Performance Management and Pay for Performance

1. Performance Management and Pay for Performance MANA 5322 Dr. Jeanne Michalski michalski@uta.edu

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

3. 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.

4. Pay for Performance Requires • Definition of performance • How are we going to measure and compare people? • Distribution of performance • Can we distinguish high and low performers? • Decide the increase for each level of performance. • How large a difference between high and low performers?

5. 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

6. 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?

7. 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

8. 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

9. 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?

10. 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)

11. 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)

12. 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

13. 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

14. 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

15. 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

16. 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

17. Example of Incentive Payout Threshold

18. Example of Target Incentive Award Payout

19. 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

20. HR CommunicationsNow you’re talking!

22. 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?

23. Components of a Good Communications Plan HR Event or Communications Challenge • Objectives • Audience(s) • Desired Behavior(s) or Change • Challenges, Obstacles or Sensitivities

24. 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)

25. Know - Feel - Do • What do we want people to… Know ... ? Feel ...? Do ...?

26. Words - Actions - Words Words Actions Use WORDS - ACTION - WORDS - to close the loop

27. 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.”

28. 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.

29. 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?

30. 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?

31. Evolution of Communications

32. communications are relationship-based, mutually-supporting and collaborative. business partners

33. 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 The Hats Communicators Wear

34. Influencing Begins with Rapport Rapport: Having a general sense of goodwill toward others. Rapport gives you the opportunity to listen and learn...