Driving high performance

Transcription

1 Driving high performance Towers Watson s Spring Conference Linking Pay to Performance for Broad-based Employees Scott Cullen and Beth Powell 12 March 2014

2 The typical rewards impacted by performance Performance-Based Rewards Base Pay Increases Short-Term Incentives Long-Term Incentives Recognition Programmes 2

3 Vote Now Does pay for performance work? Click one answer (Results from session 1) 1. Yes 2. No 5.3% 3. Only for some employees 4. Who knows? 10.5% 36.8% 47.4%

4 Vote Now Does pay for performance work? Click one answer (Results from session 2) 1. Yes 2. No 31% 3% 3. Only for some employees 4. Who knows? 10% 56%

5 GRAPHIC ELEMENTS Varying viewpoints If you pick the right people and give them the opportunity to spread their wings and put compensation as a carrier behind it you almost don't have to manage them. - Jack Welch, former GE CEO I don t know anyone on Wall Street who goes to work every day thinking of anything but how to increase their bonuses - Nassim Nicholas Taleb, Author Every individual in an organisation is motivated by something different. - Rick Pitino, NBA Basketball Coach For more than 40 years, I have felt that one of my most important jobs is to attract and motivate great people who genuinely feel their job more important than just money - Richard Branson, Founder & CEO Virgin

6 Extrinsic vs. intrinsic motivation and segmentation Intrinsic motivation high Good but sense of unfairness and lack of recognition may erode intrinsic motivation Ideal Right people supported by the right reward mechanisms Extrinsic motivation low Extrinsic motivation high Bad Will not result in positive performance levels Fair but may not be sustainable Intrinsic motivation low

7 Current trends eligibility and target bonus levels are mostly stable, though increasing more than decreasing Global EMEA Eligibility Decreased 5% 3% Stayed the same 83% 85% Increased 13% 12% Target bonus ( ) Decreased 5% 9% Stayed the same 75% 74% Increased 20% 17% and companies report performance expectations are increasing even more so 20% are increased incentive targets as a % of base salary BUT 40% increased expectations for organisational performance 30% increased individual performance expectations Sources: Towers Watson Talent Management and Rewards Study.

8 Current trends - robust HR structures are extremely important for effective pay for performance Organisations with a job architecture, global job leveling and scaled competencies report being more effective at linking pay to performance % agreeing that performance management process is effective at: Linking salary increases to individual performance results Linking bonus payouts to individual performance results Differentiating pay based on performance even for employees who receive the same performance rating Job Architecture, Job Leveling and Scaled Competencies 82% 79% 60% Other Organisations 57% 61% 39% % agreeing managers are effective at Fairly reflecting overall performance in the employee's final performance rating Fairly reflecting performance in pay decisions Differentiating performance between high and low performers 75% 74% 76% Our research shows that employee perception of fairness is paramount to satisfaction and motivation Source: Towers Watson Talent Management and Rewards Study. 48% 49% 48%

9 Different P4P philosophies for broad-based employees Organisation-based Individual-based High Fixed Public Sector Universities High Variable Pharmaceutical Manufacturing Recruitment Co-owned companies Banks 9

10 Which of these should impact base pay increases? Click all that apply and press send (Results from session 1) 1. Performance against goals 2. Displaying good behaviours 3. Development of competencies 4. Deliverables beyond goals 5. Potential Vote for up to 7 choices 29.4% 6. Should not be tied to individual performance 7. Other? 5.9% 8.8% 44.1% (% = Percentage of Voters) Enter number(s) then press 'Send'. 61.8% 61.8% 67.6%

11 Which of these should impact base pay increases? Click all that apply and press send (Results from session 2) 1. Performance against goals 2. Displaying good behaviours 3. Development of competencies 4. Deliverables beyond goals 5. Potential Vote for up to 7 choices 35.5% 6. Should not be tied to individual performance 0.0% 7. Other? 6.5% 61.3% (% = Percentage of Voters) Enter number(s) then press 'Send'. 77.4% 80.6% 90.3%

