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MERCER’S 2017 COMPENSATION PLANNING AND PERFORMANCE ... · PDF filehealth wealth career getting it right: salary and performance management re-boot mercer’s 2017 compensation planning

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  • H E A L T H W E A L T H C A R E E R

    G E T T I N G I T R I G H T :S A L A R Y A N D P E R F O R M A N C EM A N A G E M E N T R E - B O O T

    M E R C E R S 2 0 1 7C O M P E N S AT I O N P L A N N I N GA N D P E R F O R M A N C EM A N A G E M E N T W E B C A S T

  • MERCER 2016 1

    T O D AY S P R E S E N T E R S P R E S E N T E R S

    A L L I S O NG R I F F I T H S

    A L E XB E L L

  • MERCER 2016 2

    T O D AY S D I S C U S S I O N

    1

    2 HOT TOPIC: PERFORM ANCE MANAGEM ENT

    INSIGHTS FROM THE SURVEY

  • MERCER 2016 3 MERCER 2016 3

    INS IGHTS FROM THE SURVEY

  • MERCER 2016 4

    T H I S Y E A R S S U R V E Y

  • MERCER 2016 5

    C H A L L E N G E S F A C I N G O R G A N I Z AT I O N S T O D AY

    MULTI-GENERATIONAL

    WORKFORCE

    ECONOMICUNCERTAINTY

    COMPETITIONFROM EMERGING

    MARKETS

    AUTOMATION &MACHINELEARNING

    COST REDUCTIONINITIATIVES

    DISRUPTIVETECHNOLOGY

  • MERCER 2016 6

    F A C T O R S I N F L U E N C I N G Y O U R B U D G E T I N 2 0 1 7

    0% 10% 20% 30% 40% 50% 60% 70%

    Overall Economic Climate

    Retention Concerns

    Attraction Concerns

    Strengthen performance culture / pay-for-performance

    Employee Engagement Concerns

    Career Mobility / Advancement

    Multiple responses were allowed

  • MERCER 2016 7

    R E S U L T S F R O M T H I S Y E A R S S U R V E Y

    ExcludesFreezes

    IncludesFreezes

    2017 Projection2016 Actual2016 Fall Projection

    2.6% 2.5% 2.6%

    2.2% 2.1% 2.3%

  • MERCER 2016 8

    C H A N G E S I N S A L A R Y B U D G E T SP R I M A R Y R E A S O N S F O R C H A N G E

    56% Response to economicuncertainty or general costreduction initiativeProjected 2017 lower than Actual 2016

    Business/industryperformance weaker thanexpected

    Change in business strategyor competitive positioning tomarket

    Response to commodityprices

    Decline incommodityprices

    Projected 2017 higher than Actual 2016

    Business/industryperformance stronger thanexpected

    Account for salary freeze/delayed increase inprevious years

    Response to economicimprovement

    Change in business strategyor competitive positioning tomarket

    Greater competition oranticipated labour shortages

    17%8%8%

    38%22%20%

    5%

  • MERCER 2016 9

    B A L A N C E D I N C R E A S E S A C R O S S T H E C O U N T R Y2 0 1 7 P R O J E C T E D S A L A R Y I N C R E A S E S

    Greater Edmonton

    Greater Calgary

    SaskatchewanGreater Vancouver

    Greater Montreal

    Other Quebec

    OtherOntario

    Other British Columbia

    Atlantic Canada

    Territories

    2.5

    2.7

    2.52.5

    2.5 2.6

    2.6

    2.5

    2.5

    2.5

    2.6

    2.5

    4.02.02.9%

    2.5Other Alberta

    2.6National Capital Region

    Greater Toronto

    Manitoba

  • MERCER 2016 10

    2.8%2.6% 2.6% 2.6% 2.6% 2.5% 2.5% 2.4% 2.4% 2.4%

    A N D N O W B Y I N D U S T R Y2 0 1 7 P R O J E C T E D S A L A R Y I N C R E A S E S

    Con

    sum

    erG

    oods

    Publ

    icSe

    ctor

    Ener

    gy

    Ret

    ail

    Insu

    ranc

    e

    Hig

    hTe

    ch

    Serv

    ices

    Non

    -Fin

    anci

    al

    Min

    ing

    Oth

    erM

    anuf

    actu

    ring

    Fina

    ncia

    lSer

    vice

    s

  • MERCER 2016 11

    S A L A R Y F R E E Z E S B Y E M P L O Y E E L E V E L

    0%

    5%

    10%

    15%

    20%

    25%

    Executive Management Professional

    %O

    rgs

    Free

    zing

    2015 2016 Projected 2017

  • MERCER 2016 12

    O T H E R S U R V E Y H I G H L I G H T S

    Projected base salarystructure adjustment in

    2017

    Top employees canexpect to receive a salaryincrease 1.8x higher than

    average performers

    Average promotionalincrease across all

    employee groups in 2016 lower than 2015

    2.1% 1.8x 6.8%

  • MERCER 2016 13

    S M A L L I N C R E A S E S C A U S I N G P R E S S U R E O NO T H E R H R P R O G R A M S

    JOB EVALUATION

    PROMOTIONS

    MANAGER SKILLS

    PERFORMANCEMANAGEMENT

  • MERCER 2016 14

    S T R AT E G I E S F O R A S M A L L E R B U D G E T

    Why? Why not?

