Oak Park and River Forest High School District North Scoville Avenue Oak Park, IL

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1 Oak Park and River Forest High School District North Scoville Avenue Oak Park, IL TO: FROM: Finance Committee Tod Altenburg, Chief School Business Official Brenda Horton, Director of Human Resources DATE: September 13, 2016 RE: Update on Compensation Philosophy BACKGROUND: On August 11, 2016 and September 1, 2016, we met with Tom McMullen of Korn Ferry (formerly known as the Hay Group) to review the work that has been completed by the district thus far in the area of compensation philosophy. We also began discussions on performance / merit pay. SUMMARY OF FINDINGS: Attached are two pages to guide the presentation. The first is Develop a New Performance Management Process and the second is Merit Pay Pros and Cons. Additionally, there is a 15-slide presentation about performance management for the Board s review prior to tonight s presentation. Tom McMullen will be in attendance. NEXT STEP: The Finance Committee will discuss the information presented and provide input to Administration. TEL: (708) WEB: TTY/TDD: (708) FAX: (708)

2 Develop a new performance management process Audit existing performance management processes (Month 1) Develop simple and consistent tools and processes to support goal setting, feedback, appraisal and links to rewards (Months 2) Finalize recommendations & communications content (Month 3) Review proposed tools and processes with key stakeholders -- leaders, Board, employees (Month 4) Communicate and rollout to leadership and employees (Month 5) Link to compensation increases in Hay Group. All rights reserved 1

3 Performance management best practices Dialogue The performance management model is not new, but the way in which leading organizations do it is very different 1

4 Performance / Merit Pay Pros and Cons Performance/ Merit Pay is a compensation strategy that is used to motivate employees with pay increases for positive performance outcomes. Performance / Merit Pay is one that is heavily debated across many industries which leads to many unique structures for implementation. Every business / organization has its own unique structure and culture, and must decide what payment system works best in their environment and must decide how the budget will be developed and funded to support the pay system. Industry standards suggest that organizations understand the pros and cons of a merit based system before any attempts to implement. PROS (if the process is well managed) Clarifies what is important in the organization Linked to annual performance review Effective reinforcement method for motivating employees to perform at peak Drives organizations performance and high productivity Promotes healthy competition Encourages all to work hard to achieve best and deliver results Gives recognition and reward for job well done May help with recruitment of achievement oriented employees Helps to retain best employees CONS (if the process is not well managed) Subjective v. objective Causes conflict among employees Encourages competition v. collaboration Biased and leaves room for favoritism May lead to employees feeling unmotivated and unimportant Inconsistencies among raters Teaming/collaboration may get lost; if personal goals override team goals

5 Evolutionary stages of performance management More sustainable performance 1. Focus on performance appraisal 2. Focus on performance management 3. Focus on strategy alignment and performance culture I am truly committed to maximize my own, my team s and my organization s performance I need coaching to improve my competencies and achieve the objectives Less sustainable performance I must meet my targets Less resource intensive More resource intensive 2

6 Performance management is the combination of formal and informal processes and practices that help drive and focus employees on outcomes, goals, activities, decisions and behaviors that will produce positive short, medium and long-term results for the organization. 3

7 Planning is developing clarity around where the organization needs to go and what individuals must do to get it there within the context of their roles. 4

8 Key messages: Planning Goal setting is about the goal itself as well as the process It s not one or the other (yin/yang) Balance between the what and how The goal setting process can and should be iterative and is the accountability of the manager and the employee Agreement regarding the goal setting objectives and process, and which goals can be changed during the year Should be freedom within the framework regarding agreement on objectives and when/how to combine Alignment is key and clarity in goals is the place to start in improving PM processes. Leaders must know the must win battles (strategy decode process) There must be alignment in these priorities and leaders must do this as a team and NOT as a collection of individuals Must be alignment between the performance goals of individuals and that of the organization if the goal is to drive performance. 5

9 Key messages: Planning (cont.) Goals need to be established and clarified at the organization, team, and individual levels. Goals need to be connected to must win organization battles Break goals down for line-of-sight purposes (financial, customer, operations, human capital) so employees understand both throughput and output measures and focus on managing performance and not just the measures. There should be balance in measure types (i.e., organization, team, individual) and balance in short-term and long-term measures for leaders Line managers need to help employees understand the organization s goals, and their roles in achieving those goals; this is an ongoing process that: Must be owned and reinforced by leadership Must be sustainable to be effective Ensure that the culture, financial, operational and human capital systems and the goals of individuals send the same message about what performance looks like. Globally consistent goal setting processes better enable the organization by increasing clarity and reducing variability across the organization. 6

