Getting Pay for Performance Right

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Willis Towers Watson: Getting Pay for Performance Right © 2016 Willis Towers Watson. All rights reserved.

Transcript of Getting Pay for Performance Right

Page 1: Getting Pay for Performance Right

Willis Towers Watson: Getting Pay for Performance Right

© 2016 Willis Towers Watson. All rights reserved.

Page 2: Getting Pay for Performance Right

Key contacts

Jeff CooperProduct Sales Leader

Willis Towers Watson Talent

Management Software

[email protected]

www.linkedin.com/in/jcooper

© 2016 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.

Jenn KellyProduct Leader

Willis Towers Watson Talent Management

Software

[email protected]

uk.linkedin.com/in/jenniferekelly

2

Ruchi AroraSenior Consultant

Talent & Rewards

[email protected]/in/ruchiarora1

Page 3: Getting Pay for Performance Right

Upcoming Events

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Event Dates Location Details

HR Technology Conference and Exposition October 4-7 Chicago, IL Booth #622

HR Tech World Congress October 25-26 Paris, France Booth #219

Page 4: Getting Pay for Performance Right

Willis Towers Watson HR Software: Overview

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Read more information about Willis Towers Watson HR Software

Page 5: Getting Pay for Performance Right

We will address three questions today

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2. What does good look like?

3. How can our technology enable

pay for performance?

1. Are you tempted to give up on pay

for performance?

Page 6: Getting Pay for Performance Right

Are you tempted to give up on pay for performance?

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Page 7: Getting Pay for Performance Right

Merit increases are not working

on two dimensions:

Short-term incentives are

not consistently delivering

Only 20% of employers

say merit pay is effective at

driving higher individual

performance

A mere 32% say merit pay is

effective at differentiating pay

based on individual

performance

In fact, roughly a third (30%)

report that annual base salary

increases are not at all

effective in this regard

Only half say short-term

incentives are effective at

driving higher levels of

individual performance

Even fewer (47%) say that

these incentives are

effective at differentiating

pay based on individual

performance

Pay for performance appears to be more lip service than reality…

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Currently, highly prevalent pay for performance design

and implementation tools are broken

Source: 2015 Towers Watson Talent Management and Rewards Pulse Survey

Paying for

Performance?

Page 8: Getting Pay for Performance Right

Programmes often misaligned with talent needs

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There is a growing need to go beyond simply rewarding individual

performance in the recent past

Why are we all still using the traditional salary increase matrix?

Performance

Rating

Salary Range Position

Below Minimum Lower Third Middle Third Upper Third

Unsatisfactory

performance

0.0% – 2.0% 0.0% – 2.0% 0.0% 0.0%

Performance needs

improvement

2.0% – 4.0% 1.0% – 3.0% 0.0% – 2.0% 0.0% – 1.5%

Good performance 4.0% – 7.0% 3.5% – 6.0% 2.5% – 4.5% 1.0% – 3.0%

Excellent

performance

7.0% – 11.0% 5.0% – 8.0% 3.5% – 6.0% 2.5% – 4.5%

In making decisions

about merit increases,

managers give more

weight to the present

and future, rather than

past, which is typically

not prescribed within

the programme design

(the matrix)

Page 9: Getting Pay for Performance Right

Why you can’t afford to give up…

Boards and Remuneration Committees are unwavering in keeping pay for

performance concept as part of their total rewards philosophy

Significant financial and resource investment in traditional programmes such

as merit, incentives and performance management

Our most recent Global Workforce Study shows that employees who have a

positive view of pay for performance are more likely to be highly engaged.

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Highly engaged

All respondents…………………………………..

My organisation does a good job

explaining our performance

management process……………………………

People are held accountable for

their performance at my organisation………….

40%

65%

57%

Page 10: Getting Pay for Performance Right

What are you trying to achieve?

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Purpose

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To drive corporate

results

To link employee pay with company financial performance

To reduce the pressure and reliance on base pay / fixed cost

Rationale

To drive individual

performance

To differentially reward employees who contribute most to

business performance and success

To attract high performing individuals to the organisation

To communicate

what's important

To focus attention on specific areas of performance/results

To respond to market

pressures

To align with competitive external norms and practices

To deliver competitive total cash

To foster the company

culture

To enhance the sense of ‘one organisation’

To embed culturally important aspects of the employment deal

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What does good look like?

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Three practical tips for getting pay for performance right

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2 Focus on manager effectiveness and ongoing feedback

3 Truly deliver pay for performance

1 Align employee goals with business objectives

Page 13: Getting Pay for Performance Right

How does Willis Towers Watson Talent Management Software help

deliver alignment?

