Getting Compensation Right

GETTING COMPENSATION RIGHT

Jobs, Market Data, and Pay for Performance Tools

November 18,2010Don Berman & Jim Haviland

hrtms.com

Agenda

Themes and Best Practices Getting Job Descriptions Right

Multiple views of a job description Demo: HRTMS Jobs for collaboration with managers

Getting the Data Right Market data, what it is and isn’t Demo: HRTMS Jobs for collaborating with job costing

and market data services Getting Compensation Right

STI, LTI, Total Rewards, Pay for Performance Strategy Demo: HRTMS Compensation for wholistic comp

budgeting

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Themes

There is a new context to consider (almost everyone is broke)

3 Goals need 3 Strategies that align with the whole organization: Recruiting, Retention, and Rewards

Data is not analysis is not a strategy A,B & C Players and A, B, and C jobs Pay for Performance requires a Causal

Relationship Good News: We have lots of options V Good News: 10- 25% Gain for getting it right

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The New Context: V Bad

http://www.dallasfed.org/research/eclett/2010/el1001.html

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Next New Context:V Slow Growth

http://www.dallasfed.org/data/data/us-charts.pdf

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Gap Analysis: Giving Up?

http://www.dallasfed.org/data/data/us-charts.pdf

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The New Context

Recruiting Good: Lots of candidates to consider Bad: Languishing Skills, Motivation, Housing and

Credit freeze Retention

Good: It’s scarry out there Bad: Uneven recovery, suppressed demand

Rewards Good: Low expectations, A Chance to Set New

Policy Bad: Small budgets, little motivation, high cost of

error

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Best Practice:Many Perspectives Market Data to set levels Consider the organization life-cycle Consider the performance of the

employee/team/organization Consider the strategic importance of

the job/division

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Why They Leave

Salary.com

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Counter Offer vs Replacement

Salary.com

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Why they stay

Salary.com

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Job Families•Career Path for Employees•A Discipline for extrapolating pay calculations•A way of organizing compentencies

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Market Data Determinants

Employee Context Size of Organization (Revenue, EE, Beds) Location (region, state, city, zip code) Industry Sector

Compensatable Factors Education Credentials (license, certification) Experience Responsibilities

HR TMS JOBSDemonstration

Collaborating on the Job Description

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Best Practice:Many Perspectives Market Data to set levels Consider the organization life-cycle Consider the performance of the

employee/team/organization Consider the strategic importance of

the job/division

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The Organization Lifecycle Perspective

Salary.com

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Applying Talent Analytics

Human-Capital Facts: What are the key indicators of my organization’s overall health? JetBlue analysts developed a metric—the “crewmember net promoter score”—that monitors

employee engagement and predicts financial performance. Analytical HR: Which units, departments, or individuals need attention?

Managers at Lockheed Martin use an automated system to collect timely performance-review data and identify areas needing improvement.

Human-Capital Investment Analysis: Which actions have the greatest impact on my business? By keeping track of the satisfaction levels of delivery associates, Sysco improved their retention

rate from 65% to 85%, saving nearly $50 million in hiring and training costs. Workforce Forecasts: How do I know when to staff up or cut back?

Dow Chemical has a custom modeling tool that predicts future head count for each business unit and can adjust its predictions for industry trends, political or legal developments, and various “what if” scenarios.

Talent Value Model: Why do employees choose to stay with—or leave—my company? Google suspected that many of its low-performing employees were either misplaced in the

organization or poorly managed. Employee performance data bore that out. Talent Supply Chain: How should my workforce needs adapt to changes in the

business environment? Retail companies can use analytics to predict incoming call-center volume and release hourly

employees early if it’s expected to drop.http://hbr.org/2010/10/competing-on-talent-analytics/ar/1

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Know your costs

Salary.com

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Perforamce

Core Competencies Fit for the organization General Skills

Job/Team Specific Compentencies Tasks and Skills Specific operating environment

Goals – Progress & Resolve Developent – Compliance & Initiative Operational Data

POS, Customer Satisfaction, Team ratings

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A Positions are Strategic

Harvard Business Review, December 2005, Reprint R0512G

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Comp Strategy by Position

Harvard Business Review, December 2005, Reprint R0512G

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A Positions: Examples

Nordstrom and Costco both rely on customer satisfaction to drive growth and shareholder value.

Nordstrom’s strategy hinges on personalized service and advice, while Costco’s relies on low prices and product availability.

Nordstrom’s A positions include frontline sales associate jobs, while Costco’s includes purchasingmanager roles.

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Are We Differentiating Enough?

