Making pay for performance work

Transcription

1 Making pay for performance work Towers Watson s Autumn Conference Specialist incentives Ron Burke and Scott Cullen 3 October Towers Watson. All rights reserved.

2 Agenda What do we mean by specialist incentives? Where do they work best? Trends and best practice Production/Distribution Call Centres Sales

3 Sales Call Centre Production What do we mean by specialist incentives? Specialist incentives are incentive schemes for specific groups of employees Executives Corporate or Standard Rewards Segmented Rewards by Function e.g. Sales Call Centre Broad Employee Population Non-bonus-eligible staff Leaders Middle Managers Team or Group Leaders Professional Staff/ Individual Contributors 3

4 Where do we most often see specialist incentives? Most Common Production Service Retail Less Common

5 Where do specialist incentives work best? Strong line of sight Must be able to measure quantitative results (at an individual or team level) that directly have an impact on business results Driving motivation The incentive needs to be large enough to drive behaviour, at least 10% of base salary Cost effective Where the cost of administering the scheme does not exceed the value created by implementing it Eligibility A group of employees that can be clearly identified and segmented from the rest of the employee population e.g. a sales force, a manufacturing plant, a warehouse

6 Trends and Best Practices Production/Distribution 2013 Towers Watson. All rights reserved.

7 Trends in incentives for production/distribution type plans Movement away from the use of over-complicated, all-inclusive scorecards More focused plans with limited number of metrics Cautious use of baseline requirement metrics like safety and attendance; overemphasis can: Lead to under-reporting of accidents, making it harder to correct Encourage people to work when they are validly ill, leading to quality and safety issues Use of value tree approaches to developing relevant measures with appropriate line-of-sight Use of self-funding plans, where possible, as a means of ensuring a link with financial outcomes Review of performance measures on a regular basis to keep goals contemporary and challenging 7

8 There are multiple approaches to variable pay in production environments Skill-Oriented Focus on Skills vs. Performance Performance-Oriented Skill-Based Pay Competency -Based Pay Gainsharing/ Goal-Sharing Profit Sharing Programs Traditional Incentive Pay Awards for acquiring and demonstrating defined skills Provide awards for demonstrating competencies that lead to specific outcomes Awards for achieving financial, operational, or customer measures may change across periods Most often tied to meeting cost saving goal Typically selffunded Awards generally tied to financial performance (revenues, profit) Awards may be adjusted upward or downward based on team or facility performance Awards for achieving quantitative financial, operational, and/or customer metrics for individual awards Tend to be group-focused for production environments 8

9 A value driver analysis can be a useful way to ensure a link between incentive measures and financial performance Illustrative Subordinate Drivers Primary Drivers Business Driver Employee Knowledge of : Steel Making Process and Customer Specifications Employee Skill at Handling Steel Making Equipment Quality Process Control Mechanisms Types of Equipment and Technology Mill Capacity Customer Demand Product Mix Geographical Location of Plants Conversion Costs Customer Satisfaction Material Costs Cost of Product Material Yield On Time Delivery Truck Residence Time Packaging Product Identification Customer Service 9

10 Trends and Best Practices Call Centres 2013 Towers Watson. All rights reserved.

11 Making pay for performance work in call centres Identify whether roles are sales, service or both Limit the number of measures in call centres everything is measured and it is tempting to include too much in the plan Ensure that the weight on any one measure is at least 10% (at a minimum) Consider whether stack ranking (if used) drives the right behaviours Competition rather than cooperation Pay tends not to correlate with actual performance over the year 11

12 Customer satisfaction is growing in importance as a key metric in call centres Source: Contact Center Decision-Maker s Guide 2012 (5th edition), ContactBabel 12

13 While Customer Satisfaction is seen as growing in importance less that 50% of organisations use it as a metric currently Source: Contact Center Decision-Maker s Guide 2012 (5th edition), ContactBabel 13

14 Typical service metrics in contact centres Modern approach focus on customer advocacy, driving value, win-win External Feedback NPS (Net Promoter Score) Other customer satisfaction ratings (agent-focused questions) Retail environments (branches): mystery shoppers Internal Feedback First call resolution Compliance Results Listen-in scores / quality ratings 360 ratings Individual performance rating % of queries resolved during the first call Can be part of listen-in process and/or other compliance reviews Focus on appropriate disclosure, prevention of misselling, etc. Customer retention / stickiness Household penetration Traditional approach greater focus on numbers/ compliance 14

15 Challenges with using both sales and service metrics Measurement rigor Upside potential Level of measurement Sales Service Fully quantifiable and objective Often based to some degree on judgement and discretion Typically lend themselves to strong upside Prevalence of individual measurement Frequency In call centre environments can typically be measured and paid very frequently: monthly or even weekly As a result, there is a risk that: Often are more baseline requirements with limited potential for upside Sometimes not as easily measured at the individual level Often need more time for a robust number of observations quarterly or annual Service metrics are not used at all, as they are felt to be too hard to measure If they are used, they often are given less emphasis meaning they may still fail to truly drive a change in behaviour 15

16 Trends and Best Practices Sales 2013 Towers Watson. All rights reserved.

17 Top performing sales forces consider the entire spectrum of how talent is managed in order to drive engagement It is important to understand how sales compensation changes need to link with other changes under way In addition to sales compensation, there may be other important talent management levers utilise in driving an effective change programme 17

18 How Sales People Sell Sales role clarification is the foundation of the sales compensation design process Transactional How Customers Buy Consultative New Customer Acquisition Small Game Hunter Big Game Hunter Territory Manager Territory Rep Territory Consultant Account Manager Account Manager Key Account Executive 18

19 How Sales People Sell Sales role clarification is the foundation of the sales compensation design process Framework Drives: Pay mix Upside earnings potential Performance area Incentive form New Customer Acquisition Transactional Highest variable pay Fewest performance areas (1 2) Commission oriented How Customers Buy Consultative High variable pay Few performance areas (2 3) Commission/bonus oriented Territory Manager High variable pay Few performance areas (2 3) Mix of commission and bonus Moderately high variable pay More performance areas (3 4) Mix of commission and bonus Account Manager Low variable pay Few performance areas (2 3) Bonus oriented Moderate variable pay Most performance areas (3 4) Bonus oriented Position Drives: Pay levels Performance measures Incentive plan mechanics 19

20 What makes for an effective sales compensation plan? Outcomes of Effective Sales Compensation Plans Reinforce strategy and desired behaviours Reflect the nature of the sales role in compensation Maximise motivational impact of incentive earnings Support top talent attraction and retention Govern plan design and administration Means of Achieving Utilise the right performance measures and weights Clarify sales roles and manage incentive eligibility Ensure pay mix and incentive form align with the role Pay distribution and differentiation Pay and performance correlation Competitiveness of total compensation Maintain appropriate internal pay equity Track and manage compensation cost of sales (CCOS) Identify potential financial and behavioural risks Create a formal governance process 20

21 Trends in sales compensation vary by type of sales organisation/role the following are quite common Return on Investment A strong focus on return on investment from the spend on sales incentives Do the right people receive incentives? Does overall (not individual) spend on the incentive scheme reflect the company s performance? Customer Service As with Call Centre incentives there has been a strong trend over the last 5 years towards the introduction of more customer service type metrics Specifically in Financial Services there has been a move away from pure financial objectives to customer service metrics (in some cases the financial element has been completely removed) Focus on Longer-Term Growth/Customer Value Organisations are aware that it is easier to drive value with existing customers/clients Many organisation are highly focussed on retention and cross sell to existing customers/clients 21