structured approach to managing performance based not just on what employees do, but how they do it.

It starts with a competency framework—a set of skills and behaviors that define what good performance looks like. Leadership, communication and teamwork are common examples. 

Rather than focusing only on goals or task completion, CBPM measures how consistently employees demonstrate the competencies that you’ve designated as being important. 

“When done well, competency frameworks can be incredibly valuable,” explains Leanne Elliott, occupational psychologist and co-host of the “Truth, Lies and Work” podcast. 

“They help define what good performance actually looks like, support fairer decision-making and make feedback and development conversations more consistent across teams.”

For example, let’s say you’re the manager of a customer service team, putting together a performance review for a rep.

You know that they consistently resolve tickets within the expected time, but that doesn’t give the full picture of their performance.

A competency-based review would look beyond speed: 

• Is the rep demonstrating empathy?
• Are they documenting edge cases to improve the knowledge base? 
• Are they escalating issues proactively or spotting patterns?

Under CBPM, their performance is evaluated not just on volume, but on competencies like communication, problem-solving, and ownership. This gives you both a better sense of their impact and growth potential.

What’s the difference between competencies, skills, and values? 

Honestly, in everyday conversation, these terms are pretty similar. But if you’re building a competency-based performance framework, the difference matters.

Here’s how they relate: 

• Skills are specific abilities a person can learn and apply in the workplace. Think: coding, writing, presenting, or budgeting.
• Values are core beliefs that guide how someone chooses to behave, like integrity, inclusion, or curiosity.
• Competencies are observable behaviors that combine skills, knowledge, and values—for example, cross-functional communication or strategic thinking.

So, to take our customer support rep from earlier as an example: 

• They know how to navigate the helpdesk system (skill) 
• They believe in being patient with users (value) 
• They consistently follow up to make sure issues are fully resolved (competency: customer communication).

Competency-Based Performance Management Vs Traditional Performance Management

Traditional performance management usually focuses more narrowly on whether employees hit their goals i.e. they're either meeting expectations or they're not. 

Without a competency framework, performance management also tends to be backward-looking, reviewing how someone performed over the previous quarter or year. 

And it can be pretty inconsistent across teams. One manager might value attention to detail or collaboration, while another just cares about hitting financial targets.

CBPM still reflects performance outcomes, but it also looks at how the work gets done.

That gives a more representative sense of the employee’s real contribution, as Elliott explains: 

“Most jobs involve a mix of tasks and behaviours, not just outcomes. Competency frameworks help us measure that behavioural side more clearly, as long as they’re written with care and used consistently.” 

Here’s a handy table to compare the two methodologies:

Dimension	Competency-Based	Traditional
Focus	How work is done (behaviors, skills, and capabilities)	What is achieved (goals, results, and deliverables)
Evaluation criteria	Competencies like communication, leadership, adaptability	Quantitative metrics like KPIs, targets, or sales quotas
Feedback style	Ongoing and developmental, focused on behavior improvement	Periodic (often annual), focused on results and ratings
Development planning	Personalized based on skill/competency gaps	Often reactive after review outcomes
Alignment with culture	Strong emphasis on organizational values and expectations	Less tied to cross-organizational standards
Use in promotions	Supports decisions by showing readiness via demonstrated competencies	Often driven by tenure or goal completion
Employee engagement	Encourages growth mindset and internal mobility	Can feel punitive or disconnected from long-term growth

Skills-Based Vs Competencies-Based Performance 

Competencies-based and skills-based approaches to performance management are somewhat similar. Both start by building a framework or matrix to map out what it takes to do well in your organization.

They differ in application, though: 

• Skills-based performance management is limited only to skills—the specific abilities required in your organization. This approach can be useful for identifying skills gaps, especially in rapidly changing industries. They can also be helpful in fast-growing organizations, where employees may need to move flexibly from one role to another.
• Competency-based models give a fuller picture of the employee’s performance, because they include not only skills, but also behaviors and values.

As a result, if your main priority is learning and development or skills auditing, then a skills-based approach may be the better option.

However, if you want to improve the review process or get a better understanding of workforce performance, a competency model might be a better fit.

