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Paying for Performance: a Critical Tool to Fuel Both Individual and Organizational Success

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Paying for Performance: a Critical Tool to Fuel Both Individual and Organizational Success

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Compensation isn’t an event. Compensation is an evolution, and your employees track it in the only way they can: by comparison. They will compare their current situation to their coworkers’, to others in their industry and locale, and even to their prior experiences. Research from CEB, a Washington-based best-practice insight and technology company, shows that job-hunting activity jumps 6% on the anniversary of the hire date, 9% on the anniversary of a promotion, 12% after a birthday, and 16% after a high school reunion. When you factor measured performance into your pay strategies, you’re providing favorable comparison points and supporting the evolution of both your employees and your organization.

Join Victoria Hodgkins of BambooHR and Cami DeFoor of PayScale as they explore the important relationship between pay and performance, with five important factors to consider when linking pay to performance.

Compensation isn’t an event. Compensation is an evolution, and your employees track it in the only way they can: by comparison. They will compare their current situation to their coworkers’, to others in their industry and locale, and even to their prior experiences. Research from CEB, a Washington-based best-practice insight and technology company, shows that job-hunting activity jumps 6% on the anniversary of the hire date, 9% on the anniversary of a promotion, 12% after a birthday, and 16% after a high school reunion. When you factor measured performance into your pay strategies, you’re providing favorable comparison points and supporting the evolution of both your employees and your organization.

Join Victoria Hodgkins of BambooHR and Cami DeFoor of PayScale as they explore the important relationship between pay and performance, with five important factors to consider when linking pay to performance.

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Paying for Performance: a Critical Tool to Fuel Both Individual and Organizational Success