12 Approaches to base salary increases Pay for performance Same increase for all Manager Discretion Pay Matrix 3% BE ME EE 0 2% 2 4% 3 5% Low Mid High BE 2% 1% 0% ME 4% 3% 2% EE 5% 4% 3% In EMEA around 40% of companies put more spend in the pay review budget for critical skills or high potential employees* Base pay is the number 1 driver of employee retention* Source: Towers Watson Global Workforce Study, Talent Management and Rewards Study.

13 Which of these should impact short-term incentives? Click all that apply and press send (Results from session 1) 1. Performance against goals 2. Displaying good behaviours 3. Development of competencies 10.8% 4. Deliverables beyond goals 5. Potential 10.8% Vote for up to 7 choices 6. Should not be tied to individual performance 0.0% 7. Other? 2.7% (% = Percentage of Voters) Enter number(s) then press 'Send'. 59.5% 75.7% 83.8%

14 Which of these should impact short-term incentives? Click all that apply and press send (Results from session 2) 1. Performance against goals 2. Displaying good behaviours 3. Development of competencies 4. Deliverables beyond goals 5. Potential 17% Vote for up to 7 choices 33% 6. Should not be tied to individual performance 0% 7. Other? 3% (% = Percentage of Voters) Enter number(s) then press 'Send'. 70% 87% 90%

15 Approaches to short-term incentives Pay for performance No bonus Profit share Manager discretion Target based corporate plan Sales incentives In EMEA around 30% of companies put more spend in the bonus plan for critical skills or high potential employees Sources: Towers Watson Talent Management and Rewards Study.

16 Should a bonus be paid for expected performance? Pro: Strong link between pay and positive performance Con: No way to address poor performance; affordability issues Pro: Market aligned; strong link between pay and varying levels of performance Con: Bonuses can seem like an entitlement Performance Level Superior Target / Expected Below Expectations Annual Bonus Base Salary "Icing on Cake" Approach "Integral Element" Approach 16

17 There are two main types of recognition award Spot Awards Annual Award Less formal Reward short-term performance or behaviours Allows for recognition between formal performance management periods Smaller award Often non cash Cash sometimes Purely recognition e.g. employee of the month Large number of recipients Formal Sustained high performance or displaying company values or behaviours Bigger award Usually non cash e.g. a trip away or stock Small number of recipients 65% of companies in developed economies and 80% of companies in fast growing economies have recognition plans

18 Which of these should impact a recognition award? Click all that apply and press send (Results from session 1) 1. Performance against goals 11.4% 2. Displaying good behaviours 3. Development of competencies 17.1% 4. Deliverables beyond goals 5. Potential 11.4% Vote for up to 7 choices 6. Should not be tied to individual performance 2.9% 7. Other? 8.6% (% = Percentage of Voters) Enter number(s) then press 'Send'. 65.7% 77.1%

19 Which of these should impact a recognition award? Click all that apply and press send (Results from session 2) 1. Performance against goals 17.6% 2. Displaying good behaviours 3. Development of competencies 17.6% 4. Deliverables beyond goals 5. Potential 5.9% Vote for up to 7 choices 6. Should not be tied to individual performance 2.9% 7. Other? 14.7% (% = Percentage of Voters) Enter number(s) then press 'Send'. 70.6% 91.2%

20 P4P mechanics can link company success to individual reward but only works if seen as consistent and fair Company Strategy/Goals Performance Employee Goals Management Pay for Performance Pay for performance mechanics link individual performance and reward The effectiveness of this is dependent upon an effective performance management system Perceptions of fairness, consistency etc are key Robust HR structures grades, job architecture, competencies etc. greatly increase the chances of success It may not always be appropriate to have the same mix of P4P elements for every role In some cases P4P may not be appropriate