PERFORMANCE MANAGEMENT

1. PERFORMANCE MANAGEMENT Effective performance management systems enable an organization to objectively and systematically rate employee performance, while providing the tools necessary to take that performance level and equate it to compensation actions.

2. PERFORMANCE MANAGEMENT Overview: The core of any organization is its staff. How effectively an organization maintains a quality team of employees is linked to its ability to manage its staff and recognize the contributions of each player.

3. PERFORMANCE MANAGEMENT Overview: Employees have always expressed the desire for open feedback regarding their performance. More and more companies are embracing the pay for performance concept and its tie to compensation. A well-executed performance management plan enables an organization to achieve critical goals:

4. PERFORMANCE MANAGEMENT Goals: Recognize the efforts and contributions of current staff Reward staff with compensation directly linked to performance Motivate staff to improve performance Orient staff towards goal achievement Retain key employees through the use of competitive compensation programs Attract quality employees with an effective performance management system

5. PERFORMANCE MANAGEMENT Goals: The key elements of a Performance Management System include the following: A formal Compensation Philosophy Statement Salary Administration Program A Formal Audit/Success Rating overview on an annual or periodic basis with disclosure of results to management.

6. The Key Elements of a Performance Management System 1. A Formal Compensation Philosophy Statement It is the policy of the Robert Heeley Construction to develop and implement a fair, consistent and industry competitive Compensation Program so as to attract, motivate and retain qualified employees. This program is specifically designed to compensate employees on the basis of their performance, consistent with the Company's business needs and financial capabilities. The Company will administer its compensation programs without regard to race, religion, national origin, color, sex, age or disability. The Company will adhere to all federal and state and city laws and regulations regarding job classification, amount of pay, and equitable compensatory treatment of employees. We will design an overall Salary Administration Program that will provide the Company with a competitive, easy to use, performance-driven pay delivery system. This will include the necessary guidelines for determining salary increases based on performance, as well as all related administrative procedures.

7. The Key Elements of a Performance Management System Salary Administration Program Elements: Job Evaluations Performance Appraisals Pay-for-Performance Salary Programs Group Incentive Plans Individual Incentive Programs Reward Programs Compensation Communications

8. The Key Elements of a Performance Management System A Formal Audit/Success Rating on an annual or periodic basis with disclosure of results to key management. This is most effectively performed by an outside HR consultant or consulting firm, whose objectivity allows them to observe and identify strengths and weaknesses that are not always observable from within.

9. 2. Salary Administration Program Job Evaluations Performance Appraisals Pay-for-Performance Salary Programs Group Incentive Plans Individual Incentive Programs Reward Programs Compensation Communications

10. Salary Administration Program Job Evaluations Job evaluation is the process that establishes every position's internal relative worth to a company by measuring a position's potential fulfillment of duties against the amount of value being given by the present employee. Job evaluation measures job worth in an internal sense, as well as in an economic one. Determines: Job Description Job responsibilities of this job description (position) Tasks, skills and knowledge that fall under job responsibilities (from this formula comes all training that applies to every company position)

11. Salary Administration Program Performance Appraisals Refers to the evaluation of an employee's job-related performance with the primary objective being the improvement of the individual's performance. It also provides justification for determining an employee's compensation and promotability. A Performance Evaluation Tool (PET) should be utilized for this purpose. A key element of the PET is the establishment of individual performance objectives at the beginning of each. An employee's performance may be evaluated into one of four (4) levels of performance as follows, for the purposes of determining personnel actions:

12. Salary Administration Program Performance Appraisals A Performance Evaluation Tool (PET) Outstanding: Performance substantially and consistently above required standards for the position. Competent: Consistently meets objectives and produces the desired results that are expected for a qualified employee in this position. Performance meets required standards for the position. Needs Improvement: Areas of improvement are noted. Performance is less than expected, and below required standards for the position. Consideration must be given to probationary status pending improvement of performance. Unsatisfactory: Does not meet objectives. Performance substantially and consistently below required standards for the position. If significant improvement is not made, termination will follow.

13. Salary Administration Program Performance Appraisals A Performance Evaluation Tool (PET) The performance evaluation is conducted between the employee and his/her immediate supervisor, in which the supervisor evaluates the performance of the employee. The supervisor provides feedback to the employee regarding his/her performance and areas of concern. The evaluated performance level during the evaluation will be used for justifying personnel actions relative to promotion, transfer, and salary adjustments.

14. Salary Administration Program Performance Appraisals A Performance Evaluation Tool (PET) It is the intent of the Company to make salary increases and related personnel actions based on an employee's evaluated performance in his/her assigned position, and the individual's overall contribution. Performance evaluations are to be conducted at the completion of the introductory period, on an as-needed basis during the year, and no less than two times every twelve (12) months. It is intended that this should provide adequate feedback, allows for corrective action, and substantiate salary increases and related personnel actions.

