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Top Pay for Best Performance. HR Magazine Jan.2003 Vol.48 Iss.1 pg30. Presented by: Kacheyta McClellan Mark Reeder. Corning Inc. Stock price recently dipped to just over $1 1% of its value 3 years ago Slashed 16,000 jobs in two years and frozen remaining salaries - PowerPoint PPT Presentation
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HR MAGAZINEJAN.2003
VOL.48 ISS.1 PG30
Top Pay for Best Performance
Presented by: Kacheyta McClellan
Mark Reeder
Corning Inc.
Stock price recently dipped to just over $1 1% of its value 3 years ago Slashed 16,000 jobs in two years and frozen
remaining salariesWill give bonuses to employees next
month (Feb 2003) who meet their goals Increase productivity Secure dominance in potentially lucrative
market
Paying for Performance in a Down Economy
Companies have a smaller pot of money to allocate for compensation
Some organizations are giving salary increases, bonuses, or both in varying amounts With the most going to best performers
and most essential employees Alternative to giving everyone equal but
minimal increase
Performance Assessment
Can be based on Individual or team contribution Business unit results Corporate profit or share price
Can be rewarded through Traditional salary adjustments Variable pay techniques
One-time or recurring bonuses
Creativity in Compensation
Brad Hill, Senior Consultant with the Hay Group in Chicago A firm gives each worker a 5% salary increase
each year for 10 years Reduced to 3.5% per year (b/c the firm is not
compounding the larger raises year after year) Can give each employee an annual bonus of
7.2% of their salary For the same budgeted payout as 5% for 10
years
Watson Wyatt Survey
40% of top-performing employees believe they receive moderately of significantly better pay than average-performing employees Including pay raises, annual bonuses, or total
payCompanies providing variable pay to best
workers are 68% more likely to report outstanding financial performance
Thoughts of…
Jay Schuster—Schuster Zingheim and Associates
John Bremen—Watson Wyatt WorldwideRussell Miller—Mercer Human Resource
ConsultingMonica Barron—AMRKen Abosch—Hewitt AssociatesDavid Balkin—University of ColoradoMike Lieberman--Synygy
Thoughts of…
Schuster—in the 1990’s, we were throwing money at talent, now companies are more careful who they award incentive pay to
Bremen—on paying for performanceit takes 7%-8% compensation
increase to effect employee effortThe best way for an organization to
communicate with its employees
Thoughts of…
Miller—Employees will share in the fruits of business success, but also share the risk of belt-tightening
Barron—should make your best performers role models communicating “do this to get these checks”
Abosch—there may be fear of unsatisfied employees We’re trying to improve performance, not
satisfaction Sometimes we need a healthy dose of tough love
Thoughts of…
Balkin—involving employees in the design of a performance pay system Half the time, they come up with the same
plan I would haveLieberman—performance pay systems
is a sales-oriented concept, easiest to measure is sales
The Role of HR
• HR is viewed as essentially managing the biggest cost center that most organizations have.
• HR sees performance pay as the best opportunity for them to take a closer look at what they are doing and to challenge the entitlement mentality.
• This new thinking gives HR the opportunity to demonstrate its value to the organization and to create a whole new generation of HR professionals.
Goalsharing at Corning
• Rewarding employees for meeting important goals, whether or not the company is raking in lots of money, is the heart of the “goalsharing” program at Corning Inc.
• This system was developed by the employees and is reviewed and adjusted annually by committees which include workers, managers and union representatives.
• The bonus is split into two different parts.o One-fourth of the bonus is based on earnings per share of
company stock for the preceding year.o The rest depends on how well the worker has met job
performance goals established for their unit over the year.
Goalsharing cont.
“One of the basic premises of goalsharing is that every employee would have line of sight” to the corporate goal.
Individual performance standards “ are set with the idea that each employee can somehow contribute to meeting that goal.” Larry Lukefahr, manager of variable pay programs.
Compensation Criticisms
One of the criticisms of compensation systems is that they fail to adequately distinguish between the best and worst performers.
A second criticism is that some compensation systems don’t take full advantage of bonus pay and focus instead on increasing base pay – a strategy that can compound payroll obligations over time and limit an organization’s options for rewarding its best employees.
When to Tinker or Start Over
According to compensation experts, roughly one-third of performance pay plans fail. Some don’t get set up properly, and some don’t work as well in a poor economy as in a strong one. Even the best pay systems need regular check-ups.
However changes should be consistent, if an organization is tweaking the system back and forth it reaches the point where it is better to start over.
The goal is to establish a system that makes sense in bad economic times as well as good ones, and not to undermine it by rewarding employees who have not produced.
B – YEAR Offers poor performers a salary increase of 3%C - POOR PERFORMERS Offers average performers a salary increase of
4%D - AVERAGE PERFORMERS Offers top performers a salary increase of 5%E - TOP PERFORMERS Offers no bonus
A B C D E Starting salary $50,000 $50,000 $50,000 plus merit increase 1998 $51,500 $52,000 $52,500% bonus $0 $0 $0 salary plus meritincrease 1999 $53,045 $54,080 $55,125% bonus $0 $0 $0 salary plus meritincrease 2000 $54,636 $56,243 $57,881% bonus $0 $0 $0 salary plus meritincrease 2001 $56,275 $58,493 $60,775% bonus $0 $0 $0 salary plus meritincrease 2002 $57,964 $60,833 $63,814% bonus $0 $0 $0 TOTAL FIVE-YEAR COMPENSATION BUDGET $218,670,632COMPENSATION IN 5TH YEAR Poor performer $57,964 Average performer $60,833 Top performer
$63,814
B – YEAR Offers poor performers a salary increase of 2%, no bonusC - POOR PERFORMERS Offers average performers a salary increase of 4%, bonus of 3%D - AVERAGE PERFORMERSOffers top performers a salary increase of 6%, bonus of 7%E - TOP PERFORMERS
A B C D E Starting salary $50,000 $50,000 $50,000 plus merit increase 1998 $50,500 $51,500 $52,500% bonus $0 $1,545 $3,675 salary plus meritincrease 1999 $51,005 $53,045 $55,125% bonus $0 $1,591 $3,859 salary plus meritincrease 2000 $51,515 $54,636 $57,881% bonus $0 $1,639 $4,052 salary plus meritincrease 2001 $52,030 $56,275 $60,775% bonus $0 $1,688 $4,254 salary plus meritincrease 2002 $52,551 $57,964 $63,814% bonus $0 $1,739 $4,467 TOTAL FIVE-YEAR COMPENSATION BUDGET $282,098,796COMPENSATION IN 5TH YEAR Poor performer $52,551 Average performer $59,703 Top performer
$68,281