What companies pay for: the strategic role of employee competencies

Abstract

Individual competencies are defined as the set of knowledge, skills and abilities that the employees possess and apply in their jobs. The purpose of this paper is to analyse to what extent different strategies require a diverse set of individual competencies and which compensation systems may incentive employees to acquire the desirable competencies for each strategic option. We carried out an analysis in a sample of manufacturing firms using structural equations models. Our findings suggested that prospectors make more emphasis than defenders on competencies as innovation, technical expertise, adaptability, customer orientation and results orientation and also that skill-based pay and performance-based pay are associated with different competencies. Therefore, the compensation systems strengthen the strategic option of a company by fostering the necessary competencies for its development.