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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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THANK YOU www.saba.com

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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/

0

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

0

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

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

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THANK YOU www.hci.org