  1. 1. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success Victoria Hodgkins Chief Marketing Officer BambooHR Cami DeFoor Director of Sales Training PayScale
  2. 2. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success What is Pay for Performance? Links pay (base and/or variable), in whole or in part, to individual, group, and/or organizational performance. —The World at Work Handbook of Compensation, Benefits & Total Rewards “ ”
  3. 3. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success
  4. 4. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success
  5. 5. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success • Regular Bonus • One-time Bonus • Variable (commission) • Yearly Raises Types of Pay for Performance
  6. 6. Five Main Factors
  7. 7. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success Cost Efficiency1
  8. 8. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success Recruiting & Retention2
  9. 9. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success The Hidden Costs of Turnover • Administrative Costs: separation pay, exit interviews • Workload Costs: Extra hours, overtime pay, temp help • Recruiting Costs: Advertising, referral bonuses, interview time • Productivity Costs: Covering for missing employees • Training Costs: Time to contribution, trainer’s hours Turnover costs are, on average, between six and nine months’ of an employee’s salary.
  10. 10. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success Epiphany Moments • 6% increase on the anniversary of a hire date • 9% increase on the anniversary of a promotion • 12% increase after birthdays, especially milestone birthdays • 16% increase after attending a high school reunion Job-hunting activity jumps when employees make comparisons. Research from CEB, as reported in Harvard Business Review
  11. 11. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success Moral Responsibility3
  12. 12. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success ACulture of Trust4
  13. 13. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success Three Keys to Building Trust 1. Repeat Interactions 2. Win-Win Situations 3. Effective Communication and Execution
  14. 14. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success • Two factors: hygiene factors and motivation factors • Hygiene factors: salary, benefits, safety • Motivation factors: expression, purpose, friendship • Decreasing dissatisfaction with hygiene factors is the foundation for increasing satisfaction through higher motivations like an effective company culture and a fulfilling career path Herzberg’s Theory
  15. 15. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success
  16. 16. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success Drives Results5
  17. 17. Compensation and Demographics
  18. 18. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success Age Baby Boomers · 1946 – 1964 Communication About Comp: Mostly Private Average Tenure: 15+ Years Career Mindset: Retirement, Work/Life Balance
  19. 19. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success Generation X & Busters · 1965 – 1983 Communication About Comp: Somewhat Private Average Tenure: 5+ Years Career Mindset: Management, Work/Life Balance Age
  20. 20. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success Gen Y & Millennials · 1984 – 2002 Communication About Comp: Public Average Tenure: 15 mos-2 Years Career Mindset: Go-Getters, Advancement, Flexibility Age
  21. 21. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success AgeBaby Boomers · 1946 – 1964 Communication About Comp: Mostly Private Average Tenure: 15+ Years Career Mindset: Retirement, Work/Life Balance Generation X & Busters · 1965 – 1983 Communication About Comp: Somewhat Private Average Tenure: 5+ Years Career Mindset: Management, Work/Life Balance Gen Y & Millennials · 1984 – 2002 Communication About Comp: Public Average Tenure: 15 mos-2 Years Career Mindset: Go-Getters, Advancement, Flexibility
  22. 22. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success Pay and Performance Management
  23. 23. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success Performance Management Challenges FREQUENCY TIME ACCURACY PURPOSE
  24. 24. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success Performance Management Challenges FREQUENCY
  25. 25. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success Performance Management Challenges TIME
  26. 26. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success Performance Management Challenges ACCURACY
  27. 27. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success Performance Management Challenges PURPOSE
  28. 28. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success
  29. 29. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success • Individualized Rewards & Recognition • Variable or Incentive Pay Plan • Base Pay Plan • Company Culture, Compensation Philosophy & Compensation Strategy The Compensation Mix
  30. 30. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success Strategy • Develop Clear Compensation Strategy • Get Reliable Market Data • Develop Clear and Aligned Goals
  31. 31. Action Items
  32. 32. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success Performance Action Items 1. Measure Performance Accurately 2. Continue Clear Communication 3. Develop a Culture of Trust 4. Create Custom Solutions
  33. 33. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success Compensation Action Items 1. Gain Executive Buy-In 2. Align with Organization Goals/Culture 3. Get the Right Systems in Place 4. Train Managers Properly 5. Communicate Clearly Across the Organization
  34. 34. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success “Employees won’t believe there is a link between pay and performance unless they can see it.” —Margaret O’Hanlon, re:Think Consulting
  35. 35. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success BambooHR Download our new Definitive Guide to Performance Management https://www.bamboohr.com/resources/ebooks/definitive-guide-to-performance-management Get the free whitepaper on Pay and Performance PayScale Visit http://www.payscale.com/hr/whitepapers Questions?
  36. 36. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success Thanks for joining us today. Don’t forget to check out other webinars and eBooks that will help set you free to do great work! MoreGreatContent Managing Employee Turnover Comp Is Culture
  37. 37. bamboohr.com payscale.com Paying for Performance: A Critical Tool to Fuel Both Individual and Organizational Success Follow BambooHR and PayScale on social media: bamboohr.com/blog | www.payscale.com/compensation-today Thank you!

Notas del editor

  • Hello, everybody and welcome. Today, the team at BambooHR is excited to be partnering with PayScale on this webinar about Paying for Performance.

    Before we get into the webinar, however, we have some housekeeping matters to cover.

    We will be doing a Q&A session at the end of the webinar and will try to address as many questions as we can. Please submit questions using the chat feature on the interface at any point during our presentation.

    After this webinar concludes, we will be sending out a copy of the slide deck and a recording of the webinar within a couple of days, so please make sure to check your inboxes for that.

    We also have some great offers for our attendees, which we’ll cover at the end of this webinar.
  • My name is Victoria Glickman Hodgkins and I am the chief marketing officer at BambooHR.

    It is my honor and pleasure to introduce my co-presenter, Cami DeFoor - Director of Sales Training at PayScale.

    Cami has been with PayScale for nine years. She obtained her CCP in 2011 and has extensive experience in educating both PayScale employees and prospective customers in the value of a modern compensation solution.

    Cami graduated from Western Washington University with a degree in Business Administration and a minor in Management.
  • PAYSCALE:

    The notion of pay for performance is really a reward system where typically some portions of their compensation is related to how they perform, relative to some stated criteria. Sometimes pay for performance systems are build off individual contribution and some are built off a group or larger company metric.
     
    With a focus on trying to build a strong performance based culture, and trying to make sure we are retaining our best employees, many companies are trying to implement P4P or trying to find ways to make it simpler.
     
