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8. © 2013 Kenexa, an IBM Company
PAY FOR PERFORMANCE:
A CLEAR SIGNAL FOR
RETENTION AND
ENGAGEMENT
Mark A. Szypko, CCP, GRP
Managing Director, Compensation
To us, business is personal
9. 9© 2013 Kenexa, an IBM Company 9
© 2013 Kenexa, an IBM Company
AGENDA
• What is “Pay for Performance”?
• What happened to the link?
• Why do we care?
• How do we repair?
• Questions
11. 11© 2013 Kenexa, an IBM Company 11
© 2013 Kenexa, an IBM Company
WHAT IS PAY FOR
PERFORMANCE?
With your 3.0% increase budget … a couple of
questions
How can you give your average
performers a 3.0% increase while at
the same time differentially rewarding
your top performers AND still only
spend 3.0%?
What does your average performing
employee expect to get as an
increase?
12. 12© 2013 Kenexa, an IBM Company 12
© 2013 Kenexa, an IBM Company
PAY FOR
PERFORMANCE
• 3.0% increase budget
• 2 employees each “doing their job”
• They each get a 3.0% increase
13. 13© 2013 Kenexa, an IBM Company 13
© 2013 Kenexa, an IBM Company
• Similar pay increases for all
performance levels
• Leading top performers to
ask
Impact on Pay
Increases
“Was all that
extra work
worth it?”
PAY FOR
PERFORMANCE
14. 14© 2013 Kenexa, an IBM Company 14
© 2013 Kenexa, an IBM Company
PAY FOR
PERFORMANCE
• 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?
403020
Minimum Midpoint Maximum
Salary Range
A B
15. 15© 2013 Kenexa, an IBM Company 15
© 2013 Kenexa, an IBM Company
PAY FOR
PERFORMANCE
• 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?
403020
Minimum Midpoint Maximum
Salary Range
A B
16. 16© 2013 Kenexa, an IBM Company 16
© 2013 Kenexa, an IBM Company
• A compensation philosophy that asserts than an individuals pay is a
function of their performance
• Performance demonstrated consistently over an extended period of
time
• Target pay is achieved over time, not overnight
• As opposed to increase for performance
Minimum Midpoint Maximum
PAY FOR
PERFORMANCE
17. 17© 2013 Kenexa, an IBM Company 17
© 2013 Kenexa, an IBM Company
If pay increases are made contingent upon
performance:
• Employee motivation to become a
high achiever is increased
• The organization has a better
chance of retaining top performers
• Lesser performers are motivated to
increase performance level or look
elsewhere
PAY FOR
PERFORMANCE
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 the
rebound is yielding increase budgets still below the pre-recession levels
“For the first time since 1980, the U.S. rate of inflation is higher
than the average total salary budget increase”
WorldatWork – August 2011
PAY FOR
PERFORMANCE
2008 2009 2010 2011 2012 2013
Kenexa 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© 2013 Kenexa, an IBM Company 19
© 2013 Kenexa, an IBM Company
WHAT’S HOT…
Salary
Growth
2008-13
Avg per
Year
Healthcare 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© 2013 Kenexa, an IBM Company 20
© 2013 Kenexa, an IBM Company
…AND WHAT’S
NOT
Job
Salary
Growth
2008-13
Avg per
Year
Call 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%)
22. 22© 2013 Kenexa, an IBM Company 22
© 2013 Kenexa, an IBM Company
• Cultural Changes
– Everyone can exceed, if
just given the opportunity
– Educational system
– Athletics
– Workplace
– The entitlement mentality
– Unwillingness to give 0%
increases
– Keeping up with
inflation
WHAT HAPPENED
TO THE LINK?
23. 23© 2013 Kenexa, an IBM Company 23
© 2013 Kenexa, an IBM Company
Reliance on “The Event”:
• Once-a-year
• Minimal communication
• Reliance on manager’s memory
• Little training
WHAT HAPPENED
TO THE LINK?
Assessment Forms Became:
• Too long
• Too complex
• Often designed to measure the
wrong things
24. 24© 2013 Kenexa, an IBM Company 24
© 2013 Kenexa, an IBM Company
Use/Misuse of Merit Matrices
• A well-known former CEO
has suggested that the
bottom 10% of
performers need to be
culled each year.
– Rating creep
– Invalidating rating
systems
WHAT HAPPENED
TO THE LINK?
25. 25© 2013 Kenexa, an IBM Company 25
© 2013 Kenexa, an IBM Company
• HR began focusing on those
needing help to succeed
– More focus on the “Needs
Improvement” employees
– Less focus on
“Outstanding” and “Good”
performers
WHAT HAPPENED
TO THE LINK?
26. © 2013 Kenexa, an IBM Company
WHY DO WE CARE
ABOUT PAY FOR
PERFORMANCE?
