Driving high performance

Driving high performance Towers Watson s Spring Conference Performance Management: Art or science Phil Merrell and Jim Crawley 12 March 2014

Performance Management

Let s remind ourselves what it is - The Performance Management Cycle Aligning performance expectations with business goals Identifying what each role contributes to the organisation Setting personal and unit objectives Development planning Organisation planning Assessment Performance Planning Progress and Planning Reviews Reward Coaching Performance & Feedback Year-End Coaching Evaluations and and Reward Feedback Decisions Monitoring and tracking performance Providing/soliciting ongoing feedback and guidance Replanning goals as needed Effective coaching, reinforcement and feedback Reviewing and rating performance Discussing performance ratings and pay implications Rewarding high performance and addressing poor performance Special recognition Preparing for the next performance management cycle 3

Performance management the Towers Watson point of view Professional Competencies Technical Competencies KPIs Role Profile Performance Management Reward Decisions Performance Evaluation Development Plans Training Needs Succession Planning Promotion/ Progression Exit Management Performance management is both the primary process through which your performance expectations are communicated to employees as well as the major driver of a series of HR decisions 4

The impact of getting it right

The impact of getting it right #1 Communication Leadership Competitiveness Image Pay & Benefits Career development Customer focus Performance management Training Engagement Working relationships Goals & objectives Diversity Work, tools and conditions Stress, balance and workload Empowerment Supervision Job satisfaction Operating efficiency 2 2 5 5 6 6 6 6 6 6 7 7 7 7 8 9 9 9 11 Global high performance companies perform better on performance management than Average Companies * * Global average based on per cent favourable scores from the following nine countries: US, Canada, Brazil, UK, France, Germany, Australia, Singapore and China. 6

The impact of getting it right #2 High-performing organisations focus on pay for performance because they know it affects employee engagement and behaviour Pay Pay and Line of Sight Pay, Line of Sight, Empowerment 22% 35% 50% Research of high-performing companies indicates employee engagement increases when: Base pay and short-term performance programme pay are tied to individual performance (i.e. Pay) Percent Positive Impact on Engagement Managers/supervisors provide clear goals and direction and help employees understand how they impact company success (i.e. Pay and Line of Sight) Managers/supervisors provide employees with appropriate decision-making authority and the resources they need to perform high-quality work (i.e. Pay, Line of Sight and Empowerment) 7

The impact for individuals... I understand my role clearly. Therefore, I am able to manage my performance better and contribute to corporate performance We are more engaged and more committed in our job and to our organization Customer Service Incentives MEASURE WEIGHT PERFORMANCE PAYOUT Clear Check out Line of 30% of Sight to to Strategic Objectives RM550 Efficiency Service Quality Customer 50% RM700 Wait Time 20% RM150 I get meaningful reward for my performance Target RM1,400 8

The impact for managers... KPIs A B C D CORPORATE KPIs A B C D DIVISION From corporate KPIs, I can identify my division s KPIs and work towards achieving my division s performance goals through my people I can easily identify what my subordinates need to achieve and manage their performance better I am able to identify my subordinates development needs 9

The impact for the organisation... Increase employee engagement Improve corporate performance Retain talent at all levels Improve customer satisfaction Link rewards and performance Create a high performance culture Increase employee productivity 10

What might go wrong?

What might go wrong #1 Complex system Design What and how of performance Number and nature of goals Sources of performance data Performance categories Rating scales Link to the business Clear accountabilities Goal cascade Line of sight Target vs stretch Goal calibration Measurement and evaluation Segmentation Approach to rating Performance calibration Evaluation process Rating distribution Link to reward Reward strategy Reward differentiation Base pay / bonus policy Pay structures Link to talent Training needs analysis Learning and development plans Succession planning Promotion and progression Workforce planning Process Role definition and responsibilities Performance management cycle Training Communications Technology 12

Companies struggle on performance management How effective is your organisation's performance management process in the following areas? Using technology to deliver performance management programs 38% 21% 41% Communicating expectations for organizational performance 24% 3 4 Incorporating competencies into the performance management process 37% 27% 36% Incorporating career development into the performance management process 47% 29% 24% Differentiating pay based on performance even for employees who receive the same performance rating 41% 30% 29% Linking bonus payouts to organisational performance results 15% 16% 70% Linking bonus payouts to individual performance results 32% 20% 48% Linking salary increases to individual performance results 27% 26% 47% Creating a high performance culture 25% 36% 39% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Not effective/slightly effective Somewhat effective Very/moderately effective Source: Towers Watson Talent Management & Reward Research 13

What might go wrong #2 Complex process We have performance reviews, but they don t really mean anything because everyone gets a satisfactory rating. All of my people are stars I don t have any 3 s. People know what they need to do; managers don t have time for performance management. My spot check review of the objectives told me they are not stretching I m exaggerating slightly but it was basically just turn up for work sort of stuff. My manager sets my goals too high, making them impossible to achieve. So why try? 14

What might go wrong #3 - Manager capability Giving feedback and having difficult conversations Sticking to the what Spans of control Embracing the need

Companies are very dependent on managers if the performance management process is to be effective How effective are the managers in your organisation in the following aspects of performance management? Differentiating performance between high and low performers 30% 30% 41% Utilising performance results to determine development plans 4 38% 19% Fairly reflecting overall performance in the employee's final performance rating 2 37% 40% Conducting career development discussions as part of the performance management process 46% 34% 20% Giving employees regular coaching and feedback on their performance 37% 42% 21% Working with employees to set appropriate performance goals for individual performance 2 41% 36% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Not effective/slightly effective Somewhat effective Very/moderately effective Source: Towers Watson Talent Management & Reward Research 16

