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Performance Management and Pay for Performance. MANA 5322 Dr. Jeanne Michalski [email protected]. Performance Management . Management tool to help ensure that employees are focused on organizational priorities and operational factors that are critical to organization’s success. - PowerPoint PPT Presentation
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Performance Management and Pay for Performance
MANA 5322Dr. Jeanne [email protected]
Performance Management
Management tool to help ensure that employees are focused on organizational priorities and operational factors that are critical to organization’s success.
Key Questions to Consider When Receiving Feedback Do I understand it? Is it accurate/valid? Is it important? Do I want to change?
At its heart feedback is only information. How you choose to think and feel about the feedback will determine the value you gain from it.
Pay for Performance Requires
1. Definition of performance How are we going to measure and compare people?
2. Distribution of performance Can we distinguish high and low performers?
3. Decide the increase for each level of performance. How large a difference between high and low
performers?
An accurate, reliable, and credible performance-appraisal program is the foundation of a successful merit pay program
Training for supervisors on how to: Plan performance that links individual efforts with
business plans and strategies Measure and evaluate performance fairly and
consistently Provide feedback Use merit matrix Communicate assessment of performance and the
allocation of rewards to employees
Questions
Should low performers be paid an increase? Should average performers be paid an
increase? What about cost of living? What about existing difference in pay
distribution?
Managing a Merit Pay Plan
Simple equation – significant performance yields significant rewards
Relies on trust – needs openness and candidness Recent move is to communicate more information
about company’s compensation program Needs balance between too little – and too much Employee needs enough information about merit
pay plan for it to serve as a performance motivator without breaching their right to privacy or restricting the organization’s ability to exercise management discretion
Communication of Compensation for Merit Pay General information about the performance
management process General information about the compensation
program (how pay is determined, how jobs are evaluated, salary ranges, etc.)
Specific information about merit pay program (budgets, performance rating distributions)
Size of the individual’s increase, minimum and maximum raises, and average size of merit increases
Costing Exercise
Focal Point Increase (Multiple Increases)
Your organization has 150 employees in the Engineering department, with an average employee pay of $50,000 annually. The department has a 5% merit budget with an April 1 focal-point review date. Then, due to competitive market pay movement, the company must grant a 4% market equity adjustment on July 1.
What is the cost in year 1 of these two increases?
Costing Exercise
Formula and Solution:
Eligible payroll x % increase x effective period
Eligible payroll = 150 x $50,000 = $7,500,000
Effective period of the merit increase = 9 months (April – December)
$7,500,000 x 5% x 9/12 = $281,250 (cost of the merit increase given in April)
Costing Exercise
Formula and Solution continued: After the merit increase, the eligible payroll rises to $7,875,000
since everyone has received a 5% increase ($7.5M x 5%)
Effective period of the market increase = 6 months (July – December)
$7,875,000 x 4% x 6/12 = $157,500 (cost of the market increase given in July)
Adding the two increases together gives a total cost of $438,750 ($281,250 + $157,500)
Incentive Pay
Ability to deliver targeted results while rewarding employees who are responsible for those results
Incentive plans can be designed to focus on three levels of performance: Individual Team Organization/Corporate
Incentive Payouts
Individual – payouts based on the results of an individual relative to their assignment, examples sales representatives, account managers, etc.
