3 Keys to Linking Employee Performance, Performance Management & Rewards
Today’s Presenter: Ken Gibson Senior Vice President (949) 265-5703 kgibson@vladvisors.com 23201 Lake Center Drive, Suite 207 ⬧ Lake Forest, CA 92630 ⬧ 949-852-2288 www.VLadvisors.com ⬧ www.PhantomStock.com 2
We’re happy to provide a copy of today’s slides. To open or close the control panel: Click the red arrow For questions during Q: Are the slides available? A: Yes, more info will be provided at the end today’s presentation: Use the question area Webinar on your control panel 3
Consultation Offer & Survey Take advantage of a one-half hour consulting call with a VisionLink principal at no charge. Indicate interest on final survey. Request a copy of our slides and complimentary consultation. We value your input. 4
Post Webinar Intro 5 Minutes: Who We Are What We Do How We Do It 5
Headquartered in Lake Forest, CA Founded in 1996 Over 600 clients throughout North America 23201 Lake Center Drive, Suite 207 Lake Forest, CA 92630 (888) 703 0080 www.vladvisors.com www.phantomstock.com www.bonusright.com 6
Core Issues Business change is exponential. Performance management reinvention is a symptom. Domino effect. Pay implications. 7
Do You Really Need to Worry? “A January 2018 survey of 1,000 -plus C-suite executives found that attracting and retaining talent is their number-one concern, outranking anxiety over the threat of a global recession, trade war, and even competitive disruption.” (Moneyball for Business, Fast Company, September 2018, Austin Carr) 8
Do You Really Need to Worry? “Nearly 70% of business leaders participating in a new global survey said the current talent pool is shrinking. As a result, the competition for talent has increased, forcing employers to change their recruiting strategies.” (“Study: Shrinking Talent Pool Has Recruiters shifting Strategies,” HR Dive, October 5, 2018, Valerie Bolden -Barrett) 9
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 10 10
And Then There Are the Millennials 11 11
Options Adapt 1. Pretend 2. 12 12
3 Assumptions for 3 Keys to Work You Have a Clear Performance Framework You Have a Well-Defined Pay Philosophy You Have Embraced a New (& Improved) Performance Management Strategy 13 13
3 Keys Replace Incentives with 1. Value-Sharing Employ a Total 2. Compensation Structure Adopt a Total Rewards 3. Approach 14 14
Assumption: You Have a Clear Performance Framework 15 15
Define Your Performance Framework Business Framework Compensation Talent Framework Framework 16 16
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” 17 17
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 18 18
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 ▪ Value Statement 19 19
Assumption: You Have a Well-Defined Pay Strategy 20 20
Establishing Clear Beliefs about Compensation Pay Philosophy: A written statement of what the company is willing to “pay for.” Should be tied to value creation. 21 21
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. 22 22
Reflect a Wealth Multiplier Philosophy 23 23
Wealth Multipliers vs. Wealth Creators Wealth Multipliers Wealth Creators Accelerate value Profitability focus creation Recruit to skills and Recruit premier talent experience that fits performance Pay is an expense to framework be managed Pay is an investment Salaries and total pay that should produce a should be “at market” growing return “Pay -for- Market pay for bench performance” marking but pay philosophy drive comp strategy Sharing value with value creators. 24 24
The Value of Profit Wealth Multiplier Profits Future Shareholders Employees Business 25 25
The Value of Profit Wealth Multiplier Profits Future Shareholders Employees Business A Sense of Partnership Translates to a Growth Multiple 26 26
Assumption: You Have Embraced a New PM Strategy 27 27
Headlines 28 28
What Has Been the Result? Away with Old Systems ▪ Accountability for past behavior at the expense of improving current performance. ▪ Excessive time devoted to holding meetings, completing forms, creating ratings. ▪ Managers influenced by personal biases. ▪ Impact of appraisal on compensation influences feedback. 29 29
What You Should be Doing In with New Systems ▪ Emphasis on speed, agility and constant (ongoing learning). ▪ Focus on continuous building of the workforce. ▪ Emphasize mentoring and coaching instead of assessing and correcting. ▪ Transition from measuring performance to improving performance. 30 30
3 Keys Replace Incentives with 1. Value-Sharing Employ a Total 2. Compensation Structure Adopt a Total Rewards 3. Approach 31 31
1.Replace Incentives with Value-Sharing 32 32
VisionLink’s Experience Hundreds of plans Based on the standards embraced by major industries, consultants, and HR professionals for nearly a century When examined — not proving effective (not improving productivity) 33 33 33
The Data World at Work 2016 Survey Only 10% of responders indicated they felt their annual incentive plan was effective. 34 34
Why? “…when financial incentives are applied to increase…motivation, intrinsic motivation diminishes. A meta-analysis of 128 independent studies conclusively confirmed this effect.” (“Stop Paying Executives for Performance,” HBR, February 23, 2016) 35 35 35
Hmmm… Traditional incentive plans aren’t effective But you have a commitment to your employees Can you simply raise salaries and compete for talent . . . and create a pay-for-performance culture? So, what are you to conclude? 36 36 36
Results, not Methods "You cannot hold people responsible for results if you supervise their methods.“ (Stephen R. Covey) "You cannot hold people responsible for results if you pay them for their methods.“ 37 37 37
Resolving the Paradox Cause & Effect: Most “incentive” plans fail precisely because they attempt to impact behavior. 38 38 38
Value-Sharing Breeds Partnership Value Sharing Concept “We are part of a team. If we all work together we will generate greater success. That success will be shared with everyone that helps the company succeed.” When structured appropriately, value sharing programs are perceived as a partnership. 39 39
Transitioning from Incentives to Value Sharing The premise should be to promote value creation and value-sharing: ▪ “When you help us create value you participate in that value” ▪ Define value creation around the shareholders’ most important goals 40 40
Shareholder’s Most Important Result Sustainable and growing profitability 41 41 41
Dual Focus Peter Drucker once wrote that the manager’s job is to keep his nose to the grindstone while lifting his eyes to the hills. He meant that every business has to operate in two modes at the same time: producing results today and preparing for tomorrow. (Ken Favaro, Strategy+Business) 42 42
1 Philosophy, 2 Rewards Periods Short-Term Performance (12 1. months or less) Short-Term focuses on rewarding profit Long-Term Performance 2. (over 12 months) Long-Term focuses on rewarding business value increase 43 43
2. Employ a Total Compensation Structure A total compensation structure gives you a comprehensive view of all compensation and benefit plans and ensures operational integrity. 44 44
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