Performance Management Perception vs. Perspective · Culture and Engagement Leadership Development HR Effectiveness Rewards Executive Compensation Broad Based Compensation Sales Compensation

Prepared by Aon Talent, Rewards & Performance

Performance Management Perception vs. Perspective

15th National Employment Law Conference 2019 Intercontinental Hotel Kuala LumpurApril 3, 2019

Aon | Talent, Rewards & PerformanceProprietary & Confidential | 1 April 2019

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About Aon Human Capital Consulting

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Performance

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M&A Total Rewards Strategy Human Capital Strategy Communication


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For Discussion

❖ “Killing” Performance Ratings – FACT or FICTION?

❖Do we understand what employees really want?

❖What else works?


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Performance Management - Reality or Sensationalism?


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“Discarding” Performance Management Ratings – Hardly the Case!

Source: Aon Radford Global Technology Trends Report, 2015


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Employees View on Performance Management

“…High performers and millennials in particular want to know how they

are doing in relation to their roles,

manager’s expectations and against peers” - Reimagining Performance

Management

Aon Advisory Brief, May 2016

Source: Aon Workforce Mindset™ Study, 2015


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What Then Are the Real Issues?

Continued challenges Emerging challenges

▪ The changing nature of work and

organisations

▪ Employees don’t believe there’s a connection between their performance

and pay

▪ The process is perceived as

demotivating by employees

▪ Managers believe the process is an

onerous task which wastes time

▪ Managers shy away from having

uncomfortable conversations.

▪ The changing nature of work and

organisations

▪ Forced distribution is seen as creating

competition when collaboration is

necessary

▪ Employees feel individual development

has taken a back seat and they are not

being coached

▪ Annual reviews draw attention away from

ongoing conversations

▪ Rating biases are playing havoc with

ratings and assessments.

The constant throughout: HR is on the receiving end of all of the complaints!


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Understanding Manager Impact on Employee Engagement

ResponsesActively

disengagedPassive

Moderately

engaged

Highly

engaged

Total

engagement

Very ineffective 21 71% 19% 10% 0% 10%

Mostly ineffective 28 46% 21% 29% 4% 33%

Slightly ineffective 40 28% 45% 15% 13% 28%

Slightly effective 111 16% 41% 35% 8% 43%

Mostly effective 206 3% 17% 59% 20% 79%

Very effective 87 7% 15% 44% 34% 78%

Ho

w e

ffe

cti

ve

is

yo

ur

ma

na

ge

r in

pro

vid

ing

pe

rfo

rma

nc

e f

ee

db

ac

k a

nd

co

ac

hin

g?

Distribution of engagement

%s indicate the engagement distribution within each category of manager rating.Dark green = biggest concentration of people within each manager rating category.White = lowest concentration of people within each manager rating category.

Source: Aon’s Performance Management/Career Development Survey; 2013 Global Performance Management Survey Report/2014 Global Top Companies for Leaders Research


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So What is Changing or Will Likely Change?

Revisit Normal Curve

Crowd source

performance data

Differentiate Pay –Fair but Unequal

Enable Managers and

Hold them accountable

1 2

4 6

3Refine the KPIs and

Measurability

?

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Enhance Agility of

the Process


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Does Employee Performance Follow the Bell Curve?

DistinctiveExceeds At TargetBelow Not

acceptable

<10% 15-20% 40-50% 15-20% <15%

Normal Distribution

Power Law Distribution

Small no

of low

performers

A broad range of average

performers

Small no of

hyper

performers

1


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Strong Measurement Focus Can Mitigate Subjectivity in Appraisal

Qualitative KPIs Traditional measurement

LeadershipDemonstrate high & effective leadership quality in managing teams

RelationshipManagement

Effective interaction and relationship building with all stakeholders

Human CapitalEffective development of human capital – mentoring and training

Capacity BuildingStrong contribution towards organization capacity building

Risk ManagementDemonstrate sound judgment, ability of handling risk and adherence to governance

Potential Improvements

Employee satisfaction survey index, execute the group succession planning policy to identify future leadership, etc.

Internal customer satisfaction levels, etc.

Number of training hours per employee annually, attrition rate, etc.

Average fund volume increase per business development staff, etc.

