Pay for Performance: A Clear Signal for Retention and Engagement

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Pay increase budgets have been tight for the last few years, but as we begin to emerge from the recession and top performers seek to realize their worth, the issue of pay for performance is on the minds of many organizational leaders and HR practitioners. While many organizations say they “pay for performance,” most do not fully understand the connection between the two and how it impacts employees. In this webinar, compensation expert Mark Szypko will discuss Kenexa's recent research covering the link between pay and performance.

This session will cover:

What pay for performance means to employees.
The relationship of pay for performance to employee engagement and intent to leave the organization.
Pay for performance and employee engagement.
How to strengthen the link between pay and performance.

Who should attend:

HR professionals who need to understand the link between pay and performance, employees’ perception of this connection and what they as HR professionals can do to promote the link between pay and performance within their organizations.

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Pay for Performance: A Clear Signal for Retention and Engagement

  1. 1. You can listen to today’s webinar using your computer’sspeakers or you may dial into the teleconference.If you would like to join the teleconference,please dial 1.650.479.3208 and enter access code: 920 265 837 #.You will be on hold until the seminar begins.
  2. 2. Speaker: Mark SzypkoManaging Director, CompensationKenexa, an IBM Company
  3. 3. • Q&A– Click on the Q&A icon onyour floating toolbar on thetop of your screen.– Type in your question in thespace at the bottom.– Click on “Send.”
  4. 4.  Polling Polling question willappear in the “Polling”panel. Select your responseand click on “Submit.”
  5. 5. 1. Will I receive a copy of the slides after the webinar?YES2. Will I receive a copy of the webinar recording?YESPlease allow up to 2 business days to receive these materials.
  6. 6. Deanna HartleySenior EditorWorkforce Management magazine
  7. 7. Mark SzypkoManaging Director, CompensationKenexa, an IBM Company
  8. 8. © 2013 Kenexa, an IBM CompanyPAY FOR PERFORMANCE:A CLEAR SIGNAL FORRETENTION ANDENGAGEMENTMark A. Szypko, CCP, GRPManaging Director, CompensationTo us, business is personal
  9. 9. 9© 2013 Kenexa, an IBM Company 9© 2013 Kenexa, an IBM CompanyAGENDA• What is “Pay for Performance”?• What happened to the link?• Why do we care?• How do we repair?• Questions
  10. 10. © 2013 Kenexa, an IBM CompanyWHAT IS PAY FORPERFORMANCE?
  11. 11. 11© 2013 Kenexa, an IBM Company 11© 2013 Kenexa, an IBM CompanyWHAT IS PAY FORPERFORMANCE?With your 3.0% increase budget … a couple ofquestionsHow can you give your averageperformers a 3.0% increase while atthe same time differentially rewardingyour top performers AND still onlyspend 3.0%?What does your average performingemployee expect to get as anincrease?
  12. 12. 12© 2013 Kenexa, an IBM Company 12© 2013 Kenexa, an IBM CompanyPAY FORPERFORMANCE• 3.0% increase budget• 2 employees each “doing their job”• They each get a 3.0% increase
  13. 13. 13© 2013 Kenexa, an IBM Company 13© 2013 Kenexa, an IBM Company• Similar pay increases for allperformance levels• Leading top performers toaskImpact on PayIncreases“Was all thatextra workworth it?”PAY FORPERFORMANCE
  14. 14. 14© 2013 Kenexa, an IBM Company 14© 2013 Kenexa, an IBM CompanyPAY FORPERFORMANCE• Employee A paid $20.00 per hour• Employee B paid $40.00 per hour• Both “Doing their Job”• Midpoint = Market Reference Point• Now what do we do?403020Minimum Midpoint MaximumSalary RangeA B
  15. 15. 15© 2013 Kenexa, an IBM Company 15© 2013 Kenexa, an IBM CompanyPAY FORPERFORMANCE• Employee A paid $20.00 per hour• Employee B paid $40.00 per hour• Both “Doing their Job”• Midpoint = Market Reference Point• Now what do we do?403020Minimum Midpoint MaximumSalary RangeA B