    In PayScale’s 2017 Comp Best Practices report, we found that only 30% of non exempt individual contributors are not receiving some type of variable pay component in their compensation package
  • VICTORIA:
    Pay for Performance is really an equation. First, there’s pay, or the value that your organization gives to your employees. Then on the other side, we have performance, or the value that your employees add toward accomplishing your organization’s objectives and mission. Our goal is to get the right balance between the two. Balancing pay and performance creates a stronger and more fulfilling equation: the organization is stronger for getting their money’s worth, and employees feel more fulfilled because they are recognized and rewarded for their hard work.
    Of course, salary isn’t the only value that your organization offers to your employees, just as your employees contribute to your organization’s success in different ways. In addition to directly impacting your top or bottom line, your employees might provide great ideas, leadership skills, and a solid team dynamic, while you might support them in addition to pay with health insurance, a 401k with company match, and perks like popsicles in the break room freezer.
    But while you’re hopefully familiar with the full value of your compensation package, do your employees share that understanding?  Or do they ONLY look at their net pay when they consider their compensation? Part of the idea of pay for performance strategies is to help your employees recognize both halves of the equation: both the support your organization gives them, and the performance your organization expects in return.
  • VICTORIA:
    When the pay/performance equation gets out of balance, then dissatisfaction can occur. Employees who are getting paid more than their performance merits may wonder how long it will take anyone to notice, and whether the practice is sustainable in the long-term. Meanwhile, employees who are getting paid too little for their performance will face pressure to find new employment that pays them what they’re worth. And neither scenario is viable for the organization in the long run.
    Done properly, pay for performance strategies encourage individual growth with the promise of future rewards and recognition in your organization, then capitalize on these well-cared-for employees to make real progress as an organization.
  • VICTORIA:

    Pay for performance can take several different forms. These include:
    • Annual bonuses: These plans award money for completing a goal over the fiscal year: this could be a percentage of profits, a percentage of salary, or a fixed amount.
    • Project-based bonuses: These take the same concept as the annual bonus but award the bonus at the end of a specific project.
    • Variable pay or commission: this strategy builds performance into the employee’s base pay, with compensation specified per sale or deal.
    And finally,
    • Yearly Raises: Even if you don’t use the other methods of pay for performance, how you evaluate an employee’s performance in the past year and change their compensation accordingly plays into the pay for performance balance.
  • VICTORIA:

    There are five main factors to consider when developing pay for performance strategies: Cost Efficiency, Recruiting and Retention, Moral Responsibility, Culture, and Results. An effective strategy will address each of these factors.
  • PAYSCALE:
    First reason you should pay for performance is cost efficiency – you are going to get a better return on the money you are paying out in raises if more is being allocated to top performers, or helps to drive performance.
     
    IF employees expect annual increases, it will drive an entitlement mindset versus a performance driven culture.
     
    It can also drive down morale, and in turn, productivity, if your hardest working and top performing employees are receiving the same increases as your low performers.
     
    You want to spend money where you get the best return will help you with retention of top performers.
     
    A simple way to be fair and transparent about how your organization chooses to reward hard work.
  • VICTORIA :

    Recruiting and Retention are two areas where your pay strategies have a huge impact on your organization’s bottom line. How your compensation compares to other options in terms of pay for performance will help determine whether great employees join your organization AND how long they will stay.
    As you recruit, your candidates are going to compare the salary you offer to the market norms or averages. And in this case, local averages matter as much, if not more, than national averages. The salary you offer will either lead your particular market, match your competitors, or lag behind.
    It might be tempting to consider giving employees the lowest possible salary as a measure of cost efficiency. This can be shortsighted, since hiring an employee doesn’t bind them to your organization forever, especially as job hopping is an increasingly common practice. A BambooHR study found that one in three employees had quit a job within six months of starting it, with close to 1 in 6 responding that they’d quit in the first three months.

    So, to summarize, it’s important to get the pay equation, including salary, right up front. As Cami mentioned, setting the right salary is a big part of cost efficiency.
  • VICTORIA:

    Pay might help attract new employees. But you also need to consider how pay plays into retention over time of that employee. The amount you spend increasing compensation for an employee over time can be insignificant when compared with the costs of replacing that employee. On average, replacement costs are somewhere between six and nine months of their salary.