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Aligning goals with business objectives

Page 14: Getting Pay for Performance Right

Understanding what employees value

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Whoour people are

Whatmotivates and

influences them

Howto drive sustainable

engagement

Current Workforce

Understanding what

current segments

want/value will allow you

to deliver personalised

employee ‘deals’ to

engage and retain, and

focus resources to drive

the greatest value

Future Workforce

Understanding the profile

of future workforce

segments will facilitate a

proactive strategy and

plan to ensure the right

total rewards elements

are in place to attract the

workforce of the future

Aligning goals with business objectives

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Performance management: evolution or revolution…

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What’s really happening?

Change is happening

But what we’re seeing isn’t as radical as recent press might lead us to believe…

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70% of companies have already or intend to make changes to performance

management

of companies

have or are

actively working

on scrapping

performance

management

altogether

4%of companies with

performance

ratings/scores

have no intention

of eliminating their

use any time soon

71%have taken the

decision to

implement a

ratingless

approach to

performance

management

7%

Manager effectiveness and ongoing feedback

Page 16: Getting Pay for Performance Right

Significant gains could be made through investing in and

supporting managers

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of companies suggest manager feedback is the key driver of

change

of companies are concerned that managers don’t have the

necessary skills to support an effective performance

management process

think that line managers don’t see the value in the

performance management process

of companies cite low levels of senior manager support as

a barrier to effective performance management

63%

39%

26%

56%

Manager effectiveness and ongoing feedback

Page 17: Getting Pay for Performance Right

How does Willis Towers Watson Talent Management Software

support ongoing feedback?

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Manager effectiveness and ongoing feedback

Page 18: Getting Pay for Performance Right

Changes to Performance Management will require a re-think to pay

for performance

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To what extent does the outcome from your performance management process

strongly influence:?

1 2 3 4 5

Base pay increases 15% 13% 21% 25% 26%

Short-term incentive awards 22% 10% 11% 25% 32%

Promotion decisions 7% 10% 35% 36% 12%

High potential decisions 9% 14% 25% 38% 14%

Eligibility for development opportunities 8% 15% 36% 35% 6%

Workforce / succession planning decisions 11% 21% 34% 30% 4%

Learning & development design decisions 15% 19% 33% 27% 6%

Mobility decisions 29% 21% 31% 16% 3%

Long-term incentive awards 42% 12% 14% 21% 11%

Not at all To a great extent

Source: 2015 Towers Watson Performance Management Pulse Survey

Truly deliver pay for performance

Page 19: Getting Pay for Performance Right

If you’re thinking of going ratingless – what does it mean for pay for

performance?

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Get in on the discussion early – it’s not just a talent play

Focus should be on improving performance management – going ratingless is not a

panacea to a multi-faceted problem

But if you do remove ratings:

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Recent CEB research* showed that organisations without ratings have:

Lower employee engagement

Less time on informal conversations

Lower quality conversations

Lower perception of pay differentiation

ILLUSTRATIVE

Compensation

Categories

ILLUSTRATIVE

Payout

Guidelines

A 150% - 200%

B 100% - 150%

C 50% - 100%

D 0% - 50%

1Managers review

guidelines by

compensation

category

* CEB: The Real Impact of Eliminating Performance Ratings, 2016

2(Back to)

ranking?

Truly deliver pay for performance

Page 20: Getting Pay for Performance Right

How does Willis Towers Watson Talent Management Software align

compensation with performance outcomes?

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Truly deliver pay for performance

Page 21: Getting Pay for Performance Right

We shouldn’t all be the same…

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Pay for performance vs ‘pay for strategy’

Truly deliver pay for performance

Regulatory considerations

Macro-economic ‘shocks’

Market practices and norms

External ‘best practice’

External scrutiny

Company strategy and objectives

Company culture and EVP

Extent of diversification

Market position and life cycle

Demographics and employee

profile

Incentive design at all levels inevitably involves a balancing act between conformity and

customisation

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Our point of view Keys to enable and sustain high performance

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Effective Pay for Performance requires an integrated approach comprising each of the

following:

Define

Performance

Drive the right

Performance

Reward for

Performance

Cultivate a High

Performance

Culture

Define all

performance

dimensions

(e.g. results,

potential, behaviours,

culture, collective,

individual) and how

they differ by talent

segment

Ensure objectives

(e.g. results-based,

behavioral, cultural)

are aligned to

deliver on the

defined performance

dimensions

Improve the

performance

experience

Broaden

performance pay

to include other

rewards

Segment and

differentiate –

rethink conventional

reward programmes

based on ROI

Genuinely commit

to a change strategy

to build and embed

the desired

performance culture

Ensure leaders and

managers are

engaging in an

ongoing dialogue

with employees on

performance

Adopt enabling HR Software ● Ongoing simple messaging

Page 23: Getting Pay for Performance Right

Six practical things to remember

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2 Don’t forget about base salary!

3 (Re) define performance

4 Re-consider who this is for: changing demographics

5 Keep it simple

1 Start with the purpose

6 Get the message out in the best possible way

Page 24: Getting Pay for Performance Right

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