getting compensation right
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GETTING COMPENSATION RIGHT
Jobs, Market Data, and Pay for Performance Tools
November 18,2010Don Berman & Jim Haviland
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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
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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.
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HR TMS JOBSDemonstration
Comp Data in the Job Description
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HR TMS JOBSDemonstration
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
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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Netflix Stock ProgramSummary statistics includes range of results for the years 2007 to 2009. Sampl includes all exempt employees including executive officers
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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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
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HR TMS COMPENSATIONDemonstration
Compensation Budgeting – Spending Wisely
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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
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GETTING COMPENSATION RIGHT
Jobs, Market Data, and Pay for Performance Tools
November 18,2010Don Berman & Jim Haviland