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Apex ConsultingPay for Performance Program
Presented by: The RentsChristine Gilliam
Preeti ParthasarathyNidal Khaznadar
April 16, 2014
What is a PFP System?
PFP is a compensation model that offers financial rewards to employees who meet or exceed specific, pre-set targets
PFP is about the whole notion of differentiation
PFP is a motivation tool
Advantages of PFP systems
Eliminate a culture of entitlement Create healthy competition in work environment Motivate employees to work harder towards common goals Build fairness and equity into total rewards system Urge managers to communicate effectively and provide
feedback Improve retention Motivate future performance
Components of PFP
Detailed job design and job descriptions Clear expectations SMART goals Ongoing communication Tangible rewards
Types of Rewards under PFP
Component RewardFixed Base Pay
Variable Performance Bonus Spot bonusStock bonusEmployee stock options (ESOPs)Gain/profit sharing
Other Incentives Referral bonusSigning bonusTechnology reimbursement
Survey of PFP programs
Source: SIBSON Consulting – 2010 Survey
Best Practices: Example 1
Tool Reward
Base Pay Increase
0% increase for Poor performance 3% increase for Good performance 5% increase for Very Good performance 8% increase for Outstanding performance
Annual Bonus(1 year exp.)
No Bonus for Poor performance 5% of salary for Good performance 10% of salary for Very Good performance 15% of salary for Outstanding performance
Employee Stock Option Plan(1 year exp.)
No stock options for Poor performance Up to 4% of salary for Good performance Up to 8% of salary for Very Good performance Up to 10% of salary for Outstanding performance
Best Practices: Example 2
Tool Reward
Base Pay Increase
0% increase for Poor performance 3% increase for Good performance 5% increase for Very Good performance 8% increase for Outstanding performance
Profit Sharing(1 year exp.)
0% of salary for Poor performance Up to 4% of salary for Good performance Up to 8% of salary for Very Good performance Up to 10% of salary for Outstanding performance
Spot Bonus $100-$2,500 based on nature of extraordinary performance and level/grade
Recommendation
Annual Base Salary Adjustment Merit Pool
• 5% Merit pool • Allocated % based on APRs
Bonus Awards 3% Bonus pool Spot awards for staff Bonus structure for management
• Employee Stock bonus plan• Cash bonus
Overview of each component
Merit Increase Program Merit Allocation
• Performance criteria set annually by unit leaders and tied to unit goals
• Eligibility criteria: All employees with more than 6 months of service• Amount will range from 0-10% and will tie to overall annual
performance rating• Units will be allocated a merit budget based on 5% of the aggregate employees’ current base salary in each respective unit
Overview of each component
Bonus Programs Spot Bonus Program
• Awards based on meeting unit specific performance criteria• Performance criteria set annually by unit leaders and tie to unit
goals and represent employee contributions to special projects, client services, resourcefulness and creating efficiencies
• Performance must be extraordinary• Eligibility criteria: Staff positions, cannot be awarded within 12
month period• Amount can range from $100-$2,500• Short-term employee incentive
Overview of each component
Management Bonus Program Eligibility Criteria
• Unit must meet performance (budget efficiency)• Awards based on meeting unit specific employee performance • Management positions, employee with more than 1 year of
service, annual performance review score of above average Cash Bonus Program
• Amount awarded based on corresponding merit award allocation• Amount will represent 2/3 of total annual bonus award• Short-term Incentive
Employee Stock Bonus Program• Amount awarded 1/3 of total annual bonus award• Long-term Incentive
Organization Implications
Area of Impact Implications
Financial Implications(500 employees)
5% merit on $15 million comp budget equals $750,000 3% merit to bonus Permanent compensation increase of $750,000 Annual costs for bonus plan $450,000 funded by units
(may be less if units perform poorly)
Training and Development
Assist unit leaders in developing unit specific criteria for unit performance and measurement that cascade down from company vision and mission
Assist unit leaders on how to develop individual performance goals that tie to unit goals
Training for managers on how to conduct effective performance reviews
Communication Plan Annual Evaluation Planning starts early and incorporates annual goal setting
Expected outcomes
Component Relationship impact & long term benefits
Short-term gains Employees will be incentivized to meet performance goals Creating an link between performance metrics and rewards
helps employees meet performance objectives
Long-term gains Performance evaluations are linked to performance objectives and business goals creating a sense of purpose
Employees feel that their performance is rewarded and remain engaged
Employees stay connected with company mission and vision
Organization commitment to rewarding employees creates an environment that produces excellent performance results
References
Sibson Consulting P4P Study - Strategic HR Consulting, Fall 2010.
GAO Symposium “Symposium on Designing and Managing Market-Based and More Performance-Oriented Pay Systems”, IBM presentation, U.S. GAO Report - Human Capital, July 2005.
https://www.shrm.org/hrdisciplines/compensation/Articles/Pages/EffectivePfP.aspx
http://www.shrm.org/hrdisciplines/compensation/Articles/Pages/Short-Term-Incentives-Up.aspx
http://www.shrm.org/hrdisciplines/compensation/Articles/Pages/Productivity.aspx
https://www.worldatwork.org/home/html/home.jsp
https://www.youtube.com/watch?v=NTtCAyBe6Ak
http://www.sec.gov/answers/empopt.htm
COMPENSATION ROUNDTABLER “10 insights on Pay for Performance” www.cr.executiveboard.com, 2010.
COMPENSATION ROUNDTABLER “Creating a Pay for Performance System, Driving employee performance with better linkage with pay.” www.cr.executiveboard.com, 2010.
Presentation by Stacey Carroll, “Should your company pay for performance” www.cr.executiveboard.com, 2010.