Pay for Performance: A Clear Signal for Retention and Engagement

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2. Speaker: Mark Szypko Managing Director, Compensation Kenexa, an IBM Company

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6. Deanna Hartley Senior Editor Workforce Management magazine

7. Mark Szypko Managing Director, Compensation Kenexa, an IBM Company

11. 11© 2013 Kenexa, an IBM Company 11 © 2013 Kenexa, an IBM Company WHAT IS PAY FOR PERFORMANCE? With your 3.0% increase budget … a couple of questions How can you give your average performers a 3.0% increase while at the same time differentially rewarding your top performers AND still only spend 3.0%? What does your average performing employee expect to get as an increase?

13. 13© 2013 Kenexa, an IBM Company 13 © 2013 Kenexa, an IBM Company • Similar pay increases for all performance levels • Leading top performers to ask Impact on Pay Increases “Was all that extra work worth it?” PAY FOR PERFORMANCE

14. 14© 2013 Kenexa, an IBM Company 14 © 2013 Kenexa, an IBM Company PAY FOR PERFORMANCE • Employee A paid $20.00 per hour • Employee B paid $40.00 per hour • Both “Doing their Job” • Midpoint = Market Reference Point • Now what do we do? 403020 Minimum Midpoint Maximum Salary Range A B

15. 15© 2013 Kenexa, an IBM Company 15 © 2013 Kenexa, an IBM Company PAY FOR PERFORMANCE • Employee A paid $20.00 per hour • Employee B paid $40.00 per hour • Both “Doing their Job” • Midpoint = Market Reference Point • Now what do we do? 403020 Minimum Midpoint Maximum Salary Range A B

16. 16© 2013 Kenexa, an IBM Company 16 © 2013 Kenexa, an IBM Company • A compensation philosophy that asserts than an individuals pay is a function of their performance • Performance demonstrated consistently over an extended period of time • Target pay is achieved over time, not overnight • As opposed to increase for performance Minimum Midpoint Maximum PAY FOR PERFORMANCE

17. 17© 2013 Kenexa, an IBM Company 17 © 2013 Kenexa, an IBM Company If pay increases are made contingent upon performance: • Employee motivation to become a high achiever is increased • The organization has a better chance of retaining top performers • Lesser performers are motivated to increase performance level or look elsewhere PAY FOR PERFORMANCE

18. 18© 2013 Kenexa, an IBM Company 18 © 2013 Kenexa, an IBM Company • Increase budgets in the U.S. have bottomed out in 2009 though the rebound is yielding increase budgets still below the pre-recession levels “For the first time since 1980, the U.S. rate of inflation is higher than the average total salary budget increase” WorldatWork – August 2011 PAY FOR PERFORMANCE 2008 2009 2010 2011 2012 2013 Kenexa Compensation 3.0% 3.0% 3.0% IPAS 3.9% 1.1% 2.5% 3.2% 3.2% 3.0% Aon/Hewitt 3.7% 1.8% 2.4% 2.7% 2.9% 3.0% Buck 2.9% 2.9% 2.7% 2.8% 3.0% Conference Board - - 2.5% 2.5% 3.0% 3.0% Culpepper 3.9% 1.7% 2.7% 2.9% 2.8% 3.0% Hay 3.0% 3.0% Mercer - - 2.7% 2.9% 2.9% 2.9% Towers Watson 3.4% 1.7% 2.8% 2.7% 2.8% 2.9% WorldatWork 3.8% 1.9% 2.8% 2.9% 3.0% 3.0%

19. 19© 2013 Kenexa, an IBM Company 19 © 2013 Kenexa, an IBM Company WHAT’S HOT… Salary Growth 2008-13 Avg per Year Healthcare Case Management 23% 5% Software Engineers 22% 4% Speech and Language Pathologists 21% 4% Physician Assistant 21% 4% Occupational Therapists 19% 4% Advanced Practice Nurses 18% 4% Professional Pharmacy Staff 17% 4% Diagnostic Imaging 17% 4% Physical Therapists 17% 3% Hardware Engineers 16% 3% Chemical Engineers 16% 3% ALL JOBS 9% 2%

20. 20© 2013 Kenexa, an IBM Company 20 © 2013 Kenexa, an IBM Company …AND WHAT’S NOT Job Salary Growth 2008-13 Avg per Year Call Center Management 3% 1% Retail Store Employees 3% 1% Carpenters 4% 1% Attorneys 4% 1% Bank Tellers 4% 1% Machine Operators 6% 1% Assemblers 7% 1% ALL JOBS 9% 2% (Compensation Analysts – average at close to 10%)

22. 22© 2013 Kenexa, an IBM Company 22 © 2013 Kenexa, an IBM Company • Cultural Changes – Everyone can exceed, if just given the opportunity – Educational system – Athletics – Workplace – The entitlement mentality – Unwillingness to give 0% increases – Keeping up with inflation WHAT HAPPENED TO THE LINK?

