Feedback from WorldatWork 2012Matthew Melville

TFG

26 July 2012

Highlights!

• Performance Pay Focus• Microsoft: A Simplified and

Transparent Approach to Performance Management and

Highlights

Performance Management and Rewards

• Aon Hewitt: Why Can’t (Won’t) We Differentiate? – Ken Abosch

• TFG Lifecycle

• An “Instant Business Case”

• Practical look at REAL reasons

(Sins checklist...)

Why This Session?

(Sins checklist...)

• Practical Solutions

• Key: What is Reward’s most important function?

Introduction

A few notes, attributions,

disclaimers, etc....

� Graphs and some slides – Ken Abosch, Aon Hewitt

� Recognising performance – variable pay vs. merit / salary increases/ salary increases

“We aim to pay people RANDOMLY!”

“We want to spread pay across everyone evenly, regardless of

performance!”

HR’s role is to:

•Create focus on•Recognise Achievement of•Reward the drivers of•Reward the drivers of

Organisational Performance

-Ken Abosch, Aon Hewitt

“The Sorting Effect”

� High Performers attracted attracted to companies that pay for performance and recognise their contributions

� High performers leave companies that don’t� High performers leave companies that don’t

� Low performers will self select out of companies that do differentiate

� Low Performers will stay in environments that don’t recognise performance

Ideal vs. RealityIdeal vs. Reality

The Obstacles to

Differentiated

Reward

Primary Obstacles to

Performance

Differentiation

� Insufficient funding – especially Base Pay

� Skewed performance distributions – “85% are outstanding!”

� “Only strong ones are left!”

� Unrealistic employee expectations – no-one told them...

� Managers lack skills

� Affinity to “take care of” all levels of performance

� Audience:

� Doing more with less...

� A middle-rating is demotivating

Looked at another way... A

Diagnostic Triangle

Ability

• Selection of managers

• Training

• “Quality Conversations” vs. Placation

• Consequences x 2

Source: Adapted from Compensation 10th Edition, Milkovich, Newman & Gerhart

MotivationEnvironment

• Consequences x 2

• “Middle Management”

• Expectations

• Economics

FundingFunding

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The

Impact of

Skewed

Distributions

Skewed Performance

DistributionsDesired Performance Actual Performance

Exceeds Most 10% 25%55%

Exceeds Some 20% 30%

Percent of Employees

Percent of Employees

Meets All 50% 40% 95%

Meets Some 15% 5%

Does Not Meet 5% 0%

Skewed Performance

DistributionsDesired Performance Actual Performance

Exceeds Most 10% 25%55%

Exceeds Some 20% 30%

Percent of Employees

Percent of Employees

Meets All 50% 40% 95%

Meets Some 15% 5%

Does Not Meet 5% 0%

The Impact of Skewed

Performance

Skewed Performance

Distributions: Actual Example

The Business Case -

Economics

The Business Case for Differentiated

Rewards

• Economic value > Salary Cost

• If we don’t pay them for their

Source: Michael C. Sturman, Evaluating the Utility of Performance Based Pay, Personnel Psychology, 2003

for their value, they will “Sort” right out of there...

Scenarios

Scenarios

Base Pay or Variable Pay?

Base Pay or Variable Pay?

Scenarios

Base Pay or Variable Pay?

Base Pay or Variable Pay?

Scenarios

Base Pay or Variable Pay?

Base Pay or Variable Pay?

Scenarios

Base Pay or Variable Pay?

Base Pay or Variable Pay?

A Sporty

Research Study

Hot Off the Press

Research Study

� High pay dispersion strongly connected to strong performance yields:

� Higher team / organizational results� High retention� High attraction

� BUT: � BUT: high dispersion in pay must be explainable by productivity and results

� High pay dispersion = higher proportion of high performers

� Focus must be on pay equity – not pay equality

Source: Charlie O. Trevor, Reconsidering Pay Dispersion’s Effect on the Performance of Independent Work, Academy of Management Journal, Forthcoming

So What?

� 85% more high performers stayed vs. low dispersion

� 80% more were there the next year

� High Pay Dispersion

� Explained Pay Dispersion

year

� 60% High Performers went to.....

High explained pay dispersion

Source: Charlie O. Trevor, Reconsidering Pay Dispersion’s Effect on the Performance of Independent Work, Academy of Management Journal, Forthcoming

� “The Sorting Effect”

Some Solutions

Possible Solutions and

Approaches

Design

� Carve outs� Automatic zeros� Lump-sum merits

� Targeted range

Execution

� Manager selection� Manager training� Manager accountability� Focus rewards on best

performers� Targeted range penetration through market adjustments

� Individual performance –based variable pay

� Independent bonus pool – top performers

� Multiple bonus plans – differing focus

performers� Insist on differentiated

performance distribution

� Extend the definition of reward to include total rewards

Illustration : Carve Out

Illustration : Carve Out

Illustration : Lump-Sum Merit

Illustration : Lump-Sum Merit

Illustration : Lump-Sum Merit

Note : A reduction in salary increase cost translat es to greater future funding opportunity and more flexibility – enables aggressive range placement changes

Illustration : Targeted Range Penetration

Improved Execution for Differentiated

Rewards

- Manager Selection- Manager Training- Manager Assessment

and Reward- Employee Feedback

- Selection / Sourcing- Training & Development- Performance Measurement- Recognition & Rewards

“The Engineer Manager” and “Managing the Engine”

The Logic

� Very few CEO’s target company performance in the “middle of the pack”

� The “Sorting Effect”

� If all our employees are average – how will we outperform the competition?

“Pay Equity

vs. Pay

Equality”

Some Practical Tips for

WorldatWork 2013...

WorldatWork 2013? Practical

Tips...

•Travel Friday – latest

• Attend everything!

• 2 Attendees• 2 Attendees

• “Fall-back” planning

• Be prepared to “walk!”

Close and Questions