Team – based on how a group similarly tasked people perform collectively – based on team results usually little to no differentiation of individual members
Corporate – broader plans based on total company or division performance
Incentive Plan Elements Eligibility
How long need to be employed If promoted how to prorate Leave before year-end
Target payout Often expressed as % of pay or midpoint Fund the plan based on actual performance
Incentive Plan Elements - continued Performance Criteria
Measure and reward behaviors that are specific, measurable, and within the participant’s control
Duration Most effective when rewards are paid out as soon as
possible after results are measured
Performance Standards
CRITICAL TASK – establishing expected performance standard, usually set at lest 3 achievement levels Threshold: Minimum level of performance that must
be achieved before an incentive can be paid
Target: Expected level of sales results or individual performance (earn target incentive opportunity)
Excellence: Point at which the defined leverage or upside is earned
Example of Incentive Payout
15
100
200
0
50
100
150
200
250
Revenue A Revenue B Revenue C
Target
Cap
Threshold
Example of Target Incentive Award Payout
Job LevelSalary
Midpoint Target %
Incentive Award Target
RevenueAchieve-
ment Payout10 $50,000 20 $10,000 120% $12,000
11 $60,000 22.5 $13,500 120% $16,200
12 $72,000 25 $18,000 120% $21,600
Other Cash Bonus Plans and Pay for Performance Mechanisms Sign-on bonus – not performance based – used to
enhance compensation package without distorting the salary structure
Spot bonus – recognition award - intended for immediate appreciation and recognition for excellent contribution
Retention bonus – retaining key employees through a specific period such as a merger or more recently to transition new employee as numbers of employees retire
HR CommunicationsNow you’re talking!
Preparing to Communicate
Ask yourselves: 1. What is the communication priority?2. Who is the audience?3. What are their issues or concerns with this topic? 4. Who delivers the message?5. How will the message be delivered? What is the
method? What are the steps?6. What communication or leadership behaviors will
drive the “right behaviors” in your target audience?7. What specific concepts (key messages) do you want
to convey?8. How does this support organization’s values and/or
strategies?
Components of a Good Communications Plan
HR Event or Communications Challenge
Objectives
Audience(s)
Desired Behavior(s) or Change
Challenges, Obstacles or Sensitivities
Communicating HR Strategies(Includes who does the communicating and the sequence)
Key Messages (Includes Organizational Strategy and reflects functional group and “HR Umbrella” messages)
Tactics (Includes media and venues that will be used as well as timing and steps)
Timeline
Measurement and/or Organizational Payoff
Feedback Mechanism (Includes revision and refinement of key messages)
Know - Feel - Do
What do we want people to…
Know ... ?
Feel ...?
Do ...?
Words - Actions - Words
Words Actions
Use WORDS - ACTION - WORDS - to close the loop
Shape Beliefs Through Experiences
What do employees and leaders alike need to see around them to accept changes or change their beliefs?
people watch before they listen.
“actions speak louder than words.”
Strategies for Communications
Make executives, front-line supervisors or front-line employees the “actors.”
Use personal and emotional means to tell the story, build on existing emotional associations or patterns—from urban legends, anecdotes, songs, images, logos, or styles/macho or particular work ethic.
Drive the message through Words-Actions-Words. Make the messages credible and link to current
experience.
tailoring messages to each audience
What do they care about? Who do they want to hear the information from?
Who is the best messenger? What could go wrong? What potential backlash can
you prepare for/avoid?
Creating Messages
Keep it conversational; try to take it out of corporate-speak as much as possible.
Communicate the heart or core message that can be paraphrased “elevator speech”; nestle details under core messages.
Be judgmental of messages. Are they credible and memorable? Do the messages drive people to take action? Do they elicit an emotional response?
audiences constituencies
words is our b’ness
Move from Telling... ... to Influencing...
Evolution of Communications
audiences constituencies
words is our b’ness….
stakeholders
Move from Telling... ... to Influencing...
...to Creating SharedGoals…
A few examples:
Union corporatepartnerships
Making employeesbusiness partners
Community policing/Neighborhood watch
Customer loyalty Shareholder partnerships
business partnerscommunications are relationship-based, mutually-supporting and collaborative.
The Hats Communicators Wear
You are part... Marketer Sales agent Communications
center Change agent Researcher and data
collector Detective
Voice of Company Problem-solver Advisor Business partner Politician In service to others
Influencing Begins with Rapport
Rapport:
Having a general sense of goodwill toward others.
Rapport gives you the opportunity to listen and learn...