15. Salary Administration Program Performance Appraisals A Performance Evaluation Tool (PET) 2. The prime consideration in the performance appraisal system is enhancement in overall performance. The process is expected to enhance the development of meaningful communication between the employee and his/her supervisor, which in turn should lead to such improvement in the employee's overall performance.

16. Salary Administration Program Job Evaluations Performance Appraisals Pay-for-Performance Salary Programs Group Incentive Plans Annual Incentive Programs Reward Programs Compensation Communications

17. Salary Administration Program Pay-for-Performance Salary Programs A program which provides small increases to most employees based on changes in the labor market, but with large, meaningful increases granted to a limited number of exceptional employees. Increases are based on realistic performance evaluations with some employees not receiving any increase.

18. Salary Administration Program Pay-for-Performance Salary Programs Design Features: Performance standards are established for activities that employees can impact or control. Traditional Cost of Living and Seniority increases are eliminated. Increases are withheld from poor performers until their evaluated performance improves. Increases may take the form of additional salary and/or cash bonuses.

19. Salary Administration Program Pay-for-Performance Salary Programs Advantages: Increases are tied to productivity and results, rather than length of service, etc. Improves employee communication and teamwork. Provides greater job satisfaction. Additional compensation dollars result in attainment of desired results.

20. Salary Administration Program Pay-for-Performance Salary Programs Disadvantages: Requires considerable effort to install and monitor. Is based on a foundation of trust and credibility between management and employees. Requires an accurate and well-accepted Performance Evaluation System. Eliminates length of service as a significant pay determinant. This initially negatively impacts the concept of "loyalty“ because it diminishes the impact of the ever-present “Good Ol’Boy” system.

21. Salary Administration Program Job Evaluations Performance Appraisals Pay-for-Performance Salary Programs Group Incentive Plans Individual Incentive Programs Reward Programs Compensation Communications

22. Salary Administration Program Group Incentive Plans A Group Incentive Plan is a type of team-based Alternative Reward Program, but differs from the others in its features, advantages, and disadvantages. In Group Incentive Plans, all employees in the company share in rewards based on performance gains tied to corporate profitability.

23. Salary Administration Program Group Incentive Plans Design Features: Performance targets are established; requiring that standards be established and the planning process is well documented. Funding requires a systematic mechanism for setting aside sufficient monies to fund rewards. Includes a consistent and acceptable method for allocating rewards among eligible participants.

24. Salary Administration Program Group Incentive Plans These work best for management and supervisors Advantages: Focuses the group on specific performance targets. Since rewards are controllable by individuals, the programs can be very motivational. The program can be integrated with other corporate initiatives (i.e., quality, product/service introduction, cost savings, etc.). Leads to improved communication and employee relations.

25. Salary Administration Program Group Incentive Plans Disadvantages: Group Incentive Plans can be costly to install and administer. De-emphasizes individual performance which can result in excessive peer pressure. Requires open communication with employees on costs, profitability, etc. (although this can be a sensitive issue, there are alternatives available). If the performance targets are not carefully selected, adverse results may occur

26. Salary Administration Program Job Evaluations Performance Appraisals Pay-for-Performance Salary Programs Group Incentive Plans Individual Incentive Programs Reward Programs Compensation Communications

27. Salary Administration Program Individual Incentive Programs These work best for first-level and non-supervising employees. Individual Incentive Programs are plans that provide incentive pay based on short-range performance (typically performance over 12 months or less). Annual Incentive Programs may consist of short-term incentives, and may include a component tied to long-term incentives, such as completion of a training program or programs. The form of payment of these incentives may be promotion-based, cash-based, or a combination of both.

28. Salary Administration Program Job Evaluations Performance Appraisals Pay-for-Performance Salary Programs Group Incentive Plans Individual Incentive Programs Reward Programs Compensation Communications

29. Salary Administration Program Reward Programs The following information provides an overview of alternative reward approaches, including a definition of each approach, and the inherent advantages and disadvantages. Traditional alternative reward programs fall into one of two categories:

30. Salary Administration Program Reward Programs - Individual Employee Oriented Programs:

31. Salary Administration Program Reward Programs - Individual Employee Oriented Programs: Design Features: Performance standards are established for activities that employees can impact or control. Traditional Cost of Living and Seniority increases are eliminated. Increases are withheld from poor performers until their evaluated performance improves. Increases may take the form of additional salary and/or cash bonuses.

32. Salary Administration Program Reward Programs - Individual Employee Oriented Programs: Advantages: Increases are tied to productivity and results, rather than length of service, etc. Improves employee communication and teamwork. Provides greater job satisfaction. Additional compensation dollars result in attainment of desired results.

