1. T
The Broken Link
Between Performance & Pay
Joseph B. Kilmartin, Jr.
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2. Two questions:
1. Is there a strong link between pay and
performance at most organizations today?
2. Can a stronger link be created?
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3. Agenda
Agenda
I. The Performance Management Opportunity
II. The Broken Link between Pay and
Performance
III. Why Did It Happen?
IV. Repairing the Link
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4. Performance Management:
• Should have evolved into a critical process needed to
help drive greater business results.
• Should represent a significant opportunity to increase
and sustain our organization’s competitive
advantage.
• Should enable us to identify high performers and to
differentially reward those high performers.
• Should increase the credibility of HR to line and top
management.
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5. Why Did It Happen?
• Cultural Changes
– Everyone can exceed, if just given the opportunity
– Educational system
– Athletics
– Workplace
– The entitlement mentality
– Unwillingness to give 0% increases
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6. Why Did It Happen?
• Performance management system expansion
– Career development, succession planning, etc.
– Ambiguity of responsibility for performance
management
• Innumeracy
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7. What Were The Results?
• HR began focusing on those needing help to succeed
– More focus on the “Needs Improvement”
employees; less focus on “Outstanding” and
“Good” performers
• Growth of entitlement during times of flat or dwindling
increase budgets
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8. Employee/Manager Disconnect # 1:
• Managers believe that they are excellent at
discerning minute differences in performance among
their direct reports
• Subordinates believe that their managers are OK
when it comes to assessing gross performance
differences (e.g., “Outstanding” vs. “Good” or “Solid”)
but are not so good at identifying the differences
among employees within the same performance level
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9. Employee/Manager Disconnect # 2:
• Managers are very liberal when estimating the
number or percentage of top performers
(“Outstanding”) in their departments. Their estimate
is often 20% or higher
• Their subordinates are much more conservative (and
realistic), typically estimating 5%
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10. Employee/Manager Disconnect # 3:
• Managers typically rely on their memory when
assessing performance, focusing on the highs and
the lows.
• Their subordinates have a much better idea of what
their performance has been over the relevant
performance period.
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11. Use/Misuse of Merit Matrices:
• A well-known former CEO has suggested that the
bottom 10% of performers need to be culled each
year.
• Employees believe their organizations tolerate Poor
performers, but suggest the percentage is in the
range of 1%-4%
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12. Impact on Pay Increases
• Similar pay increases for all performance levels
– ½% - 1% differential
– Leading top performers to ask “Was all that extra
work worth it?”
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13. Assessment Forms Became:
• Too long
• Too complex
• Often designed to measure the wrong things
Assessment Became More Frequent:
• HR thought greater frequency would produce:
– Better understanding of goals and processes
– Better results
• Instead, it created more conflict with line managers
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14. Performance Appraisal Forms:
• The ideal performance assessment form should be
complete, while at the same time, relatively brief.
• Most forms allow the user to assess performance
against a set of behaviors and individual objectives.
• Increasingly, we have seen that performance is being
assessed against those competencies required for
success in the assigned job.
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15. Automation:
• Automation makes the assessment process much
easier.
– Allows HR to overcome complaints about the
significant time investment.
– Increases meaningful employee and manager
participation.
– Enables the upward “cascading” and review of
assessments.
– Enables HR to monitor and respond to pay
recommendations.
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16. Multiple Assessments:
• I suggest the following:
– Make the formal performance assessment a once-
a-year event.
– Throughout the year, train managers and
communicate to them the importance of
monitoring performance.
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17. Performance Distribution:
• Targeted performance distribution can prevent a
skewed distribution:
– Guarantees compliance
– Moves responsibility away from line manager
• Targeted performance distribution and a merit matrix
enables an organization to truly reward the top
performers.
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18. Merit Pools:
• Two basic pools of money for merit increases:
– Management pool
– Employee pool
• Each of these pools should have two subsidiary
pools:
– One for those in the highest performance category
(e.g., “Outstanding”)
– One for the balance of the organization’s
employees.
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19. Joseph B. Kilmartin, Jr., CCP
Joe Kilmartin has dual responsibilities at Salary.com – he is Managing Director of Compensation
Consulting, Emeritus and Regional Sales Director for Florida. Joe has over 30 years of experience as a
compensation practitioner, working for consulting firms and for corporations.
Joe was a senior consultant for Watson Wyatt Worldwide, working in that firm’s Boston, Philadelphia,
and San Juan offices. During his consulting career, he has consulted in virtually all segments of industry
including hospitals and other healthcare providers, banks and other financial services organizations,
insurance companies, manufacturers, pharmaceutical firms, colleges and universities, utilities, not-for-
profits, and government agencies. Joe has also held human resources executive and senior
management positions at Wang Laboratories, GMAC Residential, and Danka Office Imaging.
Joe holds a B.A. in History from the University of Massachusetts at Amherst. He is a Certified
Compensation Professional (CCP) and is the recipient of WorldatWork’s Lifetime Achievement Award.
In addition to being a member of that organization, Joe is also a member of the Society for Human
Resource Management (SHRM), the American Society for Healthcare Human Resources
Administration (ASHHRA), the South Florida Compensation and Benefits Association, and the Suncoast
Human Resources Association.
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20. jkilmartin@salary.com
781-851-8861
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