The Business Case for Competency-Based Performance Management

There’s a solid case to be made for switching to a competency-based approach. As performance management trends shift toward greater flexibility and continuous development, competency-based performance management becomes extremely useful—which is why it’s in place at many rapidly growing companies like Lattice and Toggl.

Our experts flagged several bottom-line benefits for CBPM: 

It reduces bias 

As Mollie West Duffy, the Director of L&D at Lattice, explains, using a standardized framework “helps avoid bias in performance conversations,” since managers are evaluating people against consistent criteria rather than personal impressions.

It makes performance expectations clearer

Lattice uses their competencies framework for career development, too. Employees can see what’s expected at their level and what it takes to get to the next one. That turns reviews into real growth conversations, and can motivate employees to higher performance. 

It turns vague traits into clear, observable behaviors

In Deloitte’s 2025 Global Human Capital Trends survey, only 26% of organizations said their managers were very or extremely effective at enabling the performance of people on their teams.

This is where competencies can help, by making manager feedback far more concrete. Instead of rating someone vaguely on “collaboration,” they might look for behaviors like “shares relevant information” or “builds on teammates’ ideas.” That kind of specificity makes expectations easier to assess and easier to meet.  

It brings needed structure to performance management

A loosely defined process might work in a small, close-knit team, but as companies grow, the cracks start to show.  

Dajana Berisavljević Đakonović, Head of People at Toggl, shared:

“For performance management, we initially had a very “flexible” setup, where we simply hoped managers would discuss performance during their 1:1s. Eventually, we realized that wasn’t enough. We needed something more structured to clearly define expectations and track whether people were meeting them.” 

A competency-based approach provides a common language for performance, which makes it easier to align employee goals with company objectives.

The 4 Key Components Of A Competency Framework 

A strong competency framework goes beyond a list of traits. It gives managers and employees a clear, consistent way to assess and develop performance across roles and levels. Here’s what it should include:

1. A defined list of competencies

These are the core behaviors and skills that matter most for success in your organization. You might group them into core (applicable to everyone), leadership (for managers and execs), and functional (specific to a role or department).

Each competency should have a written definition, to make sure you’re all using it the same way.

2. Behavioral indicators

These are specific, observable actions that show what a competency looks like at different performance levels. For instance, under “communication,” a behavioral indicator might be “actively listens and paraphrases to confirm understanding”.

These indicators help managers give more helpful feedback and make conducting performance reviews easier.

Here’s an example of a competency (leadership) and behavioral indicators for a People Operations role at Toggl:

 

3. Assessment tools

A competency framework is only useful if it can be applied consistently. This often means using tools like 360-degree feedback, self-assessments, manager ratings, and peer reviews. 

You don’t have to use every method, but you do need a reliable way to assess performance against the framework.

4. Development planning

Competencies shouldn’t just come up during annual reviews. They need to be integrated into onboarding, training programs, career development paths, and succession planning. 

Here’s an example of how Toggl ties competencies into employee development and promotion. Each role level has defined behavioral indicators for key competencies. 

In this example, you can see the progressive behavioral expectations for leadership. A level 2 employee might demonstrate leadership by taking initiative to identify opportunities. 

A senior manager would be expected to influence multiple teams to achieve complex goals. This approach helps employees understand what growth looks like and how to get there. 

How To Choose Competencies

“Start by understanding what you want to base the competencies on,” suggests West Duffy. “For example, some organizations use their values as competencies, while others use more skill-based competencies, e.g. communication, collaboration, etc.”

There are an endless number of potential competencies, but this process doesn’t need to be overwhelming. 

Start by breaking your competencies down into buckets: 

• Core competencies apply to everyone. They’re the baseline expectations for anyone working in your organization—things like communication, accountability, and collaboration.

You might also want to consider role-specific competencies. For instance: 

• Add leadership competencies (like strategic thinking, coaching, or stakeholder alignment) for people managing others or influencing direction.
• Include technical competencies, which are demonstrations of hard skills, such as using domain or tool-specific knowledge, like knowing Salesforce or how to write a proposal. 
• Layer on behavioral competencies, which are demonstrations of soft skills such as communication or adaptability.

