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I presented this topic at the Global HR conference in Milan, 2010. Employee engagement has a significant impact on an organisation bottom line. After a quick case study of a deployment of a new performance management system, I cover how HR can improve employee engagement through performance management and pay-for-performance activities, especially supporting line managers as they have the most direct impact on their teams' perceptions - and therefore on employee engagement.
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LINKING PERFORMANCE MANAGEMENT AND PAY-FOR-PERFORMANCE
Sandrine Bardot – CompensationInsider.com
The world is changing
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Up, down and back up
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Walls are crumbling
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Agenda
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Quick case study Tips for implementing a Pay-for-
Performance system Potential risks Enablers Bad PFP leads to disengagement Drivers of employee commitment
Tips series 1 : technical aspects of system design Tips series 2 : formal company communication Tips series 3 : the role of managers
Additional resources
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Case study
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Why did we do it ?
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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
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The system
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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...)
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Outcomes
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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
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What worked... and what didn’t
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
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Positive Negative
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Tips for implementing PFP
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Potential risks
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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
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Enablers
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Top leadership buy-in is a must 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
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Bad PFP leads to disengagement
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2/3 of employees are unhappy with how pay-for-performance 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)
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Influencers of employee commitment
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Formal plan communication Manager communication
How organisations pay How organisations communicate about pay
Incentive satisfaction Process fairness perception
Actual fairness of pay distribution
Employee commitment
Discretionary effort - Impact on company results
64%
57% higher vs effort of strongly not committed
48%22%
Source : CLC
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Tips 1 - Design aspects
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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 ?
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Tips 1 - PFP is a continuum
Forced distribution
Guided distribution
Uncontrolled ratingsNo rating
Position in SR irrelevant
>2x, within salary range
1.5 to 2 x average
No differentiation
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Small increase for 2d lowest ratingNo increaseSmall
payment
Ratings
High performers
Low performers
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Tips 1- Support distribution fairness
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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 ?
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Tips 2 – Communication of results
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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
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Tips 3 - The role of managers
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Extract from the “10 manager drivers to improve engagement list” from CLC study, 2009 1. 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
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Tips 3 -What’s in it for me as manager
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Outcomes of good performance mgt
Benefits
Manager and employee problem-solve together
Non confrontational resolution of issues
Identify which employees : - can benefit from job training - to develop for greater responsibilities
Motivated employees with the right skills to perform the jobIf you’re not replaceable, you’re not promotable
Help each employee to understand his/her contribution to company success
Increased motivation and discretionary effort
Identify performance problems early on
They don’t grow too large to be handled
Remove barriers to performance that are not under employee control
Better productivity
Documentation for disciplinary action
Protection from unjustified legal action
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Tips 3 - Beyond “the form”
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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)
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Additional resources
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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
?
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And a final reminder….
© Jim Davis
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Thank you !
Sandrine BardotConsultant, trainer, speaker, blogger
+971 566 172 [email protected]
240+ free articles on C&B !Subscribe at :
http://CompensationInsider.com
Check my profile on LinkedIn for Recommendations, Expertise and
free presentations.
Twitter : @CompInsider© 2013
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