Performance Based Pay

1. Performance Based Pay

2. Today’s class brought to you by China/Hong Kong

3. Real excitement of Compensation • How do you create Performance base pay system that works. Companies extoll their Performance based pay system, yet none seems to be universally strong.

4. Skill based pay • Determine compensable competencies for type of work. Tie to strategic issues. • Provide training opportunities to get increased competencies! • Offer competency tests either selection or post selection. Floor performance standards.

5. Sauer Danfoss- base pay and then added pay for skills.

6. Why not rely on external market only? • Or Why is this important?

7. Strategic issues • Relative importance of base pay vs performance pay. • Company emphasizing innovation, customer service, teams, internal labor markets etc.

8. Pay for perf • Benchmark

9. Pay for performance • Video

10. Controversial • Intrinsic vs extrinsic motivation • Does extrinsic motivation always prevail? • If so, then must people be paid to do everything? When do they sacrifice self-interest for organizational interest?

11. Pay is but one tool for performance management • Strategic HR relies on Performance management--which tools used. How to create an organizational culture related to performance management. • Do you wish to pay for performance? • What are problems/advantages?

12. Medical Care • McFarland Clinic • Medical care is hot because of culture change. • Doctors, lab, x-ray, receptionists. • Pay for performance or other motivators? • What type of climate are you building.

13. What type of culture is • Most likely to link pay and performance. • Least likely to link pay and performance (rely on other motivators).

14. Other ways to link pay and individual performance • Bonuses • Commissions • Stock options

15. How Incentives for teams? • P-G fit • PO fit • Brainstorm in teams • Consider types of incentives, group, organizational individual.

16. Kerr Case

17. ISSUE • Folly of Hoping for A but no extrinsic rewards. • Folly of Hoping for A but rewarding for B. • Outcome measures.

18. Summary • What is pay used for? • What influences the relative use in different organizations. • If primarily motivation--how can it be used to recruit and retain or visa-versa.

19. Goal • Current trends towards flexibility • Cost Issues (cost containment and cost benefit). • Benefits management

20. Types of benefits • Security (Income protection) • Convenience (time/stress management).

21. Why are benefits important? • From an employee perspective • From an employer perspective

22. Employers • Quality of life and the impact on productivity (spillover of work and family). • Recruitment • Retention

23. Trends towards Flexibility in electing benefits • Cafeteria benefits. $ allocation may elect variety of benefits given costs. ISU offers health, disability, accidental death, life, dental. • What do you need. Either pay for more coverage or elect. Not really cost management issue--just help retention and recruitment.

24. Towards Flexibility in Coverage

25. What is the basis for this?

26. Trends towards Increasing coverage • Prepaid legal • adoption benefits • Hopefully more in benchmarking

27. Benchmark reports

28. Family Benefits Increasing • Job as family benefits administrator • More benefits

29. Change over time

30. Cost issues • Do Benefits pay for themselves? Costs/benefits ratio. How do you determine? • Increasing trend towards results • Getting into the rankings

31. Reducing claims

32. Pay for themselves • Why do companies offer preventative medicine-- smoke enders, weight watchers, free shots • What about Wellness programs • Should Ford Keep up Volvo’s benefits?

33. Should you offer • Fertility medical coverage and child care? • Car pooling and disability insurance?

34. Should you • For health insurance, verify not covered under other insurers

35. Family Benefits • Chubb estimates from exit interviews that 50 employees left for childcare reasons • It cost 97% of wages to replace non-exempt and 150% of wages to replace exempt. • $3 million dollars in replacement costs

39. offers • Paid time off • Child-care for snow days • telecommuting • Flexibility

40. In spite of popularity • Few firms offer • People strongly value Security benefits. • New benefits excluding child care are modest cost.

41. Who offers • Unions • Larger employers • Industry • Corporate image

42. Benefits of Benefits • Does it help?

43. Problems with Benefits • Employee backlash especially family benefits. • Not clear that benefits have much impact on recruitment unless clearly one of the 100 best places to work or equivalent in a region. Some evidence for retention. Would the money best be put elsewhere?

44. Will these go away in times of high unemployment

45. Eldercare, spouse care, parent care

46. Linking Benefits to Strategy/Labor Markets • Retailer relies on students for seasonal sales. Evidence is clear that sales is more than double if return. How to increase retention through benefits. • Vacation days could be example for retention of employees.

47. Benefits Management • Benefits communication • Have it and want people to take advantage of them. ISU has problems with wellness. • How to communicate? Just in time.

48. Summary • Importance of benefits increasing. • Portion of benefits as total compensation increased over the past thirty years. • Purpose is critical and getting the most for your dollar.