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.

1. LINKING PERFORMANCE
MANAGEMENT AND PAYFOR-PERFORMANCE
Sandrine Bardot – CompensationInsider.com

2. The world is changing
2
© 2013

3. Up, down and back up
3
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4. Walls are crumbling
4
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5. 5
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6. Agenda
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

Quick case study
Tips for implementing a Pay-for-Performance
system
Potential risks
 Enablers
 Bad PFP leads to disengagement
 Drivers of employee commitment

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Tips series 1 : technical aspects of system design
Tips series 2 : formal company communication
Tips series 3 : the role of managers
Additional resources
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7. 7
Case study
© 2013

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. The system
9
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
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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. Outcomes
10
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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. 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
Tips for implementing PFP
© 2013

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. Enablers
14

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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. 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. Influencers of employee commitment
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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. 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. Tips 1 - PFP is a continuum
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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. 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 ?

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Other data included ? (last increase, other
employees in team, bonus info...)
Training and HR support
How / Will you hold managers accountable ?
© 2013

20. Tips 2 – Communication of results
20
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Go beyond regular communication on tool and system
Why ? For fairness, accountability and prevention of
abuse
Decide on reasonable level of transparency :

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
By grade, unit, job family, a combination ?
Average and/or minimum – maximum ?
Communicate overall results of performance appraisal
and pay decisions:
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Performance rating
Pay increase
Bonus
© 2013

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. Tips 3 -What’s in it for me as manager
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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. Tips 3 - Beyond “the form”
23

Explain that you are developing management
tools, not an HR program and not just a tool :
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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. Additional resources
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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. And a final reminder….
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© Jim Davis
© 2013

26. Thank you !
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© 2013
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