Competencies are measurable clusters of knowledge, skills, and abilities (KSAs) that are critical in determining how results will be achieved. We can consider two types of competencies. First, differentiating competencies are those that allow us to distinguish between average and superior performers. Second, threshold competencies are those that everyone needs to display to do the job to a minimally adequate standard.

Competencies should be defined in behavioral terms. To understand the extent to which an employee possesses a competency, we measure indicators. Each indicator is an observable behavior that gives us information regarding the competency in question. In contrast to the measurement of results, the measurement of competencies is intrinsically judgmental. In other words, competencies are measured using data provided by individuals who make a judgment regarding the extent to which the competency is present.

Two types of systems are used to evaluate competencies: comparative systems and absolute systems. Comparative systems base the measurement on comparing employees with one other. Absolute systems base the measurement on comparing employees with a prespecified performance standard.