LINKING PERFORMANCE MANAGEMENT AND PAY- FOR-PERFORMANCE. Sandrine Bardot CompensationInsider.com

Transcription

1 LINKING PERFORMANCE MANAGEMENT AND PAY- FOR-PERFORMANCE Sandrine Bardot CompensationInsider.com

2 Agenda 2 Case study 1 Case study 2 Tips for implementing a Pay-for-Performance system Potential risks Enablers Bad PFP leads to disengagement Drivers of employee commitment n Tips series 1 : technical aspects of system design n Tips series 2 : formal company communication n Tips series 3 : the role of managers Additional resources

3 3 Case study 1

4 Why did we do it? 4 Old system was a mess : Process not followed by managers No impact on pay nor career management Administrative nightmare Our objectives : Introduce a pay-for-performance culture Encourage alignment between the different BUs IPO plans Share the wealth with employees Develop accountability and on-going feedback and dialogue between managers and employees

5 The system 5 Goals catalogue, year-on-year maintenance and sharing / cascading of objectives Employee self-evaluation Introduction of mid-year review Guided performance distribution curve Moderation sessions across groups Variable pool funding Direct link to individually differentiated payouts (bonus and increases) Integration with other HR systems (succession management, learning and development, payroll...)

6 Outcomes 6 93% of employee self-appraisals on time (were not mandated in the first year) 90% of manager ratings on time Thousands of employees in 14 countries reviewed for moderation of ratings in less than a month Salary increase budget was controlled Bonus payments differentiated by performance rating Reduced lead-time to pay

7 What worked... and what didn t 7 Positive Negative Great employee participation and feedback : some managers talked performance with them for the first time Easy tool and user interface made the move to technology a breeze Massive cost savings through salary increase budget control Improved succession planning and training plan Moderation sessions not very well received by managers Pay decisions not very collaborative due to the pool distribution Not enough time for training on how to give feedback No communication on the results of the appraisal round Proper pay discussions not held in many departments

8 8 Case study 2

9 The background 9 Employees rated on their performance by managers using a 5-scale model Ratings then forced by Top 3 leaders into a tercile model informing bonus and merit increases Bonus payment informed by individual performance rating only Consequences : 44% of employees were rated above expectations! Discrepancies occurred between the performance rating and the forced tercile distribution Black box culture where no-one could explain the link between the appraisal and the financial decisions (managers did not know the tercile ranking).

10 Objectives of the change 10 Develop a performance culture Align individual and organisational goals Inform contribution / performance pay decisions Secondary decision drivers : Provide the basis for personal / individual development Align individual behaviour with the values of the organisation Support the change in culture Improve organisational performance Get more involvement from employees and managers in the performance management process

11 The changes 11 Aligned 5-scale performance rating with guided quintile distribution curve and calibration sessions attended by line managers. Eliminated forced tercile as second step. Improved the link to pay for performance through incorporation of BU and company performance (weights, multipliers) and merit matrix for increases Linked performance management and talent management through competencies and individual development plans Introduced training and coaching of line managers including through an internal online portal with tools, videos etc Introduced tools for HRBPs to help them support the business throughout the process while achieving corporate requirements

12 Outcomes 12 Better budget control on increases and bonus spend Improved employee satisfaction on the topic of recognition of performance in the annual engagement survey Managers spend time at least every quarter with their employees to share feedback (documented in the system) HRBP feedback that calibration sessions are more consistent. 97% of employees submit self-appraisal vs 36% before new system 93% of managers perform appraisal within timeline Less than 5% of employee population rated outside the distribution guideline

13 Top 1 - Link of PM with the business 13 strategy Official cascade of objectives from company to unit to individual through a system of sharing goals (down, up and laterally) : making them visible assigning them to specific individuals or teams Possibility to link an individual goals in the system as contributor to the goals of the manager or peers. Additionally, each goals has to link to a broad category which is linked to the main objectives of the organisation

14 Top 2 - Addressing the role of line 14 managers Dedicated training and online portal for managers focus on the process but more importantly on tips and tricks on how to give feedback, how to handle difficult conversations, how to explain how performance management links into financial rewards Getting top leaders to endorse PM through a roadshow where the C&B team presents the philosophy and its advantages for the company and the employees in each unit. Bottom up : encouraging employees to request performance feedback from their line manager and creating a process to deal with managers who don t provide the required feedback (their performance rating links into how well they perform PM)

15 Top 3 - Evaluating the effectiveness of 15 the PM processes Created KPIs tracking both quantitative and qualitative aspects of the process, as well as the outcomes. Results tracking but also trend tracking to see if there is improvement or deterioration of the results Risk prevention and empowerment of HRBPs instead of post-event centralised control from the C&B functio through specific tracking per unit used by the HRBPs to assess potential delays or risks (eg : employee rates himself superstar and manager rates employee underperformer would always lead to a specific discussion during calibration).

