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T

         The Broken Link

    Between Performance & Pay



         Joseph B. Kilmartin, Jr.




          Connecting people, pay and performance   1
Two questions:

1.   Is there a strong link between pay and
     performance at most organizations today?

2.   Can a stronger link be created?




             Connecting people, pay and performance   2
Agenda

Agenda

I. The Performance Management Opportunity

II. The Broken Link between Pay and
    Performance

III. Why Did It Happen?

IV. Repairing the Link




        Connecting people, pay and performance   3
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.



                   Connecting people, pay and performance   4
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




               Connecting people, pay and performance   5
Why Did It Happen?
• Performance management system expansion
   – Career development, succession planning, etc.
   – Ambiguity of responsibility for performance
     management
      • Innumeracy




              Connecting people, pay and performance   6
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




               Connecting people, pay and performance   7
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




               Connecting people, pay and performance   8
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%




              Connecting people, pay and performance   9
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.




              Connecting people, pay and performance   10
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%




              Connecting people, pay and performance    11
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?”




               Connecting people, pay and performance    12
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


                Connecting people, pay and performance     13
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.




              Connecting people, pay and performance   14
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.

              Connecting people, pay and performance   15
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.




             Connecting people, pay and performance   16
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.




              Connecting people, pay and performance   17
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.


               Connecting people, pay and performance   18
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.




                                      Connecting people, pay and performance                                 19
jkilmartin@salary.com
     781-851-8861




Connecting people, pay and performance   20

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Kilmartin - The Broken Link Between Performance & Pay

  • 1. T The Broken Link Between Performance & Pay Joseph B. Kilmartin, Jr. Connecting people, pay and performance 1
  • 2. Two questions: 1. Is there a strong link between pay and performance at most organizations today? 2. Can a stronger link be created? Connecting people, pay and performance 2
  • 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 Connecting people, pay and performance 3
  • 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. Connecting people, pay and performance 4
  • 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 Connecting people, pay and performance 5
  • 6. Why Did It Happen? • Performance management system expansion – Career development, succession planning, etc. – Ambiguity of responsibility for performance management • Innumeracy Connecting people, pay and performance 6
  • 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 Connecting people, pay and performance 7
  • 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 Connecting people, pay and performance 8
  • 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% Connecting people, pay and performance 9
  • 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. Connecting people, pay and performance 10
  • 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% Connecting people, pay and performance 11
  • 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?” Connecting people, pay and performance 12
  • 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 Connecting people, pay and performance 13
  • 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. Connecting people, pay and performance 14
  • 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. Connecting people, pay and performance 15
  • 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. Connecting people, pay and performance 16
  • 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. Connecting people, pay and performance 17
  • 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. Connecting people, pay and performance 18
  • 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. Connecting people, pay and performance 19
  • 20. jkilmartin@salary.com 781-851-8861 Connecting people, pay and performance 20