4 Keys to Building a Pay Strategy that Improves Engagement Guest Presenter: Ken Gibson Senior Vice President The VisionLink Advisory Group Talent Takeaways webinar & podcast series
AGENDA The Series Talent Takeaways webinar & podcast series Talent Takeaways Series
AGENDA AGENDA The Sponsor Talent Management Made for Managers ✓ Resource Library ✓ Product Information ✓ Product Tour & Demo Talent Takeaways Series
AGENDA Webinar Info ✓ We are informal (and fun) ✓ Ask Questions! ✓ Q&A Session at end ✓ HRCI & SHRM Credits ✓ Slides will be available after Talent Takeaways Series
AGENDA About the Presenter Ken Gibson is Senior Vice President and one of the principals of The VisionLink Advisory Group — a compensation design and consulting firm that currently serves clients in over 40 states. Ken has consulted with businesses on performance- related compensation issues for over 30 years. During that time, he has spoken to a broad range of business groups throughout the United States on a variety of compensation themes. He has authored numerous articles and reports addressing compensation and rewards issues that modern businesses face and conducts a monthly webinar series attended by C-Suite executives and other business leaders throughout the country. Talent Takeaways Series
VisionLink’s Focus Help Business Leaders Build and Sustain a Performance Culture Accelerate performance through pay strategies that transform employees into growth partners.
If you do that… • Quality of talent will improve. • Employee engagement will expand. • Performance will be magnified. • Business growth will be accelerated. • Shareholder value will increase.
Why Talk About Engagement? “Research suggests that the issues of ‘retention and Age of “employee empowerment” 1. engagement’ have risen to Increasing competition for great talent 2. No. 2 in the minds of Engine of a performance culture business leaders, second 3. only to the challenge of building global leadership.” (Deloitte University Press) 8
Why Talk About Pay & Engagement? Misinformation Pay too often addressed in segmented or siloed fashion Misunderstanding without regard for its Missed opportunities comprehensive impact. 9
Our Focus Understand Engagement Why Pay Matters 4 Key Principles 10 10
Poll Our organization has a process for measuring employee engagement which we implement consistently. Yes No 11 11
What Does Engagement Look Like? Focus & Alignment Stewardship Execution Sustained Success Patterns Consistent “Wins” Confidence 12 12
Pays Relationship to Engagement 13 13
What Kind of Alignment? Value Creation 14 14
The Engagement Issue Employees today have increased bargaining power , the job market is highly transparent, and attracting top-skilled workers is a highly competitive activity . Companies are now investing in analytics tools to figure out why people leave , and the topics of purpose, engagement, and culture weigh on the minds of business leaders everywhere. Deloitte 2015 Study & Report 15 15
The Irresistible Organization …The employee-work contract has changed : People are operating more like free agents than in the past. In short, the balance of power has shifted from employer to employee , forcing business leaders to learn how to build an organization that engages employees as sensitive, passionate, creative contributors. We call this a shift from improving employee engagement to a focus on building an irresistible organization . Deloitte 2015 Study & Report 16 16
The Irresistible Organization 17 17
What About Compensation? A “hygiene” factor (Deloitte) Ranks in top 5 drivers (Aon Hewitt) #1 reason people leave (Payscale.com) ▪ As the economy is expanding, employees have more negotiating power Pay doesn’t impact performance 18 18 (Misc. experts)
Key Quote "If you aren't talking with your employees about pay, chances are that they're talking to each other and creating their own story of what [the company's] compensation policy is. That's not a good thing.“ (Aubrey Bach, senior manager of editorial marketing at PayScale) 19 19
Therefore, What? Make pay an engagement asset instead of a liability . 20 20
Aligning Pay Strategy & Engagement Operate within a 1. performance Apply 4 Key framework Establish a clear 2. Principles pay philosophy Nurture 3. stewardship Incorporate the 4. employee view 21 21
Aligning Pay Strategy & Engagement …and Add a Dose of Common Sense 22 22