You don’t need dozens of competencies. In fact, less is often more, says West Duffy: “Best practices are to use a core set of competencies across all job tracks, for simplicity.”  

The key is to write them clearly and tie them to specific behaviors, so feedback doesn’t turn into vague personality reviews.

Elliott notes that it’s not always necessary to start from scratch, either. Many companies begin by adapting a generic model, like the SHL Universal Competency Framework, then tailor it to reflect their own needs.  

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How to Implement Competency-Based Performance Management 

Ready to get started building your own competency framework? Here’s how to do it, step by step.

Step 1: Define your objectives

Get clear on why you're overhauling your performance management program in the first place. 

Do you want to improve employee development? Create consistency across performance reviews? Support better promotions and career paths? 

Your goals will shape your framework and help you get leadership buy-in from day one.

Next actions:

• Hold discovery sessions with HR, execs, and department leads
• Identify specific business needs (e.g. stronger leadership pipeline, cultural alignment)
• Document your objectives and define what success looks like

Step 2: Get stakeholder buy-in

A great framework is useless if nobody uses it. You need department heads, managers, and executive sponsors on board. 

Start by listening. Focus on how the lack of a consistent performance framework is currently impacting them. For example:

• Managers might be feeling swamped by unstructured performance reviews 
• Executives might be more concerned about team underperformance
• Sales leaders might be struggling to ramp new hires without guidelines on what makes a good rep.

Then show how the new system can solve those problems, with concrete examples.

Next actions:

• Present your objectives and early ideas to key stakeholders
• Share use cases that demonstrate real impact (e.g. reducing bias, improving internal mobility)
• Secure support to pilot the framework with selected teams

Step 3: Identify key roles and career paths

Don’t start with every role in the company. Focus first on the most critical or common job families, which are usually where performance management gaps are most obvious. 

From there, map out how people grow within those roles. For example, at Toggl, the People Ops career path goes from Assistant, to Specialist, to Manager, to Senior Manager. 

Next actions:

• Decide on the high-impact roles or job families to start with (e.g. customer success, engineering, product)
• Map typical career paths within each function
• Note key transition points, like IC to manager or junior to senior.

Step 4: Conduct job analysis and gather input

Now it’s time to dig into what high performance actually looks like. You can do this by talking to top performers, their managers, and cross-functional partners.

Review job descriptions, feedback trends, and performance data. Remember that you’re looking for skills and behaviors, not just outputs.  

Next actions:

• Interview 3–5 high performers per role
• Ask managers what sets their top people apart
• Document behaviors, not just responsibilities, for each key role
  

Step 5: Build your competency framework

Group your findings into a focused set of competencies. Many companies use a mix of:

• Core competencies (e.g. communication, accountability — for everyone)
• Leadership competencies (e.g. strategic thinking, developing others — for managers)
• Role-specific competencies (e.g. product knowledge for sales, quality assurance for engineers).

For each competency, write a short definition and link it to your business goals. For example: 

Step 6: Add behavioral indicators for each level

For every competency, describe what it looks like at different levels, from entry-level ICs to senior leaders. 

These indicators help managers give clearer feedback and make growth expectations explicit.

Example (Leadership):

• IC Level 3: Shares knowledge and supports peers
• IC Level 4: Mentors others and leads small initiatives
• IC Level 5: Shapes team strategy and builds cross-functional alignment
  

Next actions:

• Create 3–5 behavioral indicators per level per competency
• Test them with real examples from your teams
• Get feedback from managers and employees to be sure they’re usable
  

Step 7: Integrate into performance and development systems

A framework only works if it’s built into the systems managers already use, like performance reviews, goal-setting templates, and development plans. Make it part of the process, not an extra task.

Next actions:

• Update review templates to include competencies alongside outcomes
• Set up a rating scale 
• Update your performance management software to reflect the new approach.  

Step 8: Train and communicate

Make sure managers and employees understand the purpose of your new system, as well as the structure and how it benefits them.  