    If you’re wondering which factors go into that estimate, then let’s break it down:
    You’ll need to pay for exit interviews, administration costs and separation pay.
    You’ll pay in extra workload, whether you hire temporary help or your existing workforce puts in overtime.
    You’ll pay for advertising, employee referrals, and all the time costs associated with interviewing.
    And you’ll pay with lost productivity, both as the direct result of the missing employee and in reduced productivity as their teammates pick up the slack.
    And even after you replace the employee, you’re paying for training costs and a climb to full productivity as the new hire learns your organization’s systems and grows into the role.
    Unwanted turnover can be a huge cost to an organization.
  • VICTORIA:

    So in response to the cost of turnover, there's a new trend in business analytics: some employers hire tech firms to help track signs that their employees may be looking for a new job, including visits to LinkedIn on company computers, times badging in and out of the parking garage, and other big data type approaches. Research from one of these firms shows that job-hunting activity jumps 6% on the anniversary of the hire date and 9% on the anniversary of a promotion, marking natural comparison points. But there’s a 12% spike after birthdays, especially milestone birthdays like 30, 40, or 50. And after the biggest of all comparison events, the high school reunion? A 16% increase in job-hunting.
    So while your employees always have their work situation in the back of their minds, these epiphany moments can bring it to the forefront. And if they feel that their future doesn't include improvement in pay or performance, then they will look for other opportunities.
    Both your organization and your employees are going to change, with different needs and new goals over time. While you can’t give every employee a raise to counter every epiphany moment, other pay for performance strategies like bonuses and profit sharing can help make up some of the difference. The key is to use these pay for performance strategies to help your salary position stay consistent as the market changes so that your employees know that you’re taking care of them.
  • PAYSCALE:
    When we think about different strategies that businesses take on their customer success strategy, you sometimes see a company that will put all of their resources into customer acquisition and not put nearly enough resources into keeping their current customers happy.
     
    If you put that same lens on employees – retention of top ee’s is as important and realistically probably more important than recruiting new talent
     
    Pay for performance is so critical –top performers will be demotivated if their company pays low performers the same increases or bonuses as they receive.
     
    P4P isn’t enough – you need to be effectively communicating to your ee’s about the fact that you value performance and are willing to pay for it – and will have honest and transparent conversations about an employees performance during the increase or bonus process.
  • VICTORIA:

    As you continue to do the right thing with pay for your employees, you build a culture of trust. This doesn’t mean that you throw money at a toxic culture and hope that it goes away. Trust is the foundation of both a good culture and your success as an organization; and it can be strengthened over time.
  • VICTORIA:
    There are three essentials in the trust-building process, or in shaping your employees’ expectations:
    First, it takes repeat interactions to develop trust. If both employer and employee know that they will need to work together in the future, then they have incentive to keep cooperating instead of burning bridges for short-term gain. Regular bonuses or performance pay increase the number of interactions you have with your employees, giving you the opportunity to recognize outstanding performance while it’s still fresh in your employee’s minds.
    Second, both parties need to get something from the interaction. Stephen R. Covey calls this process developing win-win situations. In workplace situations, this means keeping things fair for our employees. Pay for performance is also a win-win situation by definition: employees win with extra pay, your organization wins with better performance.
    Finally, both parties need to have effective communication and execution. Real people make mistakes, and when that happens, they have two choices: assume the worst and avoid responsibility or the opportunity to learn from their mistakes, or assume the best and make up for the mistake with continued effort and cooperation. Catching mistakes and misconceptions quickly helps you get back to fruitful cooperation.
    Effective communication doesn’t just mean explaining your pay for performance program and hoping for the best. You need to know the effect your programs are having on your employees, and this isn’t something you can know without effective feedback. The most effective programs keep a dialogue open.