  16. 16. 16© 2013 Kenexa, an IBM Company 16© 2013 Kenexa, an IBM Company• A compensation philosophy that asserts than an individuals pay is afunction of their performance• Performance demonstrated consistently over an extended period oftime• Target pay is achieved over time, not overnight• As opposed to increase for performanceMinimum Midpoint MaximumPAY FORPERFORMANCE
  17. 17. 17© 2013 Kenexa, an IBM Company 17© 2013 Kenexa, an IBM CompanyIf pay increases are made contingent uponperformance:• Employee motivation to become ahigh achiever is increased• The organization has a betterchance of retaining top performers• Lesser performers are motivated toincrease performance level or lookelsewherePAY FORPERFORMANCE
  18. 18. 18© 2013 Kenexa, an IBM Company 18© 2013 Kenexa, an IBM Company• Increase budgets in the U.S. have bottomed out in 2009 though therebound is yielding increase budgets still below the pre-recession levels“For the first time since 1980, the U.S. rate of inflation is higherthan the average total salary budget increase”WorldatWork – August 2011PAY FORPERFORMANCE2008 2009 2010 2011 2012 2013Kenexa Compensation 3.0% 3.0% 3.0%IPAS 3.9% 1.1% 2.5% 3.2% 3.2% 3.0%Aon/Hewitt 3.7% 1.8% 2.4% 2.7% 2.9% 3.0%Buck 2.9% 2.9% 2.7% 2.8% 3.0%Conference Board - - 2.5% 2.5% 3.0% 3.0%Culpepper 3.9% 1.7% 2.7% 2.9% 2.8% 3.0%Hay 3.0% 3.0%Mercer - - 2.7% 2.9% 2.9% 2.9%Towers Watson 3.4% 1.7% 2.8% 2.7% 2.8% 2.9%WorldatWork 3.8% 1.9% 2.8% 2.9% 3.0% 3.0%
  19. 19. 19© 2013 Kenexa, an IBM Company 19© 2013 Kenexa, an IBM CompanyWHAT’S HOT…SalaryGrowth2008-13Avg perYearHealthcare Case Management 23% 5%Software Engineers 22% 4%Speech and Language Pathologists 21% 4%Physician Assistant 21% 4%Occupational Therapists 19% 4%Advanced Practice Nurses 18% 4%Professional Pharmacy Staff 17% 4%Diagnostic Imaging 17% 4%Physical Therapists 17% 3%Hardware Engineers 16% 3%Chemical Engineers 16% 3%ALL JOBS 9% 2%
  20. 20. 20© 2013 Kenexa, an IBM Company 20© 2013 Kenexa, an IBM Company…AND WHAT’SNOTJobSalaryGrowth2008-13Avg perYearCall Center Management 3% 1%Retail Store Employees 3% 1%Carpenters 4% 1%Attorneys 4% 1%Bank Tellers 4% 1%Machine Operators 6% 1%Assemblers 7% 1%ALL JOBS 9% 2%(Compensation Analysts – average at close to 10%)
  21. 21. © 2013 Kenexa, an IBM CompanyWHAT HAPPENEDTO THE LINK?
  22. 22. 22© 2013 Kenexa, an IBM Company 22© 2013 Kenexa, an IBM Company• Cultural Changes– Everyone can exceed, ifjust given the opportunity– Educational system– Athletics– Workplace– The entitlement mentality– Unwillingness to give 0%increases– Keeping up withinflationWHAT HAPPENEDTO THE LINK?
  23. 23. 23© 2013 Kenexa, an IBM Company 23© 2013 Kenexa, an IBM CompanyReliance on “The Event”:• Once-a-year• Minimal communication• Reliance on manager’s memory• Little trainingWHAT HAPPENEDTO THE LINK?Assessment Forms Became:• Too long• Too complex• Often designed to measure thewrong things
  24. 24. 24© 2013 Kenexa, an IBM Company 24© 2013 Kenexa, an IBM CompanyUse/Misuse of Merit Matrices• A well-known former CEOhas suggested that thebottom 10% ofperformers need to beculled each year.– Rating creep– Invalidating ratingsystemsWHAT HAPPENEDTO THE LINK?
  25. 25. 25© 2013 Kenexa, an IBM Company 25© 2013 Kenexa, an IBM Company• HR began focusing on thoseneeding help to succeed– More focus on the “NeedsImprovement” employees– Less focus on“Outstanding” and “Good”performersWHAT HAPPENEDTO THE LINK?
  26. 26. © 2013 Kenexa, an IBM CompanyWHY DO WE CAREABOUT PAY FORPERFORMANCE?
  27. 27. 27© 2013 Kenexa, an IBM Company 27© 2013 Kenexa, an IBM Company“THE RECESSION ISDECISIVELY OVER”
  28. 28. 28© 2013 Kenexa, an IBM Company 28© 2013 Kenexa, an IBM CompanyJOB OPENINGS
  29. 29. 29© 2013 Kenexa, an IBM Company 29© 2013 Kenexa, an IBM CompanyJOB OPENINGS ANDUNEMPLOYMENT
  30. 30. 30© 2013 Kenexa, an IBM Company 30© 2013 Kenexa, an IBM CompanyQUITS, LAYOFFSAND DISCHARGES• Shifts are occurring in the employment market with layoffs trailingoff while voluntary turnover and job openings are on the rise