16 16 Tips for implementing PFP

17 Potential risks 17 A conflict between : Employee and manager working together to improve performance (problem solving, on going, collaborative approach with accountability on both sides) And opposing interests when discussing the pay and reward impact of the performance appraisal Potentially more arguments about the appraisal results, as the financial impact makes both parties more rigid in their approach

18 Enablers 18 Top leadership buy-in is a must Line managers who are supportive and have the skills needed On-going dialogue with stakeholders for design IT systems and integration with other HR tools Time... Trial and error... Continuous monitoring Understand that each system is unique Accept that there is no perfect way to assess employee contributions accurately

19 Bad PFP leads to disengagement 19 2/3 of employees are unhappy with how pay-forperformance works at their organisation. On average, 27% of dissatisfied employees have actually reduced the amount of effort they put in at work. It s 35% for senior leaders (self-declared)! (Source : CLC)

20 Influencers of employee commitment 20 Formal plan communication 22% Manager communication 48% How organisations pay How organisations communicate about pay Incentive satisfaction Process fairness perception Actual fairness of pay distribution 64% Employee commitment 57% higher vs effort of strongly not committed Source : CLC Discretionary effort - Impact on company results

21 Dos and Don'ts reminder 21 Do Don t Educate on the Why you are introducing each change, and WIIFM explained to each category of audience. Make sure you get top leadership support or the project will die. Provide education throughout the year not just at review time. Communicate on overall performance results in the organisation. Under-estimate the role of middle and line managers they will make or break your process. Assume that because the goals and benefits of the scheme are clear to you, they will be understood, agreed and considered a priority by others. Forget that no matter what, the user interface of your PM system in IT must be ridiculously easy to understand

22 Tips 1 - Design aspects 22 Must : Align individual performance expectations with organisational goals Strong line of sight Avoid giving too many objectives focus on core Recommend : a fuller assessment of performance Results and behaviour-based (competencies) 360-degree reviews? (be careful before deciding) Consider an even number of ratings?

23 Tips 1 - PFP is a continuum 23 Ratings No rating Uncontrolled ratings Guided distribution Forced distribution High performers No differentiation 1.5 to 2 x average >2x, within salary range Position in SR irrelevant Low performers Small payment No increase Small increase for 2d lowest rating

24 Tips 1- Support distribution fairness 24 Budget or variable pool? Merit recommendations : Based on performance rating only / also include another factor like position in salary range? Discretionary / range in the cell? Aggressive / moderate differentiation between cells? Other data included? (last increase, other employees in team, bonus info...) Training and HR support How / Will you hold managers accountable?

25 Tips 2 Communication of results 25 Go beyond regular communication on tool and system Why? For fairness, accountability and prevention of abuse Decide on reasonable level of transparency : By grade, unit, job family, a combination? Average and/or minimum maximum? Communicate overall results of performance appraisal and pay decisions: Performance rating Pay increase Bonus

26 Tips 3 - The role of managers 26 Extract from the 10 manager drivers to improve engagement list from CLC study, Provide fair and accurate informal feedback 2. Emphasize employee strengths in performance reviews 3. Clarify performance expectations 6. Amplify positive employee performance traits and filter negative effects 7. Connect employees with the organizations strategy and its success 10. Demonstrate credible commitment to employee development 20134

27 Tips 3 -What s in it for me as manager 27 Outcomes of good performance mgt Manager and employee problem-solve together Identify which employees : - can benefit from job training - to develop for greater responsibilities Help each employee to understand his/ her contribution to company success Identify performance problems early on Benefits Non confrontational resolution of issues Motivated employees with the right skills to perform the job If you re not replaceable, you re not promotable Increased motivation and discretionary effort They don t grow too large to be handled Remove barriers to performance that are not under employee control Documentation for disciplinary action 2013 Better productivity Protection from unjustified legal action

28 Tips 3 - Beyond the form 28 Explain that you are developing management tools, not an HR program and not just a tool : Why and how to differentiate between employees What to discuss at a moderation meeting How to give constructive feedback How to manage poor performers How to develop individual development plans How to communicate about pay How to recognise performance (beyond pay)

29 Additional resources 29 Linking pay to performance HumanResourcesIQ podcast Pay for Performance does not always pay HBR article Helping managers talk about pay 3 tips from Corporate Executive Board survey at Bloomberg Why managers don t manage pay CMC compensation Group blog post The history of performance reviews (an infographic) Why is "soft stuff so hard really, at least to assess?

30 And a final reminder. 30 Jim Davis

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