27. 27© 2013 Kenexa, an IBM Company 27
© 2013 Kenexa, an IBM Company
“THE RECESSION IS
DECISIVELY OVER”
28. 28© 2013 Kenexa, an IBM Company 28
© 2013 Kenexa, an IBM Company
JOB OPENINGS
29. 29© 2013 Kenexa, an IBM Company 29
© 2013 Kenexa, an IBM Company
JOB OPENINGS AND
UNEMPLOYMENT
30. 30© 2013 Kenexa, an IBM Company 30
© 2013 Kenexa, an IBM Company
QUITS, LAYOFFS
AND DISCHARGES
• Shifts are occurring in the employment market with layoffs trailing
off while voluntary turnover and job openings are on the rise
31. 31© 2013 Kenexa, an IBM Company 31
© 2013 Kenexa, an IBM Company
Increase budgets in the U.S. have bottomed out in 2009 though
the rebound is yielding increase budgets still below the pre-
recession levels
SALARY INCREASE
BUDGETS
2008 2009 2010 2011 2012 2013
Kenexa 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© 2013 Kenexa, an IBM Company 32
© 2013 Kenexa, an IBM Company
AS WE EMERGE …..
• Your most valuable asset
walks out the door every
evening….
What are they
thinking?
33. 33© 2013 Kenexa, an IBM Company 33
© 2013 Kenexa, an IBM Company
GLOBAL RESULTS: WHAT
EMPLOYEES REALLY WANT
R
E
S
P
E
C
T
10%
Truth
20%
Recognition 7%
Exciting
Work
18%
Security
25%
Pay
9%
Education
and Career
Growth
11%
Conditions
Source: Kenexa High Performance Institute
34. 34© 2013 Kenexa, an IBM Company 34
© 2013 Kenexa, an IBM Company
RECOGNITION
A pat on the back from managers and the organization at-
large
20%
Recognition
I want to be
respected and
recognized as a
valuable team
member
Recognition when we do a
good job - right now it is all
about getting chewed
out when we mess up
More respect
from senior
management
Source: Kenexa High Performance Institute
35. 35© 2013 Kenexa, an IBM Company 35
© 2013 Kenexa, an IBM Company
PAY
Fair compensation for a day’s work
25%
Pay
Compensation
that is fair and
respect(ful)
Good pay for a
hard day’s work
Unfreeze pay
Source: Kenexa High Performance Institute
36. 36© 2013 Kenexa, an IBM Company 36
© 2013 Kenexa, an IBM Company
A COUPLE OF
QUESTIONS
37. 37© 2013 Kenexa, an IBM Company 37
© 2013 Kenexa, an IBM Company
Worldwide, My pay is directly related to
how well I perform.
Source: 2011 Kenexa High Performance Institute WorkTrends survey
54% DO NOT
see a link
20% uncertain
25% DO see a
link
THE LINK
38. 38© 2013 Kenexa, an IBM Company 38
© 2013 Kenexa, an IBM Company
In the US, my pay is directly related to
how well I perform.
Source: 2011 Kenexa High Performance Institute WorkTrends survey
52% DO NOT
see a link
19% uncertain
29% DO see a
link
THE LINK
39. 39© 2013 Kenexa, an IBM Company 39
© 2013 Kenexa, an IBM Company
Worldwide the percent of employees who are seriously considering leaving their
organization
THE LINK
WHY WE SHOULD CARE
Source: 2011 Kenexa High Performance Institute WorkTrends survey
40. 40© 2013 Kenexa, an IBM Company 40
© 2013 Kenexa, an IBM Company
Worldwide the percent of employees who are seriously considering leaving their
organization
THE LINK
WHY WE SHOULD CARE
Source: 2011 Kenexa High Performance Institute WorkTrends survey
41. © 2013 Kenexa, an IBM Company
HOW DO WE REPAIR
THE LINK BETWEEN
PAY AND
PERFORMANCE?
42. 42© 2013 Kenexa, an IBM Company 42
© 2013 Kenexa, an IBM Company
• Merit Pools:
• We suggest that there be
two basic pools of money
for merit increases:
• Management pool
• Employee pool
REPAIRING
THE LINK
43. 43© 2013 Kenexa, an IBM Company 43
© 2013 Kenexa, an IBM Company
• Merit Pools:
• 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.
REPAIRING
THE LINK
44. 44© 2013 Kenexa, an IBM Company 44
© 2013 Kenexa, an IBM Company
• Seize the moment
– 0% merit
– Differentially
reward top
performers
REPAIRING
THE LINK
45. 45© 2013 Kenexa, an IBM Company 45
© 2013 Kenexa, an IBM Company
• Re-recruit top
performers
REPAIRING
THE LINK
46. 46© 2013 Kenexa, an IBM Company 46
© 2013 Kenexa, an IBM Company
DON’T FORGET!!
Pay for Performance,
NOT
Increase for
Performance!
REPAIRING
THE LINK
47. 47© 2013 Kenexa, an IBM Company 47
© 2013 Kenexa, an IBM Company
Mark A. Szypko, CCP , GRP
Managing Director, Compensation
Phone: (781) 851 -8863
mszypko@us.ibm.com
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