Pay for Performance Part 2 - The Success of Plans.docx

Pay for Performance Part 2 - The Success of Plans So let's shift gears a little bit and talk about the success or lack thereof maybe with some programs. What are we hearing from organizations about the success of their pay-for-performance programs? We hear a fairly common drumbeat, Allison, and that...

Pay for Performance Part 2 - The Success of Plans So let's shift gears a little bit and talk about the success or lack thereof maybe with some programs. What are we hearing from organizations about the success of their pay-for-performance programs? We hear a fairly common drumbeat, Allison, and that drumbeat is not very good. There was a survey that Mercer just released very recently in which only three percent of the respondents said that they viewed their pay-for-performance system as highly effective. Another study that World at Work did a couple of years back with Simpson Consulting, 58-59 percent of organizations gave their pay-for-performance plan a grade of C or worse. Not only do we have lots of survey and research results that tell us that pay-for-performance is not working very well, but in our discussions and meeting with customers and World at Work members and consultants that we do business with, the mantra is very consistent. Most organizations are less than completely satisfied with pay-for-performance. Do they have a sense for why that might be? Do they understand what's happening in their organizations and why their pay-for-performance programs aren't as successful as they could be? You know, there are many reasons. Of course, there's thousands of organizations in different industries, different sizes. So there's lots of individual issues that are going on. Two or three of the most common issues that we hear, common themes that we hear, first of all is managers, managers not able or willing to have difficult discussions with their employees about pay-for-performance. Secondly, and this is tied in somewhat, is that HR is viewed as running the pay-for-performance process, or to turn that around, pay-for-performance is viewed as an HR process rather than an organization process. So getting back to the manager issue, the manager might say, well, Bill, I really wanted to give you a better rating, but unfortunately, HR gave me a distribution and I don't have any more slots in the above-average category, so I'm going to have to put you in this category. And what that does is it removes pay-for-performance as an organization-wide initiative and strategic objective, and it moves it into an administrative, fill out the forms, go through, assign the ratings. As we know from lots of other research, managers and adults are not very comfortable assessing other adults. So it puts a lot of pressure. Most people are not very comfortable, especially when they have to give constructive criticism. They have to give a rating that the employee doesn't necessarily agree with. The increase is less than he or she wanted to have. And so those two things are really detrimental. The third thing I would mention that is a chronic problem in pay-for-performance is probably around the notion of poor goal setting. We talked a couple of minutes ago about having good line of sight, making sure that people feel like they can accomplish their goals. When you have poor goals, and a poor goal might be a goal that's completely unrealistic, there's no way we can do it. It might be goals that don't seem consistent with the organization's strategy. They might be disjointed. Again, those are things where when employees either don't believe the goals are going to help, or they don't feel that they can accomplish them, the motivation and credibility factor amongst employees goes way down. So there's lots of opportunity for improvement. Do you have some specific ideas about how organizations can improve their pay-for-performance practices? Yeah, and again, in talking, based on research and talking to our members and customers, there do seem to be a few themes that emerge in terms of how we can, what are some immediate things that we can do to improve pay-for-performance. I would say one of the most important things in pay-for-performance, and this gets back to making pay-for-performance an organization program, not an HR program, is to get commitment from your executive team, and specifically your president or your chief executive officer. If you don't have a chief executive officer or president or the top person, if they're not on board with pay-for-performance, and on board means they talk the talk as well as walk the walk. Most of them talk the talk very well. When it comes to walking the walk, they're not so good, and employees see that. So to the extent that your chief executive officer is kind of wishy-washy about pay-for-performance, the employees see right through that, and then the employees themselves start cutting corners. So that's one important thing. Goal setting is, as we mentioned before, is a key issue that almost all employees can and organizations can improve on. Set goals that are realistic. A good goal is one that's challenging. It's not a layup. It's not one that everyone knows, phew, I know we can make this. And on the other hand, it's not one where they look at it and say, there's no way we're going to make it. It has to be challenging, but it has to be doable. And secondly, it has to be consistent, as we talked before. It has to make sense. Organization, a division, or an individual's goals have to roll up to overall corporate goals, and it has to make sense for those. So I would say good goal setting, making sure that the executive team are on board, are key components to improving your pay-for-performance plan. Carrie, you've given us a lot of great tips about not only what's wrong with some pay-for-performance programs, but how to improve them. And it's got me wondering, are there groups of employees that are more hurt or more damaged if you have a poor pay-for-performance program in place? That's a great question, and it gives me the opportunity to put my own personal plug in for pay-for-performance, because I am a big proponent of it. There have been research and studies that have been done in terms of pay-for-performance. When you have a poor pay-for-performance program, in other words, you sort of spread the increases like peanut butter, nobody takes a lot of credibility in the ratings, the employees that are most disaffected with those kinds of behaviors are, one, high academic achievers, those that have a high need for achievement, and generally high performers in general are most likely to be dissatisfied with your programs. We've already said that most employers are not satisfied or feel that their pay-for-performance plan could be better, and I think it needs to be said that if your plan is not performing as well as it could be, the employees that are most likely dissatisfied are your high performers. To piggyback on that just a bit, there's other research that says that while general employees may not leave an organization over pay specifically, it may be sort of on their list, but it may not be the top list on the list. They may leave because of a poor manager. When it comes to high-performing employees, research shows that they're much more likely to leave. In fact, it was listed in one research study as the top reason why high performers leave is for better pay elsewhere. And so the whole pay-for-performance concept becomes much more focused and critical as we talk about high performers, which are exactly the kind of employees that we want to have in our organizations.