10 Performance coaching is the day-today process of managing behavior and performance. It is working with individuals and teams to help them meet or exceed performance expectations. Excellence in this competency is emerging as one of the most critical skills among superior leaders, and, in some cases, the most critical. - Daniel Goleman 7

11 Key messages: Performance coaching Build a culture of dialogue where performance coaching is: An ongoing process, not a once-a-year activity FAST (Frequent, Action, Specific, Timely) positive and negative Lived and modeled by leaders who give honest feedback & hold people accountable Reinforced by managers knowing and leveraging their own management style Reinforced & sustained by providing coaching skill development Mutually reinforced with the organization s goal setting, reviewing & rewarding processes Valued and reinforced in manager selection and recognition processes Leadership development efforts should focus on building organizational capability to set stretch goals, give performance feedback and hold people accountable. 8

12 Key messages: Performance coaching (cont.) Elements of the culture that prevent open, informal, and candid performance dialogue should be identified and addressed. - Know your current culture and where you are going - Develop action plans to close the gaps - Align cultures and management styles with strategic profiles Leadership selection and reward systems should consider managers who create and sustain a culture of dialogue. Performance coaching needs focused on all employees and not just employees at the extreme ends of the performance curve. Performance coaching should be focused on achieving both short term performance needs and gaps as well as longer term development needs. 9

13 Reviewing is the process of evaluating performance against established performance expectations for a specific time period. 10

14 Key messages: Reviewing Frequent performance dialogue takes the pressure off the end-of-the-year rating and evaluation process Focus should be on raising managerial capability to have a dialogue about performance, not just filling out the performance assessment form. Formal review is a holistic measurement process including both performance results and behavioral elements behaviors, demonstration of values Reviews should include an evaluation of training and development undertaken over the course of the year and its relevance to enhancing job performance. The process of calibrating ratings to ensure that the same standards are applied across the organization is critical. Otherwise, there will be perceptions of unfairness. An effective performance review discussion aligns performance with career development and succession planning. Ratings may be used to better inform decisions around promotion and assessment of high potentials, but performance and potential do NOT constitute the same thing 11

15 Key messages: Reviewing (cont.) Performance assessments impacting base salary and promotion decisions should reflect things the organization should be willing to pay for during the length of employee s career. This includes performance against job standards and assessment of potential. It does not include achievement of short term results. Typically rating scales beyond 5 rating do not add value to the organization. Typically 3, 4 and 5 rating scales are the most common Number of ratings should be a function of the organization s ability to effectively differentiate performance. Forced performance rating distributions are often counter-productive. Effectively managed distribution guidelines supported by an open and transparent calibration process with the executive team is viewed as most effective. Allowing flexible rating distributions between high and low performing parts of the organization. Insisting on distribution guidelines for large populations only (e.g., > 20 employees) 12

16 Rewards are anything the organization provides the employee that is of perceived value. It is a primary reinforcement tool for the performance management program. 13

17 Key messages: Rewarding The organization s performance model and reward strategy - as opposed to external market practices - should drive the money, mix and messages of rewards - It starts with effective diagnosis of business strategy and reward strategy - Take the time to build your reward platform - then, over time, fine tune rather than make wholesale changes Rewards should be aligned with performance measures that are balanced between: - Hard & soft measures (financial, customer, operational and human capital measures) - Short-term and long-term objectives - Between individual, team and organization objectives The best organizations do have more differentiation in both performance ratings and the rewards that are associated with them. The best organizations have a higher percentage of employees that do not receive annual base salary increases and incentives. 14

18 Key messages: Rewarding (cont.) Pay for performance is not just about base salary increases and incentive pay. It s about reflecting pay for performance in multiple rewards. It is about differentiated opportunities for promotions, career development, nonfinancial recognition and meaningful work opportunities. It is about career income levels, not just annual income differences. The differentiators of effective reward program design are more about effective implementation than superior design. It s about effective communication, the ongoing role and engagement of line and senior managers and alignment of processes. It s about effectively communicating and leveraging the value of total rewards. And communicating pay for performance rewards via line managers. 15