Ensure that all Risk Action Plans / Mitigations are in place , time necessary to perform risk evaluation and assessment, audit score for all auditable units, zero repeat audit findings, etc.

Illustrative Sample

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Market-based Evaluation Better Captures Nuances of Business Performance & Health, In Contrast to Budget-Based Assessments

Assumptions on “budgets” is likely outdated Disruptive innovation redefines the market, opportunity and competitive dynamics Budget-based performance targets are rarely updated to account for these

disruptive changes

Market-based evaluation is more helpful for decision making and resource

allocation

Evaluation against budgets may tend to encourage a static worldview that favors profitable, higher market share business units; whereas upstart, fast growing businesses may be at risk of “fatalistic” despair

Evaluating performance against the competitive market, encourages curiosity and debate, and helps allocation of resources towards opportunities that may bring about exponential growth

Enables organizations to encourage innovation & growth through bespoke

rewards programs

Evaluation based on share of growth or market share allows organizations to identify segments/brands/categories with highest growth potential

HR leaders can put in place specific value sharing programs by which managers accountable for driving growth in the highest potential areas can earn accelerated incentive opportunities


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High Frequency, Project-Centric Evaluations Have Several Intuitive Advantages Compared to the Traditional Approach

Traditional Approach

Sequential, time-basedEmerging Approach

Iterative, event-based

Typically involves goal-setting (year start), mid-year review and evaluation (at year end)

Focus on consistency and cadence

Managing high performance

Appropriate for monolithic, functional based reporting structures

Focus on one-single rating (one-dimensional)

Goal-setting, review and evaluation are tied to specific events, projects with no defined frequency

Focus on agility, adaptation and alignment with changing priorities

Driving high performance

Suitable for constantly evolving, project based reporting structures

Focus on performance attributes, not merely rating (multi-dimensional)

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Rewarding Hyper Performers

Performance Ranking Percentile

Bottom 25% Middle 50% Top 25%

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

500%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

40% 50%

Ac

tua

l In

ce

nti

ve

as

% o

f M

ed

ian

In

ce

nti

ve

10%

Bottom 25% of the

employees get 10%

of the incentive

The 10:40:50 Rule

Middle 50% of the

employees get 40%

of the incentive

Top 25% of the

employees get 50%

of the incentive

Top 5% of performers get

about 3X of the average

performer

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Creating “HiPo” Pool in Bonus Distribution

Firm-wide Bonus Pool

Senior Management

Other employees

Captain’s Pot/Group

Bank

Final Approval by Remuneration Committee

20-30% of the pool taken out of the ‘formula driven pool’ and allocated at CEO’s discretion

▪ The allocation process starts with the sum of all business divisions through approved funding rates for respective businesses and support function requirements forms the firm-wide incentive funding.

▪ Incentive funding approach varies according to business specific stage of development with mature businesses adopting a top-down approach while Business Divisions in investment mode adopting a combination of top-down and bottom-up approach.

▪ A Captain’s Pot is separately allocated to reward high performers, based on recommendation from CEO and HR

CEO

Rest allocated as per formula driven allocation principles


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Typical Incentive Models Used By Global Companies To Encourage Innovation

Model II – Patent Holder

Innovation organization

Idea generator

Revenue$$$

Files a

‘patent’

Share of

revenue

generated

Approves idea

and deploys

idea

Project

based

incentive

or profit

share

▪ Employee/Team is made a notional/co-owner of model and is paid a ‘royalty’ payment based on sales generated

▪ Generally recommended if idea generation and deployment functions /stakeholders can be de-coupled

▪ Examples include Staples, Texas Instruments, etc

Model III – Venture Partner


Idea generator

Project ‘Venture’

Idea Execution,

Funding

Profit $$$

▪ Employee/Team is co-opted as a

owner into the project ‘venture’ ▪ Project profit is typically shared equally

among all stakeholders ▪ Generally recommended if idea team

can participate in development/execution

▪ Examples include P&G, Apple, Pixar

Profit

Share

Profit

Share

Model I – One-time Recognition


Idea generator

Submits idea

One-time

recognition

payment

▪ One-time award for approved ideas ▪ Short-term incentive, limited ‘skin in

the game’ for the idea contributor, but simple to communicate and encourage broad-based idea flow