Positions __ Position descriptions are based on history, not strategic value. __ Most positions are paid at about the market midpoint. __ Recruitment and retention for all positions involve the same effort and budget. __ The same selection process is used for all positions. __ Little developmental rotation occurs. __ Few C positions are eliminated or outsourced.Players __ Performance evaluation forms are completed rarely or only at salary review. __ There is little candor in performance reviews. __ Many or most employees are rated the same. __ Forced distribution of ratings is used. __ Those receiving the middle rating are labeled “proficient” or “successful” and receive regular pay raises despite being viewed as average or marginal. __ Both very tough and very lenient raters operate without consequences. __ Poor performers stay yet don’t improve. __ Top management is not rigorously evaluated.


Comp Data in the Job Description


Questions?

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Compensation Elements

Compensation should align with strategy metrics that matter

Compensation should be based on real world knowledge job descriptions that represent the real work being done market data that relates to the job a career progression for all

Compensation should motivate in the long term and the short term pay for performance pay for retention non-financial rewards

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Scrap Stock-Based Compensation and Go Back to Principles

To what extent do executives have control over increasing the market's expectations about the future performance of the company? Very little. That is proven by the degree to which expectations fluctuate dramatically more than real results of publicly-traded companies. Real results dropped slightly in the fall of 2008 and expectations plummeted to half their previous level.

Do we really want first and foremost the expectations of stock market participants to rise regardless of anything else? I guess one could say the answer is yes if expectations could rise forever. But interestingly, that has never happened with any stock - ever. Expectations fluctuate because they are the product of imagination and speculation, not actual company results. What is more true is that we would wish that real variables, like earnings per share or market share or return on invested capital, would grow from their previous levels. If they grow, then expectations and stock price will grow with a sound underpinning rather than through idle speculation.

http://blogs.hbr.org/hbr/how-to-fix-executive-pay/2009/07/scrap-stock-based-compensation.html

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Netflix Employee Policies

Values: hard work, initiative, creativity, and accountability

All salaries are at top of market range All Exempt Employees Choose their own mix of

Cash and Options (up to 60% discounted options) No vesting restrictions Unlimited Vacation Time “The real company values, as opposed to the nice-

sounding values, are shown by who gets rewarded, promoted, or let go” CEO Reed Hastings

“fully formed adult” culture

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Industry Data: Compensation Mix and Turnover

Copyright © 2010 by the Board of Trustees of the Leland Stanford Junior University, Equity on Demand: The Netflix Approach to Compensation CG-19

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Average Industry Turnover


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Netflix Stock ProgramSummary statistics includes range of results for the years 2007 to 2009. Sampl includes all exempt employees including executive officers


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Sustainability as Value

Intel has been pushed by investors for years to address issues of say-on-pay, the human right to water, and sustainability as part of a board's fiduciary obligation. So it's not surprising that Intel links employee compensation to sustainability results. What is surprising is that Intel is doing this for its entire workforce. Since 2008, every single employee's annual bonus is calculated on the basis of the firm's performance on measures like product energy efficiency, completion of renewable energy and clean energy projects, and the company's reputation for environmental leadership. Last year, Intel added into the equation performance on reducing the company's carbon footprint. This is a smart move that will empower employees up and down the organization to find reductions big and small.

National Grid's compensation model shows how to embed sustainability practices into a company's DNA. In talking with company president Tom King recently, I asked how he knows that sustainability is really being addressed across his company. His instant response was that it's part of everyday conversation at National Grid, and that there are no executive meetings that don't touch on environmental performance. Like Intel, National Grid has tied CEO and other executive compensation to performance on the company's greenhouse gas (GHG) reduction goals. But what's most interesting here is how aggressive those goals are: an 80% reduction by 2050, with 45% by 2020. That's a lot of executive pay at stake — and this from a major electric power utility.

http://blogs.hbr.org/cs/2010/04/compensation_and_sustainabilit.html

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Toward Pay-for-Performance 3 Steps

Job Descriptions Consistent review of descriptions Strategic Prioritization of Positions

Performance Reviews Core Competencies Position-specific measures Data Integration

Compensation Planning STI LTI Total Rewards

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Toward Pay-for-Performance Measure what matters not what’s

easy to measure Is performance tied to individual,

teams, or groups? Reward for things people can effect Correlate bio-data with performance

data

HR TMS COMPENSATIONDemonstration

Compensation Budgeting – Spending Wisely

HR TMS COMPENSATIONDemonstration

Questions?

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Like I Said…

Compensation should align with strategy Compensation should be based on real world

knowledge Compensation should motivate in the long

term and the short term There is a new context to consider (almost

everyone is broke) 3 Goals need 3 Strategies: Recruiting,

Retention, and Rewards V Good News: 10- 25% Gain for getting it

right

GETTING COMPENSATION RIGHT

Jobs, Market Data, and Pay for Performance Tools

November 18,2010Don Berman & Jim Haviland