kilmartin

Connecting people, pay and performance 1

T

The Broken Link

Between Performance & Pay

Joseph B. Kilmartin, Jr.


Two questions:

1. Is there a strong link between pay andperformance at most organizations today?

2. Can a stronger link be created?


Agenda

Agenda

I. The Performance Management Opportunity

II. The Broken Link between Pay andPerformance

III. Why Did It Happen?

IV. Repairing the Link


Performance Management:• Should have evolved into a critical process needed to

help drive greater business results.• Should represent a significant opportunity to increase

and sustain our organization’s competitiveadvantage.

• Should enable us to identify high performers and todifferentially reward those high performers.

• Should increase the credibility of HR to line and topmanagement.


Why Did It Happen?• Cultural Changes

– Everyone can exceed, if just given the opportunity– Educational system– Athletics– Workplace

– The entitlement mentality– Unwillingness to give 0% increases


Why Did It Happen?• Performance management system expansion

– Career development, succession planning, etc.– Ambiguity of responsibility for performance

management• Innumeracy


What Were The Results?• HR began focusing on those needing help to succeed

– More focus on the “Needs Improvement”employees; less focus on “Outstanding” and“Good” performers

• Growth of entitlement during times of flat or dwindlingincrease budgets


Employee/Manager Disconnect # 1:• Managers believe that they are excellent at

discerning minute differences in performance amongtheir direct reports

• Subordinates believe that their managers are OKwhen it comes to assessing gross performancedifferences (e.g., “Outstanding” vs. “Good” or “Solid”)but are not so good at identifying the differencesamong employees within the same performance level


Employee/Manager Disconnect # 2:• Managers are very liberal when estimating the

number or percentage of top performers(“Outstanding”) in their departments. Their estimateis often 20% or higher

• Their subordinates are much more conservative (andrealistic), typically estimating 5%


Employee/Manager Disconnect # 3:• Managers typically rely on their memory when

assessing performance, focusing on the highs andthe lows.

• Their subordinates have a much better idea of whattheir performance has been over the relevantperformance period.


Use/Misuse of Merit Matrices:• A well-known former CEO has suggested that the

bottom 10% of performers need to be culled eachyear.

• Employees believe their organizations tolerate Poorperformers, but suggest the percentage is in therange of 1%-4%


Impact on Pay Increases• Similar pay increases for all performance levels

– ½% - 1% differential

– Leading top performers to ask “Was all that extrawork worth it?”


Assessment Forms Became:• Too long• Too complex• Often designed to measure the wrong things

Assessment Became More Frequent:• HR thought greater frequency would produce:

– Better understanding of goals and processes– Better results

• Instead, it created more conflict with line managers


Performance Appraisal Forms:• The ideal performance assessment form should be

complete, while at the same time, relatively brief.• Most forms allow the user to assess performance

against a set of behaviors and individual objectives.• Increasingly, we have seen that performance is being

assessed against those competencies required forsuccess in the assigned job.


Automation:• Automation makes the assessment process much

easier.– Allows HR to overcome complaints about the

significant time investment.– Increases meaningful employee and manager

participation.– Enables the upward “cascading” and review of

assessments.– Enables HR to monitor and respond to pay

recommendations.


Multiple Assessments:• I suggest the following:

– Make the formal performance assessment a once-a-year event.

– Throughout the year, train managers andcommunicate to them the importance ofmonitoring performance.


Performance Distribution:• Targeted performance distribution can prevent a

skewed distribution:– Guarantees compliance– Moves responsibility away from line manager

• Targeted performance distribution and a merit matrixenables an organization to truly reward the topperformers.


Merit Pools:• Two basic pools of money for merit increases:

– Management pool– Employee pool

• Each of these pools should have two subsidiarypools:– One for those in the highest performance category

(e.g., “Outstanding”)– One for the balance of the organization’s

employees.


Joseph B. Kilmartin, Jr., CCPJoe Kilmartin has dual responsibilities at Salary.com – he is Managing Director of CompensationConsulting, Emeritus and Regional Sales Director for Florida. Joe has over 30 years of experience as acompensation practitioner, working for consulting firms and for corporations.

Joe was a senior consultant for Watson Wyatt Worldwide, working in that firm’s Boston, Philadelphia,and San Juan offices. During his consulting career, he has consulted in virtually all segments of industryincluding hospitals and other healthcare providers, banks and other financial services organizations,insurance companies, manufacturers, pharmaceutical firms, colleges and universities, utilities, not-for-profits, and government agencies. Joe has also held human resources executive and seniormanagement positions at Wang Laboratories, GMAC Residential, and Danka Office Imaging.

Joe holds a B.A. in History from the University of Massachusetts at Amherst. He is a CertifiedCompensation Professional (CCP) and is the recipient of WorldatWork’s Lifetime Achievement Award.In addition to being a member of that organization, Joe is also a member of the Society for HumanResource Management (SHRM), the American Society for Healthcare Human ResourcesAdministration (ASHHRA), the South Florida Compensation and Benefits Association, and the SuncoastHuman Resources Association.


[email protected]

kilmartin - the broken link between performance & pay

Business

broken link

connecting people

good

subordinates

managers

joe

employees