  31. 31. 31© 2013 Kenexa, an IBM Company 31© 2013 Kenexa, an IBM CompanyIncrease budgets in the U.S. have bottomed out in 2009 thoughthe rebound is yielding increase budgets still below the pre-recession levelsSALARY INCREASEBUDGETS2008 2009 2010 2011 2012 2013Kenexa 3.0% 3.0% 3.0%IPAS 3.9% 1.1% 2.5% 3.2% 3.2% 3.0%Buck 2.9% 2.9% 2.7% 2.8% 3.0%Conference Board - - 2.5% 2.5% 3.0% 3.0%Culpepper 3.9% 1.7% 2.7% 2.9% 2.8% 3.0%Hay 3.0% 3.0%Mercer - - 2.7% 2.9% 2.9% 2.9%Towers Watson 3.4% 1.7% 2.8% 2.7% 2.8% 2.9%WorldatWork 3.8% 1.9% 2.8% 2.9% 3.0% 3.0%
  32. 32. 32© 2013 Kenexa, an IBM Company 32© 2013 Kenexa, an IBM CompanyAS WE EMERGE …..• Your most valuable assetwalks out the door everyevening….What are theythinking?
  33. 33. 33© 2013 Kenexa, an IBM Company 33© 2013 Kenexa, an IBM CompanyGLOBAL RESULTS: WHATEMPLOYEES REALLY WANTRESPECT10%Truth20%Recognition 7%ExcitingWork18%Security25%Pay9%Educationand CareerGrowth11%ConditionsSource: Kenexa High Performance Institute
  34. 34. 34© 2013 Kenexa, an IBM Company 34© 2013 Kenexa, an IBM CompanyRECOGNITIONA pat on the back from managers and the organization at-large20%RecognitionI want to berespected andrecognized as avaluable teammemberRecognition when we do agood job - right now it is allabout getting chewedout when we mess upMore respectfrom seniormanagementSource: Kenexa High Performance Institute
  35. 35. 35© 2013 Kenexa, an IBM Company 35© 2013 Kenexa, an IBM CompanyPAYFair compensation for a day’s work25%PayCompensationthat is fair andrespect(ful)Good pay for ahard day’s workUnfreeze paySource: Kenexa High Performance Institute
  36. 36. 36© 2013 Kenexa, an IBM Company 36© 2013 Kenexa, an IBM CompanyA COUPLE OFQUESTIONS
  37. 37. 37© 2013 Kenexa, an IBM Company 37© 2013 Kenexa, an IBM CompanyWorldwide, My pay is directly related tohow well I perform.Source: 2011 Kenexa High Performance Institute WorkTrends survey54% DO NOTsee a link20% uncertain25% DO see alinkTHE LINK
  38. 38. 38© 2013 Kenexa, an IBM Company 38© 2013 Kenexa, an IBM CompanyIn the US, my pay is directly related tohow well I perform.Source: 2011 Kenexa High Performance Institute WorkTrends survey52% DO NOTsee a link19% uncertain29% DO see alinkTHE LINK
  39. 39. 39© 2013 Kenexa, an IBM Company 39© 2013 Kenexa, an IBM CompanyWorldwide the percent of employees who are seriously considering leaving theirorganizationTHE LINKWHY WE SHOULD CARESource: 2011 Kenexa High Performance Institute WorkTrends survey
  40. 40. 40© 2013 Kenexa, an IBM Company 40© 2013 Kenexa, an IBM CompanyWorldwide the percent of employees who are seriously considering leaving theirorganizationTHE LINKWHY WE SHOULD CARESource: 2011 Kenexa High Performance Institute WorkTrends survey
  41. 41. © 2013 Kenexa, an IBM CompanyHOW DO WE REPAIRTHE LINK BETWEENPAY ANDPERFORMANCE?
  42. 42. 42© 2013 Kenexa, an IBM Company 42© 2013 Kenexa, an IBM Company• Merit Pools:• We suggest that there betwo basic pools of moneyfor merit increases:• Management pool• Employee poolREPAIRINGTHE LINK
  43. 43. 43© 2013 Kenexa, an IBM Company 43© 2013 Kenexa, an IBM Company• Merit Pools:• Each of these pools shouldhave two subsidiary pools:– One for those in thehighest performancecategory (e.g.,“Outstanding”)– One for the balance of theorganization’s employees.REPAIRINGTHE LINK
  44. 44. 44© 2013 Kenexa, an IBM Company 44© 2013 Kenexa, an IBM Company• Seize the moment– 0% merit– Differentiallyreward topperformersREPAIRINGTHE LINK
  45. 45. 45© 2013 Kenexa, an IBM Company 45© 2013 Kenexa, an IBM Company• Re-recruit topperformersREPAIRINGTHE LINK
  46. 46. 46© 2013 Kenexa, an IBM Company 46© 2013 Kenexa, an IBM CompanyDON’T FORGET!!Pay for Performance,NOTIncrease forPerformance!REPAIRINGTHE LINK
  47. 47. 47© 2013 Kenexa, an IBM Company 47© 2013 Kenexa, an IBM CompanyMark A. Szypko, CCP , GRPManaging Director, CompensationPhone: (781) 851 -8863mszypko@us.ibm.com
  48. 48. Join Our Next Workforce WebinarThere’s an App for That, and That, and That:Managing Mobile in the WorkforceWednesday, June 19, 2013Workforce Webinars start at 2 p.m. Eastern / 11 a.m.PacificRegister for upcoming Workforce Webinars atwww.workforce.com

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