1. Operate Within a Performance Framework Business Framework Compensation Talent Framework Framework 23 23
Business Framework Phase One Define Growth Expectations Business (Vision) Framework ▪ Key outcomes that must be achieved Define Business Model and Strategy ▪ Performance Engine ▪ How the company will compete ▪ Where are growth opportunities? Identify Roles and Expectations ▪ Establish Performance Criteria ▪ Define “Success” 24 24
Compensation Framework Phase Two Establish a pay philosophy Compensation ▪ Framework Expansive vs. Selective — or Hybrid ▪ Define what the company is willing to pay for Engineer a pay strategy ▪ Structure ▪ Mindset Adopt a “Total Rewards” Approach 25 25
Talent Framework Phase Three Identify Key Producers ▪ Meeting “success” Talent standards Framework Identify Talent “Gaps” ▪ Recruiting Strategy Communicate Expectations ▪ Define success Communicate Rewards ▪ Philosophy ▪ Programs 26 26
2. Establish a Clear Pay Philosophy A written statement of what the company is willing to “pay for.” Tie it to value creation. 27 27
Compensation Philosophy Statement How value creation is defined. How value is shared — and with whom. Market pay standards. How guaranteed pay and value- sharing will be balanced. How short and long-term value- sharing will be balanced. When or if equity will be shared. How merit pay is defined. What do you want pay to communicate about what’s important? 28 28
Pay Philosophy Evolution Wealth Multiplier Wealth Creation Defensive Old School 29 29 29
Old School People Are Lucky to Have a Job Philosophy Pay the least you can to get the work done. Cost or Investment? Every dollar spent on pay is one dollar less in profits. Salaries Check the market; pay less if we can get away with it. Bonuses Maybe; let's wait and see if we have a good year. Long-term Incentives Are you crazy? (quasi-equity) If you have a business with sustainable cash flow and it doesn't Results require innovative employees or much customer interaction, this can work…but won’t attract or retain premier talent. 30 30
Defensive Don’t Rock the Boat Philosophy We want to pay people well, but we have to be very cautious. Cost or Investment? We need to be very careful to control costs--including pay. Salaries We want to be "at market." Keep searching for it. Bonuses We will try to pay bonuses as long as we can afford them. Long-term Incentives Not our cup of tea. Seems expensive and unnecessary. (quasi-equity) If you want employees who are cautious about bringing up pay Results issues . . . and accept that pay should never go lower but rarely should go higher, this is the approach for you. 31 31
Wealth Creation Let’s Focus on Performance Pay strong salaries and incentives to enable the company to Philosophy attract great talent. We are willing to pay "above market" for top performers. We see compensation as an investment that should produce a Cost or Investment? positive return for shareholders. Salaries should be "at market" for most positions but Salaries somewhat above for high value positions. Bonuses are set and communicated early in the year; they are Bonuses expressed as a meaningful percentage of salaries. Long-term Incentives May play a small role. (quasi-equity) If you want to focus on aligning employee performance and Results pay with your crucial budgeted goals, consider this approach. 32 32
Wealth Multiplier Let’s Secure Growth Partners Share economic value. "If you create financial value, you will Philosophy participate in a generous portion of it." Compensation is allocated to produce the highest possible Cost or Investment? return for both shareholders and contributing employees. We use data for benchmarking, but our pay philosophy drives Salaries where we want to be vis a vis market pay. Bonuses (value sharing plans) are tied to crucial metrics, Bonuses recognize personal contributions, and are not capped. Long-term Incentives Viewed by top performers as the most meaningful part of their (quasi-equity) rewards program. If you want to be able to attract and retain the best talent in Results your industry and have them adopt a stewardship mindset regarding shareholder goals, this is your system. 33 33
Poll Our company has a written pay philosophy and we follow it. Yes No 34 34
3. Nurture Stewardship 35 35
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