American gas association 5-10-07 - final

Pay for Performance:
Hype or Reality?

A Presentation Developed by FutureSense, Inc. for
The American Gas Association
Compensation and Benefits Conference

by:

Jim Finkelstein
President and CEO

©FutureSense, Inc.® 2007 www.futuresense.com 415.453.1514 1

Introduction
Pay for Performance…

HYPE?
OR…


Pay for Performance


Linking Rewards to Results

Profit sharing, stock, sales compensation,
bonuses,
salary increase
programs

Why?

• Reward performance
• Drive results
• Attract, motivate and
retain people
• Engage and excite people
• Transform organizations
• Change behavior and
attitudes


Contrarian's View

• PAY
FOR
PERFORMANCE
DOES
NOT
WORK


Contrarian's View

Dissecting

Pay for performance

What aspects
Of the conventional thinking
Create challenges
Or don’t make sense?


Cull the Herd

If you don’t cut the people who aren’t
performing,
you can’t pay for performance


Mediocrity Breeds Mediocrity

“It takes a lot less
time and most
people won’t
notice the
difference until it’s
too late.”


Differentiating Among
Shades of Grey

Either people
do the job
or…
They don’t


Chasm between Executives
and Employees

Average CEO pay is now

300 times
typical non-supervisory
worker pay

Undermines the relationships between pay and
performance

Culture Clash

Differing cultural values
systems
either complement or
clash
with pay-for-
performance
philosophies


Cultural Value Systems
Graves/Beck -- value systems in human history as well value systems to come
Ray/Anderson -- three predominant American subcultures today

Paul
Clare Graves/ Ray/Sherry Basic Description Primary Concerns
Ruth Anderson
Don Beck
Turquoise --- Holistic Global consciousness & development
Yellow --- Integrative Complexity & adaptability
Green Cultural Humanistic Equality & community
Creatives
Orange Moderns Strategic Autonomy & achievement
Blue Traditionals Ethical Conformity & stability
Red --- Impulsive Dominance & control
Purple --- Mythical Well-being & custom
Beige --- Instinctive Basic survival


Culture Clash
What kind of culture
do you want
to….
Nourish

Create

Reward

Can You Melt My Butter?
Average salary increase for the past 20 years = 4% +/- 2%

Salary increase matrix:
• 80% rated in 3-4 range
• 80% in the middle of their range
• 80% in the four middle cells
• 1-2% differential between cells
• Average worker makes $50,000
• So 2% = 1000; divide by 24 pay periods
and calculate on an after-tax basis


Bonus Levels

Too low…
…used to pay off credit cards

<5% of pay -- insulting
Finkelstein’s 10% -- Christmas Bonus
15% -- people begin to engage
Rules
20% -- people begin to make it happen
25% -- people enroll others to make it happen!
30%+ -- people look through hoops to jump through…

What’s the motivation?
Like being in a movie, workers
are actors looking for their
motivation

Motivation = improve
performance? Survive? Fear?
Win?
Value system?

Work mostly out of fear and a
necessity to survive
Turnover = ~20%/year


Rating Rants and Raves

How to assess:
Behavior?
Traits?
Performance?

criticism vs. you’re wonderful


Win-lose or Win-Win

Does PFP Divide or Unite Employees?

• If hire well and cull the herd, where differentiation is a
waste of time and/or impossible, then focus on winning
together
• On-off switch for larger rewards with the opportunity
for episodic awards based on manager discretion and
cultural values
• Smaller companies or companies that behave with a
small culture = profit sharing


Goal Setting vs. Doing the Job


Do I Have a Choice?
Can we create an environment where people design
compensation programs that suit their motivational profile,
life conditions and risk/reward profile?

“Two roads diverged in a yellow wood…”

Eleven Themes

• Cull the herd
• Mediocrity breeds mediocrity
• Differentiating among shades of grey
• Chasm between execs and employees
• Culture clash
• Can you melt my butter?
• What’s the motivation?
• Rating rants and raves
• Win-lose or win-win
• Do I have a choice?
• Goal setting vs. doing the job


What it Means to You
Motivation and Engagement

• To truly motivate and engage
your people, you need to
understand why they think and
act the way they do
• Tap into your organization’s
cultural DNA and realize the
value of your people


Acquisition and Retention

Given the high cost of
turnover, doesn’t it make
sense to hire and retain
those people that fit your
unique organizational
culture?


Compensation and Benefits

• Compensation as
benchmarking vs.
compensation based on
value systems

• What if you could create a
compensation and benefits
program that actually
matches your organizational
culture?

Questions and Comments

For further information and/or to receive a copy of
this presentation email: jim@futuresense.com

American gas association 5-10-07 - final

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