Linking performance management and pay for performance - S Bardot 2010

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I presented this topic at the Global HR conference in Milan, 2010.
Employee engagement has a significant impact on an organisation bottom line. After a quick case study of a deployment of a new performance management system, I cover how HR can improve employee engagement through performance management and pay-for-performance activities, especially supporting line managers as they have the most direct impact on their teams' perceptions - and therefore on employee engagement.

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Linking performance management and pay for performance - S Bardot 2010

  1. 1. LINKING PERFORMANCE MANAGEMENT AND PAYFOR-PERFORMANCE Sandrine Bardot – CompensationInsider.com
  2. 2. The world is changing 2 © 2013
  3. 3. Up, down and back up 3 © 2013
  4. 4. Walls are crumbling 4 © 2013
  5. 5. 5 © 2013
  6. 6. Agenda 6   Quick case study Tips for implementing a Pay-for-Performance system Potential risks  Enablers  Bad PFP leads to disengagement  Drivers of employee commitment      Tips series 1 : technical aspects of system design Tips series 2 : formal company communication Tips series 3 : the role of managers Additional resources © 2013
  7. 7. 7 Case study © 2013
  8. 8. Why did we do it ? 8  Old system was a mess : Process not followed by managers  No impact on pay nor career management  Administrative nightmare   Our objectives : Introduce a pay-for-performance culture  Encourage alignment between the different BUs  IPO plans  Share the wealth with employees  Develop accountability and on-going feedback and dialogue between managers and employees  © 2013
  9. 9. The system 9         Goals catalogue, year-on-year maintenance and sharing / cascading of objectives Employee self-evaluation Introduction of mid-year review Guided performance distribution curve Moderation sessions across groups Variable pool funding Direct link to individually differentiated payouts (bonus and increases) Integration with other HR systems (succession management, learning and development, payroll...) © 2013
  10. 10. Outcomes 10       93% of employee self-appraisals on time (were not mandated in the first year) 90% of manager ratings on time Thousands of employees in 14 countries reviewed for moderation of ratings in less than a month Salary increase budget was controlled Bonus payments differentiated by performance rating Reduced lead-time to pay © 2013
  11. 11. What worked... and what didn’t 11 Positive     Negative Great employee participation and feedback : some managers talked performance with them for the first time Easy tool and user interface made the move to technology a breeze Massive cost savings through salary increase budget control Improved succession planning and training plan © 2013      Moderation sessions not very well received by managers Pay decisions not very collaborative due to the pool distribution Not enough time for training on how to give feedback No communication on the results of the appraisal round Proper pay discussions not held in many departments
  12. 12. 12 Tips for implementing PFP © 2013
  13. 13. Potential risks 13  A conflict between :  Employee and manager working together to improve performance (problem solving, on going, collaborative approach with accountability on both sides)  And opposing interests when discussing the pay and reward impact of the performance appraisal  Potentially more arguments about the appraisal results, as the financial impact makes both parties more rigid in their approach © 2013
  14. 14. Enablers 14       Top leadership buy-in is a must On-going dialogue with stakeholders for design IT systems and integration with other HR tools Time... Trial and error... Continuous monitoring Understand that each system is unique Accept that there is no perfect way to assess employee contributions accurately © 2013
  15. 15. Bad PFP leads to disengagement 15  2/3 of employees are unhappy with how payfor-performance works at their organisation.  On average, 27% of dissatisfied employees have actually reduced the amount of effort they put in at work. It’s 35% for senior leaders (self-declared) ! (Source : CLC) © 2013
  16. 16. Influencers of employee commitment 16 Formal plan communication 22% How organisations pay Incentive satisfaction Manager communication 48% How organisations communicate about pay Process fairness perception Actual fairness of pay distribution 64% Employee commitment 57% higher vs effort of strongly not committed Source : CLC Discretionary effort - Impact on company results © 2013
  17. 17. Tips 1 - Design aspects 17  Must :  Align individual performance expectations with organisational goals  Strong line of sight  Avoid giving too many objectives – focus on core  Recommend : a fuller assessment of performance  Results and behaviour-based (competencies)  360-degree reviews ? (be careful before deciding)  Consider an even number of ratings ? © 2013
  18. 18. Tips 1 - PFP is a continuum 18 Ratings No rating Uncontrolled ratings Guided distribution Forced distribution High performers No differentiation 1.5 to 2 x average >2x, within salary range Position in SR irrelevant Low performers Small payment No increase © 2013 Small increase for 2d lowest rating
  19. 19. Tips 1- Support distribution fairness 19   Budget or variable pool ? Merit recommendations : Based on performance rating only / also include another factor like position in salary range ?  Discretionary / “range in the cell” ?  Aggressive / moderate differentiation between cells ?     Other data included ? (last increase, other employees in team, bonus info...) Training and HR support How / Will you hold managers accountable ? © 2013
  20. 20. Tips 2 – Communication of results 20    Go beyond regular communication on tool and system Why ? For fairness, accountability and prevention of abuse Decide on reasonable level of transparency :    By grade, unit, job family, a combination ? Average and/or minimum – maximum ? Communicate overall results of performance appraisal and pay decisions:    Performance rating Pay increase Bonus © 2013
  21. 21. Tips 3 - The role of managers 21  Extract from the “10 manager drivers to improve engagement list” from CLC study, 2009 1. Provide fair and accurate informal feedback  2. Emphasize employee strengths in performance reviews  3. Clarify performance expectations  6. Amplify positive employee performance traits and filter negative effects  7. Connect employees with the organizations’ strategy and its success  10. Demonstrate credible commitment to employee development  © 2013
  22. 22. Tips 3 -What’s in it for me as manager 22 Outcomes of good performance mgt Benefits Manager and employee problemsolve together Non confrontational resolution of issues Identify which employees : - can benefit from job training - to develop for greater responsibilities Motivated employees with the right skills to perform the job If you’re not replaceable, you’re not promotable Help each employee to understand his/her contribution to company success Increased motivation and discretionary effort Identify performance problems early on They don’t grow too large to be handled Remove barriers to performance that are not under employee control Better productivity Documentation for disciplinary action Protection from unjustified legal action © 2013
  23. 23. Tips 3 - Beyond “the form” 23  Explain that you are developing management tools, not an HR program and not just a tool :        Why and how to differentiate between employees What to discuss at a moderation meeting How to give constructive feedback How to manage poor performers How to develop individual development plans How to communicate about pay How to recognise performance (beyond pay) © 2013
  24. 24. Additional resources 24       Linking pay to performance – HumanResourcesIQ podcast Pay for Performance does not always pay – HBR article Helping managers talk about pay – 3 tips from Corporate Executive Board survey at Bloomberg Why managers don’t manage pay – CMC compensation Group blog post The history of performance reviews (an infographic) Why is "soft stuff” so hard really, at least to assess ? © 2013
  25. 25. And a final reminder…. 25 © Jim Davis © 2013
  26. 26. Thank you ! 26 +971 566 172 864 Sandrine@Compensationinsider.com 240+ free articles on C&B ! Subscribe at : http://CompensationInsider.com Check my profile on LinkedIn for Sandrine Bardot Recommendations, Expertise and Consultant, trainer, free presentations. speaker, blogger © 2013 Twitter : @CompInsider

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