7. Competence pay

Equal pay in practice checklist 7

What is competence pay?

Competence pay relates grading and rewards to the achievement of defined levels of competence. It is usually based on descriptions of expected or desired skills and behaviour that are used to show employees what is expected of them to perform satisfactorily in their jobs. These descriptions tell the employees what they need to know, what they need to do, and how they need to do it.

There are two main ways of measuring competence levels and achievements. The first is where the relative values of competences are allocated into grades or job families. This means the same behaviour is rewarded differently at different levels, for example, a switchboard operator would receive a lower reward for ‘dealing with customers on the telephone’ than the telephone sales employee.

The second is by relating pay progression to competence levels, or to competence and performance, in achieving objectives, usually by means of some form of performance management process. This means managers assessing an individual against a set of competencies and then progressing them through the pay scale or band. As there is every reason to expect, for example, women to be as competent as men, and people from different ethnic groups to be equally competent, competence based pay can help you to deliver equal pay.

How do you find out if there is a problem?

You need to look at your guidance and instructions relating to competence and its assessment. You will also need to analyse competence assessments and payments by grade and by gender, and by ethnicity and on other protected grounds. These will enable you to answer the following questions:


  • Are all groups of employees included in the competence based pay system? In particular, are part-timers, temporary or casual staff, those on maternity or career breaks, or any group that is likely to be predominantly, for example, female or from a particular ethnic minority group, included?
  • Does the same competence based pay system apply to different groups of employees doing equal work?
  • Do all employees have equal access to opportunities to develop the desired competencies? For example, do part-timers, women on maternity leave, young and older workers; those with disabilities have equal access?


  • Does the distribution of competence assessments show that there may be gender bias between male and female employees or other forms of bias within each grade?
  • Is the distribution of competence payments broadly similar as between male and female employees and other protected groups within each grade?
  •  In a scheme where competence payments are consolidated, do all employees doing equal work achieve equal earnings over time?
  •  In a scheme where competence payments are not consolidated are the average and distribution of such payments similar as between all groups doing equal work?
  • Can any pay differences attributable to competence payments between men and women, white and minority ethnic employees, disabled and non-disabled, or from different age groups or contractual status doing equal work be objectively justified?
  •  Is the treatment of non-consolidated competence payments for pension purposes the same or similar for all employees doing equal work?

An example

Matthew and Seema both started at Company S as new graduates with the same class of degree from the same university. Seema went into the marketing department while Matthew went into production. They started on the same salary but progression up the pay scale was based on competencies achieved. The line manager assessed these. Matthew ‘got on’ with his line Manager and, after 2 years, had increased his salary by 10% by being assessed as 'very competent' against set criteria. Seema's line Manager assumed Asian women were quiet and not suited to marketing and, based on that stereotypical assumption, assessed her as 'competent' against an equivalent set of criteria. After two years Seema was already 5% behind Matthew in pay. 

What lies behind the differences?

The answers to following questions can help you find out what lies behind any differences in women and men achieving competency based pay. As well as looking at differences between man and women remember to think of other aspects of equality such as race, disability and age.

  • Have the criteria/objectives rewarded by the competence appraisal scheme been checked for sex and other forms of bias and can they be objectively justified?
  • Are competence criteria which may favour attributes and roles perceived to be 'male' (e.g. assertiveness, leadership, decision making skills) or 'female' (e.g. co-operation, consultation, nurturing) included in a balanced way?
  •  Do the competence criteria avoid any which could be indirectly discriminatory, for example those related to attendance or flexibility in hours of work?

What else do you need to be aware of?

A competency-based pay system can be a sophisticated method of reward. It can be an aid to transparency; it is flexible and allows for personal development but because of its sophistication, particular care needs to be taken over its design and implementation, and regular monitoring is essential. Issues of particular concern include:

  • Groups of workers being excluded from competence based pay
  • Applying different competence based pay systems to different groups of employees 
  • Adopting competence criteria which are potentially indirectly discriminatory, for example, by being more characteristic of 'male' than 'female' behaviour .


Consider what training is needed.

You will need to ensure that all those involved in the design and development of competence appraisal schemes, as well as in their implementation, have been trained in gender awareness and the avoidance of sex and other forms of bias.

Consider how competence is defined.

Competences should be clearly defined and measurable with desired outcomes attached. You may wish to link competences to recognised standards such as NVQ's that can be achieved across disciplines.

Consider what impact managerial discretion is having.

You will need to introduce clear guidelines on the exercise of discretion. The greater the degree of managerial discretion, the greater the need to ensure managers are trained in the avoidance of bias.

Provide equal access to opportunities to develop the desired competencies.

The timing and location of training and other development opportunities can be crucial to ensuring that part-time employees, employees with caring responsibilities, and women on maternity leave, are able to reach full competence. They want to do this and you need them to do so. Never assume that someone isn't interested – ask them!

Consult your employees and their workplace representatives.

They will know better than you do what the problems are and what action is needed to address them.

Introduce regular monitoring.

You should aim to ensure that objectives and payments are monitored regularly by gender and by other diversity characteristics.

Make sure that decisions on pay are properly documented.

It makes good business sense for employees to understand why they are paid as they are, but if you should ever be challenged in an employment tribunal, documentation will be essential. Properly documented decisions will enable you to explain your reasoning.

Transparency is a key feature of tackling equal pay problems.

A transparent pay system is one where employees understand not only their rate of pay but also the components of their individual pay packets. A transparent pay system avoids uncertainty and perceptions of unfairness and reduces the possibility of individual claims.

About the Equal pay in practice checklists.

Whilst every effort has been made to ensure that the advice given in this note is accurate, only the courts or tribunals can give authoritative interpretations of the law.

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