Perfecting Pay for Performance
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This document discusses strengthening the link between pay and performance. It begins by defining pay-for-performance and outlining market trends showing an increasing shift toward variable pay plans tied to results. Reasons for adopting pay-for-performance include motivating employees and driving better business outcomes in a cost-effective manner. Barriers to success include lack of executive support, inadequate manager training, and perceived budget constraints. Keys to success include executive buy-in, good program design aligned with goals and culture, and clear communication. The document provides guidance on developing compensation strategies, base pay structures, and variable pay plans to clearly link rewards to individual and organizational performance.
Perfecting Pay for Performance
- 1. Strengthening the Link Between Pay & Performance Mykkah Herner, MA, CCP Manager of Professional Services PayScale, Inc. Karaka Leslie Partnership Manager PayScale, Inc. www.payscale.com
- 2. 14,000 PosiAons 2500 Customers 40 Million Salary Profiles 250 Compensable Factors 11 Countries www.payscale.com
- 3. Agenda o What is Pay-‐for-‐Performance? o Trends o Why do Pay-‐for-‐Performance? o Barriers to Success o Keys to Success o Linking Pay to Performance o Strategy o Base Pay o Variable Pay o Immediate AcAon www.payscale.com
- 4. What is Pay-‐for-‐Performance? www.payscale.com
- 5. Pay-‐for-‐Performance (P4P) Links pay (base and/or variable), in whole or in part, to individual, group, and/or organizaAonal performance. The World at Work Handbook of Compensa5on, Benefits & Total Rewards by WorldatWork www.payscale.com
- 6. Market Trend: Ongoing Shi; Toward P4P When craing next years budget vs. this year the use of Across the board increases down by 50% Use of Variable Pay has increased 300% Source: HewiW Survey – U.S. Salary Increases 2009/2010 and Impact on Org Spend for 2010 www.payscale.com
- 7. 2013 P4P PracAces • Performance based pay increases are the #1 driver for pay raises in 2013 • 56% of companies say Performance is the main reason for pay raises • 71% give variable pay incenAves Source: 2013 PayScale CompensaFon Best PracFces Report www.payscale.com
- 8. Why do Pay-‐for-‐Performance? www.payscale.com
- 9. Why Pay-‐for-‐Performance? The principle of it: o Employees who perform beWer should get paid beWer Drives results: o Aligns employee performance to organizaAonal goals MoAvates: o Employees work harder towards a common goal Cost-‐effecAve: o P4P allocates labor dollars well, when company performance is good www.payscale.com
- 10. Barriers to Success Three main impediments to success o Lack of execuAve support o Lack of manager training o Perceived budget restricAons Performance management doesn’t ensure Pay-‐ for-‐Performance www.payscale.com
- 11. Main Avenues to Success o ExecuAve buy-‐in o Good P4P program design; fit with organizaAonal goals & culture o Right systems in place o Manager training o Clear communicaAon across the organizaAon www.payscale.com
- 12. Linking Pay to Performance www.payscale.com
- 13. “Employees won’t believe there is a link between pay and performance unless they can see it.” Margaret O’Hanlon re:Think ConsulFng
- 14. Linking Pay to Performance: Gelng the right mix Complexity of the mix… Individualized Rewards & RecogniFon Variable or IncenFve Pay Structure Base Pay Structure Company Culture, CompensaFon Philosophy, & CompensaFon Strategy www.payscale.com
- 15. Linking Pay to Performance: Strategy Develop clear compensaAon strategy o Define your market(s) o Determine your level of compeAAveness o Decide to reward performance in base and variable pay Get reliable market data Develop clear and aligned goals o Company or organizaAonal level o Department or team level o Individual level www.payscale.com
- 16. Linking Pay to Performance: Base Pay Structure Merit Matrix Manager Training o Performance Management o CommunicaAon o Forced ranking? www.payscale.com
- 17. % pay increase based on Performance Metric Source: InsFtute for Corporate ProducFvity www.payscale.com
- 18. Linking Pay to Performance: Variable Pay Plan Keep it Simple o Be able to explain your variable pay plan in a short paragraph Ensure sound plan design o Make sure what you’re rewarding ulAmate moves the business forward o Clarify who is eligible for the plan o IdenAfy performance measurements o Determine threshold of organizaAonal and/or individual success o Establish your pay-‐out strategy www.payscale.com
- 19. Put it into AcAon www.payscale.com
- 20. Immediate AcAon Elementary • Work with senior leaders to define compensaFon strategy • Build a compensaFon plan with reliable data • Define SMART goals for employees Intermediate • Build cascading goals linking employee goals to corporate strategy • Invest in hiring and training good managers • Re-‐visit your comp budgeFng process – P4P vs COLA Advanced • Find new and creaFve ways to incorporate variable pay • Develop strong performance management system • Build great differenFaFon between low and high performers www.payscale.com
- 21. PayScale Delivers Where Other CompensaAon Providers Fall Short PayScale leads the world in compensaFon knowledge with the freshest and most detailed data from over 36 million salary profiles. More than 2500 organizaFons use PayScale’s so;ware and intelligence to get the greatest return on their talent. Smart businesses use PayScale Insight to recruit, retain and moFvate their people. Visit our blog: www.payscale.com/compensaFon-‐today Join our Group on LinkedIN: CompensaFon Today: HR Best PracFces Mykkah Herner, MA, CCP Manager of Professional Services PayScale, Inc. Karaka Leslie Partnership Manager PayScale, Inc. www.payscale.com