23. 23© 2013 Kenexa, an IBM Company 23 © 2013 Kenexa, an IBM Company Reliance on “The Event”: • Once-a-year • Minimal communication • Reliance on manager’s memory • Little training WHAT HAPPENED TO THE LINK? Assessment Forms Became: • Too long • Too complex • Often designed to measure the wrong things

24. 24© 2013 Kenexa, an IBM Company 24 © 2013 Kenexa, an IBM Company Use/Misuse of Merit Matrices • A well-known former CEO has suggested that the bottom 10% of performers need to be culled each year. – Rating creep – Invalidating rating systems WHAT HAPPENED TO THE LINK?

25. 25© 2013 Kenexa, an IBM Company 25 © 2013 Kenexa, an IBM Company • HR began focusing on those needing help to succeed – More focus on the “Needs Improvement” employees – Less focus on “Outstanding” and “Good” performers WHAT HAPPENED TO THE LINK?

30. 30© 2013 Kenexa, an IBM Company 30 © 2013 Kenexa, an IBM Company QUITS, LAYOFFS AND DISCHARGES • Shifts are occurring in the employment market with layoffs trailing off while voluntary turnover and job openings are on the rise

31. 31© 2013 Kenexa, an IBM Company 31 © 2013 Kenexa, an IBM Company Increase budgets in the U.S. have bottomed out in 2009 though the rebound is yielding increase budgets still below the pre- recession levels SALARY INCREASE BUDGETS 2008 2009 2010 2011 2012 2013 Kenexa 3.0% 3.0% 3.0% IPAS 3.9% 1.1% 2.5% 3.2% 3.2% 3.0% Buck 2.9% 2.9% 2.7% 2.8% 3.0% Conference Board - - 2.5% 2.5% 3.0% 3.0% Culpepper 3.9% 1.7% 2.7% 2.9% 2.8% 3.0% Hay 3.0% 3.0% Mercer - - 2.7% 2.9% 2.9% 2.9% Towers Watson 3.4% 1.7% 2.8% 2.7% 2.8% 2.9% WorldatWork 3.8% 1.9% 2.8% 2.9% 3.0% 3.0%

33. 33© 2013 Kenexa, an IBM Company 33 © 2013 Kenexa, an IBM Company GLOBAL RESULTS: WHAT EMPLOYEES REALLY WANT R E S P E C T 10% Truth 20% Recognition 7% Exciting Work 18% Security 25% Pay 9% Education and Career Growth 11% Conditions Source: Kenexa High Performance Institute

34. 34© 2013 Kenexa, an IBM Company 34 © 2013 Kenexa, an IBM Company RECOGNITION A pat on the back from managers and the organization at- large 20% Recognition I want to be respected and recognized as a valuable team member Recognition when we do a good job - right now it is all about getting chewed out when we mess up More respect from senior management Source: Kenexa High Performance Institute

35. 35© 2013 Kenexa, an IBM Company 35 © 2013 Kenexa, an IBM Company PAY Fair compensation for a day’s work 25% Pay Compensation that is fair and respect(ful) Good pay for a hard day’s work Unfreeze pay Source: Kenexa High Performance Institute

37. 37© 2013 Kenexa, an IBM Company 37 © 2013 Kenexa, an IBM Company Worldwide, My pay is directly related to how well I perform. Source: 2011 Kenexa High Performance Institute WorkTrends survey 54% DO NOT see a link 20% uncertain 25% DO see a link THE LINK

38. 38© 2013 Kenexa, an IBM Company 38 © 2013 Kenexa, an IBM Company In the US, my pay is directly related to how well I perform. Source: 2011 Kenexa High Performance Institute WorkTrends survey 52% DO NOT see a link 19% uncertain 29% DO see a link THE LINK

39. 39© 2013 Kenexa, an IBM Company 39 © 2013 Kenexa, an IBM Company Worldwide the percent of employees who are seriously considering leaving their organization THE LINK WHY WE SHOULD CARE Source: 2011 Kenexa High Performance Institute WorkTrends survey

40. 40© 2013 Kenexa, an IBM Company 40 © 2013 Kenexa, an IBM Company Worldwide the percent of employees who are seriously considering leaving their organization THE LINK WHY WE SHOULD CARE Source: 2011 Kenexa High Performance Institute WorkTrends survey

42. 42© 2013 Kenexa, an IBM Company 42 © 2013 Kenexa, an IBM Company • Merit Pools: • We suggest that there be two basic pools of money for merit increases: • Management pool • Employee pool REPAIRING THE LINK

43. 43© 2013 Kenexa, an IBM Company 43 © 2013 Kenexa, an IBM Company • Merit Pools: • 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. REPAIRING THE LINK

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