    Source: ncase.me/trust
  • VICTORIA:

    Psychologist Frederick Herzberg encapsulated the role of pay in workplace culture with his two-factor theory. Summed up, there are two different categories of motivation: experiences that increase satisfaction and experiences that decrease dissatisfaction. So workplace practices that meet employees’ basic needs, like their salary and benefits, go unnoticed unless they’re missing. It’s then that the dissatisfaction goes up. Herzberg labeled these hygiene factors, or daily maintenance factors.
    Motivation factors, on the other hand, are the practices that increase employee satisfaction. These include the pleasure of a job well done, cordial relationships with coworkers, and recognition from the organization and/or the world at large.
  • VICTORIA:

    According to SHRM’s recent Employee Satisfaction and Engagement Summary, about two-thirds (61%) of employees indicated that compensation is a very important factor in their job satisfaction, yet only one-quarter (26%) of employees stated they were very satisfied with it. This was the biggest gap between satisfaction and importance in this study. Employees expect their pay, and they’ll complain if it’s lacking. But they’re not going to throw a parade for you every payday.
    So to develop a workforce with focused, motivated employees, your pay structure needs to give them a solid foundation to remove dissatisfaction, and then provide the right cultural elements to increase their job satisfaction. This can include recognition through performance-based pay: in fact, a study Bamboo conducted last year found that monetary bonuses are the preferred reward for work accomplishments. But for these to feel like rewards and contribute to employee satisfaction, your employees will need basic security first.
    Your employees will develop a culture no matter what actions you take. They’ll develop expectations and trust you to meet them, whether those expectations are high or low. If you’re looking for a culture where employees take initiative and propel the work forward toward real results, you’ll need to start with fair pay and expand from there.


    https://www.shrm.org/hr-today/trends-and-forecasting/research-and-surveys/Documents/2017-Employee-Job-Satisfaction-and-Engagement-Executive-Summary.pdf
  • PAYSCALE:

    So how does this work?
     
    The goal here is that you are aligning your employee performance to your company’s overarching goals. Alignment – cascading goals, - you can call it a lot of different thinks but the basics are:
     
    Start with the business goals
    Break them down by departments that impact those goals
    Then by how individuals can actually have an impact on that goal
     
    Audience member asks about team goals – he says when it makes sense there are many companies that are moving towards this but it has to be a situation where it makes sense. For example if you are brining on a new team and there are many new hires – the broader department might get comp’d on getting that team up to speed since they can each pitch in to help.
  • Payscale:
    So compensation matters to everyone, but the way it matters does differ a bit by different demographics
  • PAYSCALE:
  • PAYSCALE:
  • PAYSCALE:
  • PAYSCALE:

    For a long time, millennials fit a pattern: one or two years at any given job, then switching out for something better. There was even a cute name: hyper hoppers. But the 2017 Deloitte Millennial Survey found that the hyper hopper trend has tapered off in 2017 compared to 2016’s data. The worldwide data shows that the percentage of respondents who said they’d leave within two years dropped from 44% to 38%, while the percentage of respondents who said they’d stay increased from 27% to 31%. In the US, millennials are now more likely to say they will stay with the same company for more than five years than they are to say that they’ll leave within two.
    Deloitte connects this phenomenon with a rise in global instability and posits that millennials are looking for stability in an uncertain world, based on the shrinking gap between the hyper hoppers and the long-term employees. In the UK, for example, the gap shrunk from 32 points in 2016 to 12 points in post-Brexit 2017. That’s a shift for one fifth of the total respondents.
    So we could say that Baby Boomers stay at jobs longer while Millennials are more flexible, because, on average in the total sample, that’s accurate. But here’s the question: is this a function of age, or a function of life situation? Millennials are making major life commitments much later than their parents did, but they are still making those commitments. So as more and more millennials move on to richer life experiences, we’re going to see less of the hyper-hopper trend. It’s more difficult for a hyper-hopper of any age to purchase a home, raise a family, or make other long-term plans.
    It’s important to understand general trends. It’s part of your research on what’s going on in the job market. But it’s even more important to understand individual employees and what they expect. A one-size-fits-all approach based on national trends won’t provide the same results as one that understands an employee’s specific reality and targets their needs. This approach calls for data that goes beyond a basic Google search. It calls for data-backed strategy, both in pay and in performance management.
  • VICTORIA:

    It’s important to understand general trends. It’s part of your research on what’s going on in the job market. But it’s even more important to understand individual employees and what they expect. A one-size-fits-all approach based on national trends won’t provide the same results as one that understands an employee’s specific reality and targets their needs. This approach calls for data that goes beyond a basic Google search. It calls for data-backed strategy, both in pay and in performance management.
  • VICTORIA:

