Making Compensation Simpler amid a Changing Performance Management Paradigm
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Transcript of Making Compensation Simpler amid a Changing Performance Management Paradigm
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Today’s Moderator
@AndyWebcast
Andrew Bateman Online Content and Community Director
The Human Capital Institute
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CHAT with us - Don’t forget to attach your name to your comment (Like This) REGISTER for our polling application and make your voice heard on the webcast
For a PDF copy of the slides used during this webcast – Click the button marked SLIDES
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Today’s Featured Guests
Stephanie Thomas
Research Associate
Institute for Compensation Studies, ILR School
Cornell University
Linda Barrington
Executive Director,
Institute for Compensation Studies, ILR School
Cornell University
Variable Pay and Incentive Plans are Growing
47% of business establishments surveyed had some variable pay plan in 2003 including production-related payments, nonproduction bonuses and wage add-ons. www.bls.gov
32% of U.S. employees reported that some portion of their pay/compensation was dependent upon individual performance or productivity targets in 2013. www.kellyocg.com
The percentage of organizations using variable pay grew to 82% in 2012, up from 79% in 2011. www.shrm.org
KELLY GLOBAL WORKFORCE INDEX™
Poll Question #1
In the last three years, how has the use of variable pay changed in your organization?
• Driven deeper down into lower levels of the organization
• Expanded to encompass a greater percentage of employee compensation
• More strongly linked to strategic goals
• Used less
• No Change
Poll Question #2
Within my organization, we track and measure the alignment between performance ratings and compensation decisions.
• Agree
• Disagree
Performance and Pay Alignment Needs Work
Source: Mercer’s Global Performance Management Survey, 2013
Low Potential High Potential
High Performance
Regularly exceeds expectations Lacks skills for success at higher level
Sets standard of excellence in role Model leadership candidate
Low Performance
Little-to-no aptitude Weak, unsatisfactory performance
Above-average aptitude Inconsistent performance
High Performers vs High Po’s?
Figure 1: Typical traits of performance vs. potential.
Assessing Performance vs. Potential
Source: “High Potentials vs. High Performers: A Manager’s Guide to Identify, Assess and Develop,” October 26,
2012 by Kyle Lagunas. http://new-talent-times.softwareadvice.com/high-potentials-vs-high-performers-a-managers-
guide-to-identify-assess-and-develop-1081012/
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10
20
30
40
50
60
year 1 year 2 year 3 year 4 year 5 year 6
Potential Hi-Po
Performance Hi-Po
Performance Other
Paying for Potential is an “investment strategy” where you expect to earn a profitable future return (pay now, gain later)
Paying for Potential and Performance?
Source: Institute for Compensation Studies, School of Industrial and Labor Relations, Cornell University, 2015
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10
20
30
40
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year 1 year 2 year 3 year 4 year 5 year 6
Potential Hi-Po
Performance Hi-Po
Performance Other
Want to pay something now above actual performance, because future potential will “pay back” the current investment
Paying for Potential and Performance?
Paying for Potential is an “investment strategy” where you expect to earn a profitable future return (pay now, gain later)
Additional “profit” made from performance of Hi-Po if paid same as others
Source: Institute for Compensation Studies, School of Industrial and Labor Relations, Cornell University, 2015
Organizational Justice Theory
Distributive Justice
Procedural Justice
Interactional Justice
Informational Justice
Distributive Justice
Perceived fairness of the actual outcome
• Did I receive what I should have received?
Was the pool of bonus money distributed among the eligible employees equitably, given our policies and procedures?
Procedural Justice
Perceived fairness of the policies and procedures used to arrive at the actual outcome
• Was what I received determined fairly?
Do the policies and procedures we use to distribute the pool of bonus money affect different groups of employees differently?
Interactional Justice
Perceived fairness of the treatment received in the application of the actual outcome
Was I treated with politeness, dignity and respect?
Informational Justice
Perceived fairness or adequacy of the information provided regarding the actual outcome
Do I understand how what I received was determined?
Informational Justice
Perceived fairness or adequacy of the information provided regarding the actual outcome
Do I understand how what I received was determined?
Poll Question #3 Which aspect(s) of organizational justice does your organization do really well?
(check all that apply)
• Distributive
• Procedural
• Interactional
• Informational
Employee Perceptions of Internal Equity
Distributive
• Strongly associated with satisfaction regarding an individual’s own outcomes (i.e., pay satisfaction)
Procedural
• Somewhat associated with satisfaction regarding an individual’s own outcomes
• Strongly associated with organizational commitment and trust in supervisor SOURCE: Folger and Konovsky, “Effects of Procedural
and Distributive Justice on Reactions to Pay Raise Decisions” Academy of Management Journal, Vol. 32, No. 1 (March 1989), pp. 115-130
Takeaways & Considerations
• Pros can be cons and cons can be pros – it depends on the organization and the situation
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Questions?
Stephanie Thomas
Research Associate
Institute for Compensation Studies, ILR School
Cornell University
Linda Barrington
Executive Director,
Institute for Compensation Studies, ILR School
Cornell University