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STRATEGY § ORGANIZATION § TALENT
Annual Salary Increases: Is the Juice Worth the Squeeze?
JuanPabloGonzalezPartnerAxiomConsul1ngPartners
BruceO’NeelVP—HumanResourcesCSGInterna1onal
PAGE2|AnnualSalaryIncreases:IstheJuiceWorththeSqueeze?
JuanPabloGonzalezPartner,AxiomConsulDngPartners
§ +25yearsexperienceinTotalRewards,increasingHumanCapitalROI,Strategy&Organiza1onTransforma1on
§ PartneratAxiomConsul1ngPartners
§ SeniorcorporateHRrolesatConstella1onEnergy,BaaNCo.,Aon,PhilipMorris
§ Co-authorofShockproof:HowtoHardwireYourBusinessforLasAngSuccess
BruceO’NeelVicePresident—TotalRewards&HROperaDons,CSGInternaDonal
§ +20yearsexperienceinHRStrategy,Compensa1on&Benefits,PerformanceManagement,Training&Development
§ SeniorcorporateHRrolesatT-Mobile,SafecoInsurance,andVerizon
Oneoftheworld’slargestandmostestablishedprovidersofbusinesssupportsolu1ons,primarilyservingthecommunica1onsindustry.
Consul1ngfirmhelpingclientssucceedbyaligningstrategy,organiza1onandtalent.
PAGE3|AnnualSalaryIncreases:IstheJuiceWorththeSqueeze?
Ineffective pay practices are making headlines!
Wall Street Journal “Annualwagegrowthhasbeenstucknear2%sincetheeconomybegantosteadilyaddjobsin2010.”
Har vard Business Review “WhyMoreandMoreCompaniesAreDitchingPerformanceRaDngs”
Wall Street Journal “CompensaDonGainsFailtoBreakOutforU.S.Workers”
New Yorker “ThePushAgainstPerformanceReviews”
PAGE4|AnnualSalaryIncreases:IstheJuiceWorththeSqueeze?
What do most annual compensation-related processes look like? Typicalprocessesarewell-understood,ifnotwell-liked.Effec9vefinancialcontrols.“TheDevilyouknow.”GOOD TH
E
BAD THE
UGLY AN
D T
HE
Minimaldifferen9a9on.Poorlinktopay.People“game”thesystem.Agrowingbeliefthat“it’snotworthit.”
Complexprocessesattheworst9me.Stagnant,minimalsalaryincreasebudgets.Forcedra9ngsdistribu9ons.Unclearmessagesaboutthevalueofperformance.
PAGE5|AnnualSalaryIncreases:IstheJuiceWorththeSqueeze?
Session Objectives
Learnanewapproachthataddresseslong-standingchallengesinrewardingperformanceby:
Increasingthemeaningfulnessofrewards
Aligningrewardswiththenatureoftheperformanceachieved
MakingbeaeruseoftheDmeofbothmanagersandemployees
PAGE6|AnnualSalaryIncreases:IstheJuiceWorththeSqueeze?
Eliminateduplica1onandnon-valueadd
micro-management Facilitatecommunica1onandalignment:
improveknowledgeofothers,oneagenda,
onecadence
Moreaccountability
onleadersforagiledecision-making
Strategy, structure and people alignment enables a more effective organization
Topmanagementproximitytocustomers,suppliersandotherstakeholders
Empowerourpeopleandimproveu1liza1onof
theirskillsandcompetencies
PAGE7|AnnualSalaryIncreases:IstheJuiceWorththeSqueeze?
People & Process Perspective
PEOPLE&PROCESSPERSPECTIVEDevelopourpeopletocompeteinthe
globalmarket,allowingpersonalgrowth
Ensureemployeeshavetherightskillsandtalentstodeliveronour
businessobjecDves
Expandin-depthdomainexperDse
necessarytoensurelong-term
success
AlignorganizaDontomaximizevalue
delivery—BusinessUnits,
DevOps
Embraceacultureofstrongaccountability—deliveringon
commitmentstocolleaguesandcustomers
AligngoalsandcompensaDonplanstomeetourbusinessobjecDves
PAGE8|AnnualSalaryIncreases:IstheJuiceWorththeSqueeze?
A holistic Total People Strategy drives employee behaviors to ultimately influence business outcomes
LINKAGEMODEL
§ Engagement§ Reten1on§ Produc1vity§ Customerservice
EmployeeBehavior
CustomerBehavior
§ Customersa1sfac1on§ Customera^rac1on§ Customerreten1on
FinancialPerformance
§ Laborcost§ Opera1ngcosts§ Opera1ngmargin§ Revenuegrowth§ ROIC§ TSR
ValueProposiDonComponents
Performance-BasedRewards
Career,LeadershipandEnvironmentalRewards
Founda1onalRewards
PAGE9|AnnualSalaryIncreases:IstheJuiceWorththeSqueeze?