33. Salary Administration Program Reward Programs - Individual Employee Oriented Programs: Disadvantages: Requires considerable effort to install and monitor. Is based on a foundation of trust and credibility between management and employees. Requires an accurate and well-accepted Performance Evaluation System. Eliminates length of service as a significant pay determinant. This negatively impacts the concept of "loyalty".

34. Salary Administration Program Reward Programs – Broad-banding: Broad Banding is a type of salary program that replaces multiple grades and ranges with a limited number of wide ranges. Employees move through salary ranges without traditional promotions or job delineation, based on individual skill attainment, and expansion of duties, rather than on any prescribed time pattern.

35. Salary Administration Program Reward Programs - Broad banding: Design Features: Substantially fewer grade levels and titles. Multiple job levels are combined into a single range. Large range spreads, e.g., 75%, 100% or more vs. 40% to 50%. Provides a method to recognize dual career tracks (management and professional).

36. Salary Administration Program Reward Programs - Broad banding: Advantages: Better accommodates a flat organizational hierarchy. Emphasizes skill development rather than vertical promotions. Eliminates need to establish artificial job titles and hierarchy. Provides greater organizational flexibility since the organization is not encumbered by narrowly focused job titles. Simplifies salary administration by eliminating promotions that are not bona fide changes in duties and responsibilities.

37. Salary Administration Program Reward Programs - Broad banding: Disadvantages: May not be compatible with the organization's culture and is less successful in highly structured organizations. Loss of control points for salary planning and may result in overpaid employees, requiring greater emphasis on monitoring. Difficult to use as management tool for determining relationship between jobs. Limits promotional opportunities

38. Salary Administration Program Reward Programs - Skill Based Programs: A program that rewards employees for attainment of additional skills and knowledge on a formalized basis. Design Features: Establishes an environment in which attainment of skill and knowledge is considered to be highly desirable. Provides increased compensation and/or rewards for skill attainment Clarifies career path for each position and the associated educational support.

39. Salary Administration Program Reward Programs - Skill Based Programs: Advantages: Encourages skill acquisition and commitment by individual employees. Permits flexibility in worker assignments which may result in reduced staffing requirements. Typically results in increased job satisfaction and lower turnover of skilled employees

40. Salary Administration Program Reward Programs - Skill Based Programs: Disadvantages: Very complicated program to install and maintain, requiring considerable time, resources, and money. Training is very expensive and can easily be underestimated. Emphasis is on attainment of skills and knowledge, and is not necessarily results oriented. Unless carefully monitored, may end up with too many high skilled, high priced employees. Does not enhance teamwork.

41. Salary Administration Program Reward Programs The success of any Individual Reward Program (IRP) requires that a number of different areas be addressed: Elements that must be present: Open communication Capacity to administer Commitment to success Patience and perseverance Management commitment Clear-cut objectives and strategy Good management and employee relations Recognition of resources: time, expense, manpower

42. Salary Administration Program Reward Programs The success of any Individual Reward Program (IRP) requires that a number of different areas be addressed: Key Design Steps of Alternative Reward Programs Initial analysis and problem definition Review of alternatives Selection of plan elements Test and finalize Review and approval Implementation Monitoring and refinement

43. Salary Administration Program Reward Programs The success of any Individual Reward Program (IRP) requires that a number of different areas be addressed: Limitations of Alternative Reward Programs Imagination Fear of new and untested Ability to accurately forecast or budget Administrative ability of organization State of employee/management relations

44. Salary Administration Program Job Evaluations Performance Appraisals Pay-for-Performance Salary Programs Group Incentive Plans Individual Incentive Programs Reward Programs Compensation Communications

45. Salary Administration Program Compensation Communications It is a company's responsibility to commit to effective communication of salary administration plans and their modifications. At the minimum, a company is responsible for: providing each employee with applicable salary information regarding his/her own total compensation level, salary range, position in range (PIR), the method for determining salary increases, and other pertinent aspects of the total compensation package. communicating changes to policies and procedures to the appropriate personnel in a timely manner, and for ensuring that the staff understands and can effectively implement the changes

46. The plan objectives for this program would be to: Recognize extraordinary employee contributions in the areas of effectiveness, quality of work, cost savings, and productivity. Strengthen communications between employees and management. Provide a systematic method of identifying outstanding individual contributions. Provide financial rewards to employees who have demonstrated performance or contribution in excess of their assigned duties and responsibilities. Enhance the Company’s ability to meet or exceed its target goals. The goal is to design a customized alternative reward and recognition program.

47. To understand the employee’s likely perception of this program, let’s take a look at a motivational theory that is about 60 years old: The goal is to design a customized alternative reward and recognition program.