▪ Examples include 3M

Revenue$$$

Approves idea

and deploys

idea

Project

based

incentive

or profit

share


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Pay for Performance – “Making a 2-3% Salary budget Interesting and effective” and a Lever for Retention

Performance Distribution Curve▪ Analysis of pay data across infrastructure shows top performers receiving salary increases ONLY 2x more than effective employee

▪ A “normalized distribution” would allow top performers and/or key critical roles to be identified and rewarded at multiples of broader population

8.6%

6.2%

4.3%

0.3% 0.3%11%

29%

56%

4%

0% 0%

3%

6%

9%

12%

0%

10%

20%

30%

40%

50%

60%

Outstanding Highly Efficetive

Effective Partially Effective

Not Effective

Performance

Rating

Percentage of

Employees

Average Same Store

Salary Increases

Top Performer 10.6% 8.6%

Highly Effective 29.5% 6.2%

Effective 55.9% 4.3%

Partially Effective 3.6% 0.3%

Not Effective 0.4% 0.3%

Grand Total 100% 5.2%

Performance RatingPercentage of

Employees

Average Same Store

Salary Increases

Top Performer/Critical 5.0% 18.0%

Outstanding/Exceptional 5.0% 9.0%

Highly Effective 25.0% 6.5%

Effective 60.0% 3.5%

Partially Effective 3.5% 0.3%

Not Effective 1.5% 0.3%

Grand Total 100% 5.2%

Proposed ModelCurrent Performance Model

Sa

lary In

cre

ase

Pe

rce

nta

ge

of E

mp

loye

es

Top Performer: Effective- 2:1 Top Performer/Critical: Effective- 5:1


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Recognition Programs Complement Pay to Engage Employees

Source: Trends in Global Employee Engagement, 2015


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Crowd Sourcing Performance Feedback Can Supplement Managerial Evaluation

Acceptable Outstanding

What did you think of Steve’s proposal presentation to the Client Evaluation Panel today?

“Clever use of info graphics…- Lisa

“Great storylining, Clear response to Q&A….- Eric

“Good storyline, but too much “tell” and not enough dialogue…- Mollie

“Did not leave enough time for client questions… - Chris

5


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Intuitive and Scalable Technology Platform Can Reduce Costs and Improve Effectiveness of the Process

As part of a strategy to maintain engagement levels during uncertain times, Microsoft in Australia introduced technology to celebrate strong performance real-time, thereby appealing to their young workforce.

Publicly recognise strong

performance real-time

De

sc

rip

tio

n ▪ Introduced Splash, a phone App to capture comments from managers and employees on strong performance

Imp

ac

t ▪ Increased engagement

▪ Strong positive feedback from employees

Illustrative Sample


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Develop Manager CapabilityMeasure and Hold Managers Accountable for Performance Management

72%Global top

companies

VS 49%All others

Our leaders are held accountable for creating development

plans

72%

Global top companies

VS56%

All others

Our leaders are held accountable for giving feedback

Source: Aon’s Performance Management/Career Development Survey; 2013 Global Performance Management Survey Report/2014 Global Top Companies for Leaders Research

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How Managers Can be Better Equipped for Performance Conversations

Providing crowd-sourced

anecdotes to support the

performance conversation

Performance Management Coaching

Build the

conversation

Seek and receive

feedback

Give feedback Discuss poor performance/ bad behaviors

Articulate Development

plan

Being directive about very

frequent check-ins

Bi-weekly As many

as needed

Informal

check-ins

End of Project

Reviews

Quarterly

Performance

Assessment

Annual

Performance

Conversations


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Finishing Touches

➢ Do not fall into the trap of false choices

➢ Prioritize the need for continuous feedback.. and hold the managers accountable

❖ Train managers, do not give cheat sheets

❖ Support with technology

❖ Lay out a cadence of interactions and track them diligently

➢ Differentiate and make the tough choices

Unacceptable

Performance

Acceptable

Performance

Documents

Performance Management Perception vs. Perspective · Culture and Engagement Leadership Development HR Effectiveness Rewards Executive Compensation Broad Based Compensation Sales Compensation