What might go wrong #4 Organisation mismatch Culture gap Simple process v complex organisation Broken golden thread

Performance Management trends

Five key trends affecting performance management Increasing use of technology Employee segmentation Employee role Crowdsourced feedback Increasing analytics 19

Performance management trends Increasing use of technology Top HR Service Delivery Issues (Top Three Frequency) Talent/performance systems 20% 1 8% Upgrade HRMS 1 4% New HRMS More involvement in strategic business-driven issues Streamline processes/systems Recruiting/staffing services/systems 10% 8% 7% 7% 2% 1% 8% 9% 9% 6% 9% 11% First Second Third Cost 5% 2% 4% Training 4% 6% 5% Systems integration 4% 6% 4% Accuracy of data 4% 5% 4% Compensation/benefit services/systems 8% 7% Reporting/analytics 7% 9% Payroll/time management services/systems Manager self-service Define human capital metrics and dashboards Employee self-service HR Web site/usability 1% 6% 5% 4% 6% 1% 2% 5% 5% 8% Talent/performance management systems are top HR service delivery issues Source: Towers Watson s 2011 HRSD Survey. 20

Top HR Service Delivery Issues by Frequency Implement a new HRMS 1 5% 4% Talent/Performance management systems 11% 1 10% More involvement in strategic business-driven issues 10% 8% 6% Streamline business processes 9% 9% 1 Recruiting/Staffing services/systems 9% 6% 6% Accuracy of data 8% 6% 4% Cost reduction related to HR administration 7% 7% Improve line managers' people management capabilities 5% 6% 5% Outsourced activities previously handled internally 4% 1% 2% Training for HR staff Compensation services/systems Define/Deploy human capital metrics and dashboards Upgrade HRMS to a new version/release 6% 6% 4% 2% 2% 6% 5% 7% First mentioned Second mentioned Third mentioned Payroll/Time management services/systems 2% 5% 2% Deploy manager self-service (MSS) functionality 2% 2% HR website/usability 2% 2% Systems integration 1% 7% 5% Introduce standard workforce planning processes and tools 1% 4% 2% Brought back services previously outsourced to a vendor 1% 1% Utilize additional HRMS modules 4% 2% Enable mobile access to HR self-service applications 1% 1% Other 2% 1% 2% (n = 176) 21

Control Over Results Control Over Results Performance management trends Employee segmentation Segmenting the Workforce ILLUSTRATIVE High Low Individual performance, though identifiable, is less clearly linked to corporate results Performance criteria are objective and measurable, but may be difficult to link to value Individual performance is not easily identified or linked to corporate results Objective and measurable performance criteria are limited and not linked to value Clear linkage between individual performance and corporate results Performance criteria are objective and measurable, with a clear value linkage Clear linkage between team or group performance and corporate results Performance criteria are objective and measurable, with a clear value linkage High Low Tellers Facilities Asset/Liability Management Call Centers IT Relationship Managers Managers Asset Mgmt Line Management Credit Training Marketing Low Impact on Profitability High Low Impact on Profitability High Customized Rewards and Performance Management Standard Rewards and Performance Management 22

Performance management trends Redefining the employee role Client example Module Status Timing Ownership Goal Setting Career development review Mandatory/Prescribed Process Mandatory/Variable Process Manager Employee Start of performance year Joint Joint Mid year Secondary Primary Performance assessment and evaluation Mandatory/Prescribed Process End of performance year Primary Secondary 23

Performance management trends Crowdsourced feedback Using social media to: Build a record of specific instances of performance ( recognition moments ) Harnessing the wisdom of crowds to generate multiple sources of feedback Provide continuous real-time feedback to employee, manager and HR Support the performance management process with efficient use of technology Social recognition democratises performance management. Daily activities have eyewitnesses who see successful work because it affects them.. To democratise performance recognition is to give everyone a stake in performance improvement The Crowdsourced Performance Review Eric Mosley 24

Performance management trends Increasing use of analytics Some organizations use a Value Tree Analysis to break-down high-level business drivers into lower level metrics Total Shareholder Return ILLUSTRATIVE FROM PRINTING INDUSTRY Revenue Growth 10% EVA Improvement 6.0 EBITDA Multiple Reallocating Capital Spending Superior Customer Satisfaction Continuous Improvements (COGS %) Lowering SG & A % of Revenue Building the Brand Service Distinctiveness People Investments High-Growth Business Units Improving Asset Utilization Rationalizing Asset Base Managing the Portfolio New Product/ Service Offerings PRINTING GROUP Stock Repurchases Schedule Integrity Cycle Time Inventory Management Reliability Efficiency in Customer Transactions 25

Performance management trends Increasing use of analytics and use this analysis to align goals to business priorities: ILLUSTRATIVE FROM PRINTING INDUSTRY Business Driver First Level Metric Sub-Metrics What Your Group/ Team Can Do What You Can Do Individual/ Team Goals Competencies Productivity Quality Assurance Focus on printing plant Material Yield Be attentive to Material Yield for largest manufacturing line Keep daily accurate records of material yields for largest manufacturing line Problem Solving Communication Prioritization Operational Efficiency Capacity Management Identify and share reasons for yield problems with production staff every Monday morning via department meeting Order Entry Time Improve material yield by 5% over last year s number Process Cycle Time Delivery Time Response Time Focus on overall responsiveness and attention to meeting customer solutions Understand customer needs and become knowledgeable about product lines you are responsible for delivering Reduce total delivery time by 5% over last year s number Improve committed ship date metric from 92% to 94% 26