    As BambooHR has developed performance management features, we’ve found that while the idea of data-backed performance is simple, the execution is anything but. There are four main hurdles to get over when assessing performance: Frequency, Time, Accuracy, and Purpose.
  • VICTORIA:
    Frequency
    First, how frequently should you review performance? Many employers still lump most of their performance-related evaluations and decisions into a single annual review. This leaves a lot of potential epiphany moments unanswered throughout the year.
  • VICTORIA:

    Time
    It’s likely a part of the second concern: How much time should it take to accomplish these performance reviews? The 17 hours per employee figure we referenced earlier was just an average: our own research shows that employers run the range of spending thousands of hours every six months to spending no time at all. At the one extreme, performance gets in the way of actual work, at the other, employees receive no official feedback.
  • VICTORIA:
    Accuracy
    Third, How accurate is our performance data? This is slightly easier when using numerical metrics like sales figures. But each of us has biases, so measuring subjective skills like teamwork or leadership tends to reflect more on the manager’s view than the employee’s actual results. This effect only compounds when managers are asked to remember and evaluate performance from prior months.
  • VICTORIA:
    Purpose
    And finally, is our performance measurement targeted toward clearly-defined goals? It’s important to review whether your employees are helping your organization’s goals, and also whether your organization is helping your employees progress toward their personal goals. This helps make sure that performance pay motivates productive action and individual change, rather than incentivizing cutthroat competition or personal connections.
  • VICTORIA:

    BambooHR believes strongly that it makes sense to invest in more regular performance management for your employees. This can include informal feedback in the moment, self-evaluations, manager evaluations, and peer evaluations. A study from Adobe found that managers spend, on average, 17 hours per employee holding annual performance reviews. But when you hold these evaluations more than once a year, they don’t have to be as extensive or time consuming as an annual review and they are more effective. As employees, peers, and managers answer a few targeted questions, this provides a snapshot for managers to take to brief one-on-one meetings with their employees. With open dialogue between managers and employees, everyone can be on the same page.

    When you provide frequent performance feedback, your employees will have a more accurate picture of how their performance has an impact, both on your organization and on their future with your organization. This underpins all five of the factors we discussed earlier: evaluating performance helps your organization operate efficiently, And when employees can see how their performance influences your pay decisions, those pay decisions become more effective, whether you’re giving them a large bonus or a small annual raise. The more consistent this picture is with what you promised when you hired them, the more you’ll earn their trust. And that trust is just one part of your moral responsibility to your employees.
  • PayScale:

    The foundation of the compensation mix starts with the organizations comp philosophy & strategy. We have to decide as a company if we are going to reward performance
     
    Reward is chosen intentionally because not all rewards have to be tied to pay, and we will talk about that in a min.
     
    Base Pay - This is a good place to differentiate between your low and your high performers. SHRM previously stated that a 7% increase is where employees feel like they are being fairly recognized- when you consider that many companies do 3 or 4% you can see where incorporating P4P can become extremely meaningful.
     
    In our CBPR we found that the average increase last year was about 5%, which is up from previous years, and that 54% of organizations were doing the P4P in the form of base pay increases
     
    Variable and/or incentive pay can come in the form of increases or bonuses. One thing that is critical is to make sure that managers are being fair with how they are rating the performance of employees – and that there is consistency across the organization. It cant be a situation where everyone is a “top performer” so they they can all get more money or it becomes demotivating.
     
    Individualized rewards and recognition – these can be monetary or non monetary. You may work on a special project and be rewarded with a gift card to your favorite restaurant- or perhaps it could be non monetary where perhaps an employee is recognized during an all company meeting or something of that nature.
  • PayScale:
    Thing to think about – is that you really need to make sure you have a clear strategy
     
    Understand where you are competing for talent and how that differs based on different segments in your workforce
     
    For example – you might compete with tech companies for your tech roles versus something else for other roles. Determine in advance how competitive you want/think you can be.
     
    If you cant pay at market – try to understand what else you can do to set yourself apart as an employer- is the work incredibly meaningful? Maybe employees have a bigger impact on the business that they would at a large org. You need to understand what it is and what you do to set yourself apart, and do a good job of clearly communicating that.
     
