1. The Top
Risks in Pay for Performance
The Secret to an Effective P4P Program
is Realizing that We are All Human

2. Dan Walter, CEP,
President and CEO, Performensation
Dan Walter, CEP, is the President and CEO of Performensation. A
popular and frequently-requested speaker, Dan does dozens of
presentations a year, combining humor and technical expertise into
accessible and practical information. Dan can be found on the web at
www.performensation.com.
Dan is a featured writer at www.CompensationCafe.com and is the
founder of Equity Compensation Experts
(ECE)(www.equitycompensationexperts.groupsite.com) a free
networking organization.
He is also a board member for the NCEO, an active member of the
NASPP, GEO, WorldatWork, SHRM, and a frequent adviser at HR.com
FoundersSpace.com, Quora.com, Focus.com and OnStartUps.com.
Please visit www.linkedin.com/in/danwalter for Dan’s public profile.
You can also follow him on Twitter @Performensation.

3. Incorrect Metrics
Things, Widgets, Product
s, Financial
Acronyms, Operational
Definitions, Strategic
Initiatives and Tactical
Focal Points

4. Incorrect Metrics
Metrics are the “things” that are being
measured. These are the foundation of
your plan and must represent the
measurements of success.
Companies often assume they know what
drives performance. These assumptions
lead to plans that allow poor behavior by
taking attention away from it, or by
motivating only one side of the
risk/reward formula.

5. Incorrect Metrics
Metrics define the PURPOSE of the plan.
If you want people to
focus on
something, make it a
metric.

6. Incorrect Metrics
There is no such thing as a “perfect”
metric,
but for any company there are
endless flawed metrics.
Metrics must align
shareholders, the company
and plan participants.
Without alignment there
will be no engagement.

7. Incorrect Metrics
Selecting correct metrics requires thinking
from the “other side of the table.”
Sit down with leaders and influencers
in the departments that are the most
critical to your companies success.
Listen to what they feel drives success.
Research how to reflect this in
the form of quantifiable data.

8. Incorrect Metrics
Examples of Incorrect Metrics
Providing multiple for additional revenue
without considering cost or profit margin
Using Relative TSR as a metric without
determining a large enough relevant peer group
Doubling up on any metric also
used in other incentive programs

9. Poorly Set Goals
Achievements, Le
vels, Totals, Meas
urements, Milest
ones and
Comparisons

10. Poorly Set Goals
Goals are the levels that define the
success of each metric.
These are the drivers of your plan and must
represent your destination. Goals and the
compensation related to them are levers that
can make two seemingly similar compensation
programs deliver in dramatically different ways.

11. Poorly Set Goals
Minimum
Still allows for some amount of payout
Target
A stretch, but serves as truly acceptable
performance
Maximum
Determines highest possible payout, performance
over this level is technically not considered optimal

12. Poorly Set Goals
Distribution of Goal Measurement
Explicit
Cliff goals that are linked to a specific payout level
Graded
Interim goals that determine payout when
performance is between Min / Target / Max
Linear
Payouts based on exact position between two main
goals with payout prorated to that position

13. Poorly Set Goals
Goals serve three main purposes
1. Thresholds
A minimum level for a given metric that
allows/disallows measure of other metrics
2. Modifiers
Multiplier(s) that may be lesser or greater than
100% of the target
3. Accelerators

14. Poorly Set Goals
You may be measuring the
same metrics as your peers.
Your goals may simply
be at higher multiples.
You may have similar goal levels, but the
underlying payouts are too leveraged or
too forgiving (or vice versa).

15. Poorly Set Goals
Examples of Poorly Set Goals
Using Relative TSR because your peers do,
but setting your multipliers to higher leverage,
or lower thresholds
Setting a goal to a mythical target level that can
only be reached if everything “works perfectly”
Setting goals to payout if performance
is lower than historical norms

16. Underwhelming Communication
Words, Actions, Pl
an
Elements, Discussi
ons, Presentations
, Decisions, and
Features

17. Underwhelming Communication
Performance compensation is often confusing.
Clean, clear communications are essential to
engaging and motivating your staff

18. Underwhelming Communication
Communications
must be honest.
Great performance
should not minimized.
Poor performance
cannot be ignored.
“Don’t Tell me I’m Great, If I’m NOT!”

19. Underwhelming Communication
Initial communications start at plan design.
Your metrics and the features
of your plan must be aligned
with the high level objective
and expectations for the plan
Too often HR pros, focus on “HR goals” and “HR
Communication”. Communicate as if you are
sitting on the other side of the table

20. Underwhelming Communication
METRICS
Participants must understand what each metric
is, how each metrics works and how what they
do every day impacts that metric
P4P should be seen as a unique opportunity for
education. Participants will be interested, since
future payment is linked.

21. Underwhelming Communication
GOALS
Participants must understand the different
types of goals (threshold, modifier, accelerator)
They must understand why each goal level was
set and how each level is linked to future
payment
Modeling must include
Minimum, Maximum, Modeled (mathematical)
and Expected (best guess)

22. Underwhelming Communication
Communicating PROGRESS is like a marathon:
Mile markers
Current speed
Proximity of competitors
Coaching on what whether to
speed up, slow down, change
tactics
Cheering, managing and
motivating throughout

23. Human Nature

24. Human Nature
The
biggest
risk of all

25. Human Nature
Many experts believe the
biggest driver to cheating is
the desire to have what they
perceive others have.
In the case of business, what
others are perceived to have is
power and money. “SUCCESS”

26. Human Nature
Humans are CURIOUS
Humans are IMAGINATIVE
Humans are INDUSTRIOUS
Humans are COMPETITIVE
Humans are OPPORTUNISTIC

27. Human Nature
SO...
We are not just talking about cheating.
We are also talking about
coasting, taking advantage
of loopholes, ignoring
risks, etc.

28. Human Nature
Human Nature is one potential risk that
outweighs all others. It is seldom discussed in
our current environment.
This single risk is the reason why
executives, compensation professionals
and managers must actively manage P4P.
Simply rolling out a program leaves
you vulnerable to “attack.”

29. Human Nature
The best Performance
Programs, unmanaged, will usually result in
someone bending the rules or results to their
own favor P4P works best with competitive
people. Without guidance there is a
tacit understanding of acceptance.
Small misalignments, grow and
proximity to the action distorts
perception

30. Human Nature
Some obvious aspects of Human Nature can be
combatted with thoughtful design and great
communication.
You can ensure metrics are
correct and balanced
You can create goals that represent reality
and properly leverage success and failure.
Your communications can be
clear, frequent, and well
understood

31. Human Nature
BUT,
NOTHING BEATS GOOD OLD
MANAGEMENT AND LEADERSHIP
The key to Human Nature is that
most people prefer to be accepted.
They prefer to feel good about
their accomplishments. And, most
prefer to be lead.

32. Human Nature
Pay for Performance Programs
don’t Manage people
People Manage Performance

33. Questions
Dan Walter
Performensation
415-625-3406
dwalter@performensation.com

34. Other Places to Find Performensation
Next generation Online portal. Use Sponsor Pass Free Networking Group with 1300+ members
code “GEMS” to waive $595 registration Cross Functional Evolution for Equity Compensation
http://bit.ly/sharecomp2011 www.equitycompensationexperts.groupsite.com
Serving up straight talk, original thinking and
Free presentations, documents and more…
caffeinated discussion on everything compensation
www.compensationcafe.com www.slideshare.net/#!/performensation
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