getting pay for performance right
TRANSCRIPT
Willis Towers Watson: Getting Pay for Performance Right
© 2016 Willis Towers Watson. All rights reserved.
Key contacts
Jeff CooperProduct Sales Leader
Willis Towers Watson Talent
Management Software
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
uk.linkedin.com/in/jenniferekelly
2
Ruchi AroraSenior Consultant
Talent & Rewards
[email protected]/in/ruchiarora1
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
Willis Towers Watson HR Software: Overview
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Read more information about Willis Towers Watson HR Software
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?
Are you tempted to give up on pay for performance?
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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?
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)
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%
What are you trying to achieve?
10
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
11
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
How does Willis Towers Watson Talent Management Software help
deliver alignment?
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Aligning goals with business objectives
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
Performance management: evolution or revolution…
15
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
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
How does Willis Towers Watson Talent Management Software
support ongoing feedback?
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Manager effectiveness and ongoing feedback
Changes to Performance Management will require a re-think to pay
for performance
18
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
If you’re thinking of going ratingless – what does it mean for pay for
performance?
19
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
How does Willis Towers Watson Talent Management Software align
compensation with performance outcomes?
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Truly deliver pay for performance
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
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
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
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