    Organizations need to start by using market data. Organizations can’t operate and make strategic decisions in the absence of accurate market data. All market data I not created equally. It’s important to think about the breadth and the depth of the data as well as the relevancy. Does the data actually cover your roles? Is it validated? Is it representative of the types of organizations that you are competing for talent with? Can you get away with one data source or do you need multiple sources? Also it is always good to be paying attention to the age of the data.
     
    We see at PayScale that there are hot jobs that can move 6-12 % in the market in one year, and others that stay flat. Many organizations will use old data and just apply an aging factor of 2 or 3% - which can be risky when you are dealing with this type of scenario – as you could get really far behind market on some employees, and overpay others relative to your strategy.
     
    You need to define clear and aligned goals to communicate with employees. They should understand how the work they are doing or being asked to do is related to the broader business goals.
  • VICTORIA:

    Hopefully it’s becoming more clear how your organization can benefit from an effective pay-for-performance strategy. Here are a few action items from today’s presentation.
  • VICTORIA:

    Measure Performance Accurately
    The first action item: Measure your employees’ performance, and record this data. Not only will this help you solidify your compensation strategy, but it will provide a new level of transparency for your employees. When you can show the data behind your decisions, you’re showing your employees that their future is tied to their work, not to their manager’s bias or a recent win.
    Continue Clear Communication
    During this process, continue to communicate with your employees, so that they know how to improve. Encourage your managers to provide both informal, in-the-moment feedback and regular formal one-on-one meetings. Identify goals for your organization and for each employee, and use these sessions to help align the two. And this goes both ways: managers need to listen to employee feedback to adapt their plans to meet the needs of their employees.
    Develop a Culture of Trust
    As this process continues, you develop a culture of trust in your organization. Having frequent positive interactions between managers and employees helps remove the fear around giving and receiving feedback. Then when it comes time to discuss compensation, your employees will have the confidence to hold honest conversations based on the reality of your organization’s situation.
    Create Custom Solutions
    And this reality should fit your organization with its own custom solutions. Your employees need a clear understanding of each of their career paths within your organization. They need to understand the timeline behind compensation changes, the possibility for advancement, and the value of their total benefits package. As trust builds, it clears the way for transparent conversations about compensation. Then if the time isn’t right for a raise, you can have those conversations without employees losing trust in the future with your organization, or going to another company for the raise they know they deserve but were too afraid to ask for.  
    From the first step to the last, effective performance management helps your organization run on strategy, not guesswork or tradition. With this foundation in place, your employees are much more likely to see pay-for-performance measures as the support and recognition they’re meant to be, rather than compensation at risk.
  • PayScale:

    We worked on these lists independently – so there is some overlap here.
     
    Get executive Buy-In. Do your execs have experience with P4P? What was that experience? Plan to address any potential objections that could come up from prior experiences, and also have points around what you think it will help the organization accomplish
     
    2. Your plan should align with the culture and goals of your business. And you business should be committed to a performance based culture and what that means for some employees
     
    3. Get the right systems in place. Make sure you have a performance management plan and system that allows you to effectively complete performance reviews in a consistent way. Also have a pay plan that you can refer to and make the appropriate decisions about how performance will factor into pay and what that means for the bigger picture.
     
    Make sure managers understand the best practices that go along with a successful P4P plan. Give them the correct training about how to think about compensation and how to address questions around the companies strategy and specific compensation decisions. Many managers have negative perceptions of conversations with employees about pay and frequently this is because they’ve been asked to have these conversations with very little info and a lot of questions coming at them from employees.
    In our CBPR – we found that only 19% of companies felt confident in their managers ability to have tough pay conversations, and only 30% of companies train their managers on these types of conversations.
     
    Make sure the communication across the business is consistent – both in how goals are laid out, how they are communicated and that we actually practice what we preach when it comes to P4P. Employees should not have to spend cycles talking amongst themselves about the unknowns – because you’ve done such a clear job of communicating with them up to this point.
  • PayScale:

    So we are coming to an end here. Related to employees- its important to remember that they WILL NOT believe that there is actually a link between pay and performance unless they see if and the business has clear and consistent communication around it – as well as follow though.


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