Performance Management and Pay for Performance

MANA 5322Dr. Jeanne Michalskimichalski@uta.edu

Performance Management

Management tool to help ensure that employees are focused on organizational priorities and operational factors that are critical to organization’s success.

Key Questions to Consider When Receiving Feedback Do I understand it? Is it accurate/valid? Is it important? Do I want to change?

At its heart feedback is only information. How you choose to think and feel about the feedback will determine the value you gain from it.

Pay for Performance Requires

1. Definition of performance How are we going to measure and compare people?

2. Distribution of performance Can we distinguish high and low performers?

3. Decide the increase for each level of performance. How large a difference between high and low

performers?

An accurate, reliable, and credible performance-appraisal program is the foundation of a successful merit pay program

Training for supervisors on how to: Plan performance that links individual efforts with

business plans and strategies Measure and evaluate performance fairly and

consistently Provide feedback Use merit matrix Communicate assessment of performance and the

allocation of rewards to employees

Questions

Should low performers be paid an increase? Should average performers be paid an

increase? What about cost of living? What about existing difference in pay

distribution?

Managing a Merit Pay Plan

Simple equation – significant performance yields significant rewards

Relies on trust – needs openness and candidness Recent move is to communicate more information

about company’s compensation program Needs balance between too little – and too much Employee needs enough information about merit

pay plan for it to serve as a performance motivator without breaching their right to privacy or restricting the organization’s ability to exercise management discretion

Communication of Compensation for Merit Pay General information about the performance

management process General information about the compensation

program (how pay is determined, how jobs are evaluated, salary ranges, etc.)

Specific information about merit pay program (budgets, performance rating distributions)

Size of the individual’s increase, minimum and maximum raises, and average size of merit increases

Costing Exercise

  Focal Point Increase (Multiple Increases)

Your organization has 150 employees in the Engineering department, with an average employee pay of $50,000 annually. The department has a 5% merit budget with an April 1 focal-point review date. Then, due to competitive market pay movement, the company must grant a 4% market equity adjustment on July 1.

What is the cost in year 1 of these two increases? 

Costing Exercise

 Formula and Solution:

Eligible payroll x % increase x effective period

Eligible payroll = 150 x $50,000 = $7,500,000

Effective period of the merit increase = 9 months (April – December)

 $7,500,000 x 5% x 9/12 = $281,250 (cost of the merit increase given in April)

Costing Exercise

Formula and Solution continued: After the merit increase, the eligible payroll rises to $7,875,000

since everyone has received a 5% increase ($7.5M x 5%)

Effective period of the market increase = 6 months (July – December)

$7,875,000 x 4% x 6/12 = $157,500 (cost of the market increase given in July)

Adding the two increases together gives a total cost of $438,750 ($281,250 + $157,500)

Incentive Pay

Ability to deliver targeted results while rewarding employees who are responsible for those results

Incentive plans can be designed to focus on three levels of performance: Individual Team Organization/Corporate

Incentive Payouts

Individual – payouts based on the results of an individual relative to their assignment, examples sales representatives, account managers, etc.

Team – based on how a group similarly tasked people perform collectively – based on team results usually little to no differentiation of individual members

Corporate – broader plans based on total company or division performance

Incentive Plan Elements Eligibility

How long need to be employed If promoted how to prorate Leave before year-end

Target payout Often expressed as % of pay or midpoint Fund the plan based on actual performance

Incentive Plan Elements - continued Performance Criteria

Measure and reward behaviors that are specific, measurable, and within the participant’s control

Duration Most effective when rewards are paid out as soon as

possible after results are measured

Performance Standards

CRITICAL TASK – establishing expected performance standard, usually set at lest 3 achievement levels Threshold: Minimum level of performance that must

be achieved before an incentive can be paid

Target: Expected level of sales results or individual performance (earn target incentive opportunity)

Excellence: Point at which the defined leverage or upside is earned

Example of Incentive Payout

15

100

200

0

50

100

150

200

250

Revenue A Revenue B Revenue C

Target

Cap

Threshold

Example of Target Incentive Award Payout

Job LevelSalary

Midpoint Target %

Incentive Award Target

RevenueAchieve-

ment Payout10 $50,000 20 $10,000 120% $12,000

11 $60,000 22.5 $13,500 120% $16,200

12 $72,000 25 $18,000 120% $21,600

Other Cash Bonus Plans and Pay for Performance Mechanisms Sign-on bonus – not performance based – used to

enhance compensation package without distorting the salary structure

Spot bonus – recognition award - intended for immediate appreciation and recognition for excellent contribution

Retention bonus – retaining key employees through a specific period such as a merger or more recently to transition new employee as numbers of employees retire

HR CommunicationsNow you’re talking!

Preparing to Communicate

Ask yourselves: 1. What is the communication priority?2. Who is the audience?3. What are their issues or concerns with this topic? 4. Who delivers the message?5. How will the message be delivered? What is the

method? What are the steps?6. What communication or leadership behaviors will

drive the “right behaviors” in your target audience?7. What specific concepts (key messages) do you want

to convey?8. How does this support organization’s values and/or

strategies?

Components of a Good Communications Plan

HR Event or Communications Challenge

Objectives

Audience(s)

Desired Behavior(s) or Change

Challenges, Obstacles or Sensitivities

Communicating HR Strategies(Includes who does the communicating and the sequence)

Key Messages (Includes Organizational Strategy and reflects functional group and “HR Umbrella” messages)

Tactics (Includes media and venues that will be used as well as timing and steps)

Timeline

Measurement and/or Organizational Payoff

Feedback Mechanism (Includes revision and refinement of key messages)

Know - Feel - Do

What do we want people to…

Know ... ?

Feel ...?

Do ...?

Words - Actions - Words

Words Actions

Use WORDS - ACTION - WORDS - to close the loop

Shape Beliefs Through Experiences

What do employees and leaders alike need to see around them to accept changes or change their beliefs?

people watch before they listen.

“actions speak louder than words.”

Strategies for Communications

Make executives, front-line supervisors or front-line employees the “actors.”

Use personal and emotional means to tell the story, build on existing emotional associations or patterns—from urban legends, anecdotes, songs, images, logos, or styles/macho or particular work ethic.

Drive the message through Words-Actions-Words. Make the messages credible and link to current

experience.

tailoring messages to each audience

What do they care about? Who do they want to hear the information from?

Who is the best messenger? What could go wrong? What potential backlash can

you prepare for/avoid?

Creating Messages

Keep it conversational; try to take it out of corporate-speak as much as possible.

Communicate the heart or core message that can be paraphrased “elevator speech”; nestle details under core messages.

Be judgmental of messages. Are they credible and memorable? Do the messages drive people to take action? Do they elicit an emotional response?

audiences constituencies

words is our b’ness

Move from Telling... ... to Influencing...

Evolution of Communications

audiences constituencies

words is our b’ness….

stakeholders

Move from Telling... ... to Influencing...

...to Creating SharedGoals…

A few examples:

Union corporatepartnerships

Making employeesbusiness partners

Community policing/Neighborhood watch

Customer loyalty Shareholder partnerships

business partnerscommunications are relationship-based, mutually-supporting and collaborative.

The Hats Communicators Wear

You are part... Marketer Sales agent Communications

center Change agent Researcher and data

collector Detective

Voice of Company Problem-solver Advisor Business partner Politician In service to others

Influencing Begins with Rapport

Rapport:

Having a general sense of goodwill toward others.

Rapport gives you the opportunity to listen and learn...