Performance Management Transformation
KEYTRANSFORMATIONTHEMESAgileGoalSe_ngwCoachingforPerformancewEffec1veCon1nuousFeedback
Strengths-BasedDevelopmentwRewardswSocialRecogni1on/CultureofCelebra1on
TRANSFORMATIONRELIESONASHIFTINPMPRINCIPLESAnnual,OneTime Ongoing,con1nuous
Rigid,fixed Flexible,agile,simple
Centralized Local,Real-1me
Appraisalfocused DevelopmentFocused
Remedia1on Strengths
Corporatemandates/rules Manageraccountability
ConDnuousfeedbackvs.scheduledannualsalaryadjustmentsandincenDveawards
Flexible,agile,simpleperformancemanagement
vs.standardcompensaDonplan
Developmentfocusedperformancemanagement
vs.outcomes-drivenpayprograms
RESULTINGCOMPENSATIONCHALLENGES
PAGE10|AnnualSalaryIncreases:IstheJuiceWorththeSqueeze?
You’ve made it this far… Nowwhat?!?!
OnceyourorganizaDonhasrisentothechallengeoftransformingperformancemanagement,employeesandtheirmanagers
willexpectappropriaterewardsfortheperformanceachieved.
Willyourcompensa9onprogramsbebarriersorenablersinrewardingperformance?
PAGE11|AnnualSalaryIncreases:IstheJuiceWorththeSqueeze?
Should you consider Achievement-Based Compensation?
! Alignrewardswiththeverynatureofperformancethatisachieved;toprovidegreaternuanceandclarityregardingexpecta1onsandconsequences?
! Fosterbe^ercommunica1onwithafocusonprogressandgrowth?
! Increasethemeaningfulnessofrewards?
! Makebe^eruseofmanager,employeeandHR1me?
AreyourcurrentcompensaDontoolssufficientto:
PAGE12|AnnualSalaryIncreases:IstheJuiceWorththeSqueeze?
The typical approach to paying for performance:
AveragePerformer
TopPerformer Difference
Is$22apaycheckenoughtorecognizesuperiorperformance?
Aker-taxpayperiodincrease ∼$43 ∼$65 $22
AnnualSalary $50,000 $50,000 —
%Increase 3.0% 4.5% 1.5%
Annualincrease $1,500 $2,250 $750
Increaseperpayperiod $58 $87 $29
PAGE13|AnnualSalaryIncreases:IstheJuiceWorththeSqueeze?
Should you change how you pay? Three considerations:
§ Beginwithrealis1cassump1ons:
• Performance—andra1ngs—distribu1on
• Areindividualandorganiza1onachievementlinked?
§ Dolabormarketcondi1onssuggestequalmovement–upordown—acrossalljobs?(OristhemeritincreaseprocessaCOLAinsheep’sclothing?)
§ Whatpercentofemployeesareeligibleforincen1vecompensa1on?
§ Towhatdegreedoincen1veawardpayoutsvs.targetvaryfromyeartoyearandbetweenemployeesinsimilarjobs?
§ Time-boundedorongoing?
§ Frequency:Doestheachievementalignwithfixed(twelve-month)calendaryearincrements?
Thenatureoftheachievementtoberewarded
MixofPay
DistribuDonandFunding
PAGE14|AnnualSalaryIncreases:IstheJuiceWorththeSqueeze?
What is the achievement that is being rewarded?
DemonstratedCompetencyGrowth§ Learning(e.g.adding,subtrac1ng)§ Cumula1ve:Addi1onandsubtrac1onmakeitpossibletolearnmul1plica1onanddivision
Performancevs.ExpectaDons§ “Doing”(e.g.balancingacheckbook)§ Point-in-1me:Whathaveyoudoneformelately?(Isthecheckbookbalancedthismonth?)
PromoDon-like§ Vehicle:Basepayincreasetorecognizeincreaseinvalue,thatsupportscon1nuedgrowth
§ Timing:Payuponachievementofamaterialincreaseincompetence(notnecessarilyevery12months)
§ Magnitude:Consistentwiththeincreaseincapability(>3%ofbase)
IncenDve-like§ Vehicle:Short-termcashcompensa1ontorewardachievementofobjec1vesduringadefinedperiod
§ Timing:Commensuratewiththeperiodofperformance
§ Magnitude:Compe11veinthelabormarketandconsistentwiththevalueofresultsdelivered
NATUREOFACHIEVEMENT
NATUREOFREWARDS
PAGE15|AnnualSalaryIncreases:IstheJuiceWorththeSqueeze?
Bringing it all together: Achievement-Based Compensation
DemonstratedCompetencyGrowth
Significant
Abovebudgetraise
Nobonus
2x“typical”raise
Targetbonus
2-3x“typical”raise
Abovetargetbonus
Meaningful
Raise=budget
Nobonus
Raise=budget
Targetbonus
Raise=budget
Abovetargetbonus
AllOthers Performancecounseling
Noraise
Targetbonus
Noraise
Abovetargetbonus
Below Meets Exceeds
Performancevs.ExpectaDons
PAGE16|AnnualSalaryIncreases:IstheJuiceWorththeSqueeze?
Are we ready to break loose?
SomewillseethedegreeofchangedaunDng.“Howwillwedeliveronthis?”
Currentrewardsinfrastructureisentrenched.“CanourfinancialandHRISsystemssupportanewapproach?
Employeeswillhavetounderstandandadapttochange.
“WespentyearseducaAngmanagersandemployeesonhowourcurrentsystemworksandnowwearegoingtochangeit?”
Dowehavethecouragetobreakwithconven9on
andaddresstheissueswe’vebeenfacingforsolong?