Next actions:

• Run training sessions and build reference toolkits
• Share internal comms (emails, slides, intranet posts) that explain the “why”
• Use real examples to make it relatable and practical

Step 9: Link to learning and development

Your framework should feed directly into development plans. For example, if someone scores poorly on “cross-functional collaboration,” their learning plan should help them improve that behavior. 

Next actions:

• Partner with L&D to map learning resources to each competency
• Build suggested learning paths tied to review outcomes
• Encourage employees to set goals based on their feedback

Step 10: Review 

This isn’t a one-and-done project. Your framework must evolve as your company grows, and competencies will need to be updated regularly. 

Next actions:

• Survey managers and employees after each review cycle
• Analyze usage and patterns in review data
• Run annual retrospectives with stakeholders to refine and improve

Competency-Based Performance Management: 7 Best Practices

We asked our experts for their tips on how to implement CBPM, and the pitfalls to watch out for. Here are their top seven tips:

1. Don’t build it if you’re not going to use it 

“Only build a competency framework if you plan to use it properly,” warns Elliott. Too many businesses implement CBPM “just for the sake of it.” This is a massive waste of everyone’s time: 

“If you create a framework because it feels like something you should have, but it’s full of vague labels like ‘team player’ or ‘good communicator’ and no one uses it, it quickly becomes meaningless. People won’t know what’s expected, managers won’t know how to assess fairly, and the whole thing ends up being ignored.” 

Instead, embed your competency framework across your People program, from recruitment to onboarding, from development to promotion. “This brings consistency to how decisions are made and makes expectations clearer for everyone.” 

2. Keep it up to date

Elliott also points out, “Like anything else in a business, frameworks need maintenance. As roles evolve, the framework should evolve too. If it’s not updated regularly, it quickly stops reflecting the reality of how people work, is no longer useful and starts getting ignored.” 

So, how often do you need to update your framework? West Duffy suggests, “Organizations should update competency frameworks every two to three years as needed, to align with organizational changes.”

3. Describe actions, not traits 

Make sure to keep your competencies linked to behaviors, not vague traits, cautions Elliott: 

“‘Collaboration’, for example, becomes much more useful when it’s broken down into behaviours like ‘shares relevant information’, ‘asks others for input’, or ‘builds on teammates ideas’.

This kind of clarity makes it easier for managers to assess performance and for employees to understand what’s expected.”

4. Tie to performance, not just potential

There’s a real risk that basing performance management on competencies means that you only focus on an employee’s potential, rather than on how they’re actually performing. 

For example, just because someone is a competent communicator does not mean that they are currently using those skills in their day-to-day work.

This is a fair concern, says Elliott. “It usually comes down to how the framework is written. You need to be careful that you're not  drifting into potential rather than performance. That’s where bias can slip in. But a well-built competency framework avoids that by focusing on specific behaviours—things you can actually see someone doing.” 

5. Involve employees where possible 

“A little consultation upfront can go a long way in building trust, getting buy-in and making the language feel relevant,” advises Elliott. 

“Check the framework makes sense to the people who’ll actually use it and be open to feedback. Some organizations build in space for teams to suggest additional competencies that reflect their specific work.” 

6. Support managers with comprehensive training

Managers will be the ones using your new framework—and a lack of training can seriously undermine the new approach.

“Without clear behavioural definitions, practical examples and proper training, consistency goes out the window and trust in the process disappears,” says Elliott.

Instead, offer managers thorough training in the process, as well as clear documentation on how to use it. You might also want to run calibration sessions where managers compare notes on how they’re applying the framework. That way, you can catch any inconsistencies early. 

7. Don’t use it as a replacement for job descriptions

Competencies frameworks provide an overview of what we expect of an individual at each level within a given team or role,” says West Duffy. “However, they are not a replacement for job descriptions. Job descriptions should be more in depth, and are easier to update on an ongoing basis as jobs and roles change.”

Competency-based performance management isn’t a silver bullet. But, implemented thoughtfully, it can bring much-needed clarity, fairness, and structure to how your organization develops its people.

Done right, CBPM won’t just improve your performance reviews. It will give you a shared language for growth, and help every employee understand what great looks like.

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