    Easy to administer Especially if your merit matrix is

    broken Encourages a team-based culture

    Perpetuates internal inequities Higher chance of turnover from top

    performers Strongly counters existing company

    culture

    DISTRIBUTE THE BUDGET EVENLY ACROSS ALLEMPLOYEES

    #1

  • MERCER 2016 15

    S T R AT E G I E S F O R A S M A L L E R B U D G E T

    Why? Why not?

    Focus on the top performers theemployees you want to retain

    Opportunity to make some salarycorrections

    Strategizes budget spending

    Problematic for companies who areunable to identify top performers

    Works at the expense of the moraleand engagement of the broaderemployee population

    ELIMINATE THE BASE SALARY INCREASEFOR THE MAJORITY#2

  • MERCER 2016 16

    S T R AT E G I E S F O R A S M A L L E R B U D G E T

    Why? Why not?

    Opportunity to focus on all the othergood stuff

    Money alone will likely not retainemployees

    Potential to increase employeeengagement and morale

    If you havent thought strategicallyabout this, it requires a lot of work!

    Pay-for-performance may be animportant part of your EVP need tohave other avenues to rewardperformance

    FOCUS ON THE BROADER EMPLOYEEVALUE PROPOSITION

    #3

  • MERCER 2016 17

    S T R AT E G I E S F O R A S M A L L E R B U D G E T

    #1

    #2

    DISTRIBUTE THE BUDGET EVENLY ACROSS ALLEMPLOYEES

    ELIMINATE THE BASE SALARY INCREASEFOR THE MAJORITY

    FOCUS ON THE BROADER EMPLOYEEVALUE PROPOSITION

    #3

  • MERCER 2016 18 MERCER 2016 18

    P ER F OR M AN C EM AN A G E M E N TESTABLISHING ANEFFECTIVE APPROACH

  • MERCER 2016 19

    D I S C U S S I O N T O P I C S

    89%

    95% STATE OF PERFORMANCE M ANAGEMENT HEADLINE MARKET PRACTICES

    ROOT ISSUES

    MAXIMIZ ING THE EFFECTIVENESS OF PERFORMANCEMANAGEMENT

  • MERCER 2016 20

    P E R F O R M A N C E M A N A G E M E N TN O T A D I F F E R E N T I AT O R F O R M O S T

    77%Implemented onesize fits all

    86%Evaluate behaviours/ competencies

    89%Link employee payand theperformance rating

    57%Use a 5-point ratingscale

    89%Have overallperformance ratings

    95%Set individual goals

  • MERCER 2016 21

    H I G H D I S S AT I S F A C T I O N W I T H P E R F O R M A N C EM A N A G E M E N T

    Percentage ofemployers that believe

    their performancemanagement systemneeds further work to

    be effective

    3% 48% 90% 95%Percentage ofemployers that

    believe theirperformance

    management systemdelivers exceptional

    value

    Percentage of Headsof HR that believetheir performance

    management systemdoes not yield

    accurate information

    Percentage ofmanagers dissatisfied

    with theirorganizationsperformance

    management system

  • MERCER 2016 22

    ELIMINATING ANNUAL MERIT INCREASESBottom Line - Even with some companies considering eliminating annual meritincreases, it is likely that pay for performance will stay, with an increases emphasison variable pay

    H E A D L I N E M A R K E T P R A C T I C E S V S . T H EB O T T O M L I N E

    10% - 15%ELIMINATING PERFORMANCE RATINGSBottom Line - Companies that eliminated ratings still assess performance usingmultiple performance factors, and use these to make pay decisions

    CONTINUOUS FEEDBACKBottom Line - Creating a feedback rich culture remains a challenge for allorganizations, requiring on-going sponsorship, training, tools and engagement but technology can be an enabler

  • MERCER 2016 23

    P O T E N T I A L R O O T I S S U E S

    N o t e s : 2 0 1 5 d a t a u p d a t e d a s o f M a y 2 4 , 2 0 1 5 . N o n - C o n s u l t i n g C o m m u n i c a t i o n s , G l o b a l M o b i l i t y a n d IS d a t a n o t i n c l u d e d .

    Unclear expectations

    Lack of defined goals/wronggoals

    Goal-setting

    Lack of focus on careerdevelopment

    Lack of transparency

    Coaching

    Not enough feedback

    Feedback intervals are toospread out

    Feedback

    Inconsistent process year-to-year

    Not enough effort put intoperformance reviews

    Rating

  • MERCER 2016 24

    E L I M I N AT I N G P E R F O R M A N C E R AT I N G S ?

    THINK TWICE1. Employees use their assigned rating as a proxy for where they stand2. Employees believe a rating is an effective way to drive pay decisions

    THERE IS STILL WORK WITHOUT RATINGSOrganizations without ratings still make performance-based pay decisions, relying on managerdiscretion, calibration committees, various performance metrics, or a combination of theseassessment methods to deliver base salary and/or incentive pay.

    IT CAN WORKIn a no-rating environment, an organization with fruitful discussions about goals, performance anddevelopment can easily communicate to employees about where they stand.

  • MERCER 2016 25

    M A X I M I Z I N G T H E E F F E C T I V E N E S S O FP E R F O R M A N C E M A N A G E M E N T

    FOCUS DIALOGUEEstablish the right goals first, then talk about development

    REALLOCATE TIMEReducing year-end focus in favor of ongoing engagement

    KEEP SCOREMeasure the effec