Pay for Performance: Building the Foundation Through Job Competencies

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Speakers: Gordon RitchieDirector, Competency SolutionsKenexa, an IBM Company

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Kellye WhitneyManaging EditorTalent Management magazine

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Gordon RitchieDirector, Competency SolutionsKenexa, an IBM Company

Pay for Performance:

Building the Foundation Through Job Competencies

May 2013

Copyright Kenexa®, 2013 8

AGENDA

1. Kenexa, IBM and The “Smarter Workforce”

2. What is pay for performance

3. Why do we care about pay for performance

4. What does the workforce want?

5. How do we link Job Performance and Pay using competencies?

6. Q & A


IBMSMARTER WORKFORCE

Leaders and employees transforming organizations for business advantage in three significant ways

AttractAttract and recruit top talent and source the best people for your

culture and business needs.

Land the perfect job:Employee strengths, career

aspirations, and personality are matched to the role and company

culture.

EmpowerEmpower employees to hit the ground running and to continually learn and develop their skills so that

they can make the greatest impact.

Hit the ground running:Employees are empowered with the right tools and easily connect to expertise across the organization

to grow their skills and start contributing immediately.

MotivateBuild a workforce of innovative leaders and teams that solve problems together—resulting in stronger engagement, increased productivity and higher profit.

Make an impact:Employees are motivated to outperform, using tools to measure their progress, and transform the organization and their careers.

A Smarter Workforce has employees who are:

Motivated, Committed, Loyal, Productive, Creative, Proactive, and High Value

What is pay for performance?


POLL:Does your organization have a “Pay for Performance” philosophy? Yes/No


• People are our biggest asset• Biggest single expense = salary• Critical competency ‐ Teamwork • Individual results and reward • What is pay? Salary/Benefits/?• What is performance, good bad or otherwise?• Proficiency does not equal performance• Careers becoming assignments, that are shorter in time than the performance cycle.

• HR Big Data; begets Big Data


WHAT IS PAY FOR PERFORMANCE?

With your 3.0% increase budget … a couple of questions

How can you give your average performers a 3.0% increase while at the same time differentially rewarding your top performers AND still only spend 3.0%?

What does your average performing employee expect to get as an increase?


PAY FOR PERFORMANCE

• 3.0% increase budget

• 2 employees each “doing their job”

• They each get a 3.0% increase


Apart from that Mrs Lincoln, how was the Performance?

• What does good look like?• What numbers are on your performance form? How are they defined?

• Do you, your manager and your manager’s manager agree on what the explicit difference between a 3 and 4, or a 2 and a 3?– Is that the same as your Compensation team?– Is that the same as your Org Dev team who built the performance process?


PAY FOR PERFORMANCE• A compensation philosophy that asserts that an individuals pay is a function of their performance

• Performance demonstrated consistently over an extended period of time

• Pay is achieved over time, not overnight

• Performance is something that can change.

• An organization: • must define its clear consistent expectations of performance levels for

each job role

• cannot avoid its responsibility to define what it expects, through individual empowerment

PAY FOR PERFORMANCE

Why do we care about pay for performance?


“THE RECESSION IS DECISIVELY OVER”


Cost Reducing MeasuresWhich cost reducing measurements did organizations take as a result of the economic downturn?


• Increase budgets in the U.S. bottomed out in 2009 and the rebound is yielding increased budgets but still below the pre-recession levels

“For the first time since 1980, the U.S. rate of inflation is higherthan the average total salary budget increase”

WorldatWork – August 2011

PAY BUDGETS: Whats the first thing to change?

2008 2009 2010 2011 2012 2013

Kenexa Compensation 3.0% 3.0% 3.0%

IPAS 3.9% 1.1% 2.5% 3.2% 3.2% 3.0%Aon/Hewitt 3.7% 1.8% 2.4% 2.7% 2.9% 3.0%Buck 2.9% 2.9% 2.7% 2.8% 3.0%

Conference Board ‐ ‐ 2.5% 2.5% 3.0% 3.0%

Culpepper 3.9% 1.7% 2.7% 2.9% 2.8% 3.0%Hay 3.0% 3.0%Mercer ‐ ‐ 2.7% 2.9% 2.9% 2.9%Towers Watson 3.4% 1.7% 2.8% 2.7% 2.8% 2.9%WorldatWork 3.8% 1.9% 2.8% 2.9% 3.0% 3.0%


• Certain HOT Jobs continue to outpace the market exceeding the overall market average of 9% in the 5 years between 2007 and 2012

Under or Over Paying: How do you know it’s the same as your job?

Job Title ChangeLong Term Care Executive 27.1%

Certified Occupational Therapist Asst 25.7%Hardware Engineer III 20.3%Chemical Engineer III 19.4%

Staff Nurse ‐ Surgical First Assistant 17.4%Nurse Practitioner 17.2%

Certified Nursing Assistant 16.4%Network Administrator 15.1%Software Engineer III 14.7%

• Others jobs aren’t so lucky significantly lagging the 9% average over the last 5 years

• Differences between HOT jobs NOT so HOT jobs underscores all the more the need for good data

Job Title ChangeAccounts Receivable Manager 2.9%

Administrative Services Supervisor 1.5%Communications Representative III 2.1%

Facilities Manager 2.3%Financial Analyst II 4.7%

Mainframe Programmer II 2.9%

PC Maintenance Technician II ‐6.5%


In the US, my pay is directly related to how well I perform.

Source: 2011 Kenexa High Performance Institute WorkTrends survey

52% DO NOT see a link

19% uncertain

29% DO see a link

THE LINK


36%

17%

0%

10%

20%

30%

40%

50%

60%

70%

Pay Unrelated toPerformance

Pay Related to Performance

Worldwide

Worldwide the percent of employees who are seriously considering leaving their organization

THE LINK: WHY WE SHOULD CARE

Source: 2011 Kenexa High Performance Institute WorkTrends survey


What does it cost? **

• Evaluating Talent

• Retaining Talent

• Engaging Talent

• Acquiring Talent

Cost of a poor hire: $300K-$500K

Operational efficiency rate due to poor employee

engagement: 30%

Cost of losing a talented employee: $250K-$500K

Value of a top performer: 2-4X performance of average employees

** From Human Capital Institute


Reliance on “The Event”:• Once-a-year• Minimal communication• Reliance on manager’s memory• Little training• Employee empowerment

SO WHAT HAPPENED TO THE LINK?

Assessment Forms Became:• Too long• Too complex• Often designed to measure the

wrong things

What does the workforce need?


WHAT ARE ANALYSTS SAYING…

“Best‐In‐Class organizations are more than twice as likely to identify competency data for each employee.”

“If we can apply science to improving the selection, management, and alignment of people, the returns can be tremendous.” Forbes Leadership Article February 2013

“… companies realize they cannot solve their skills shortages externally. To achieve competitive advantage, they must commit to developing the right skills internally” Corporate Learning Factbook 2012

SHRM recognized in their 2012 Employee survey, being recognized in using your skills is now the #1 employee job satisfaction issue, above pay, benefits etc.


GLOBAL RESULTS: WHAT EMPLOYEES REALLY WANT

RESPECT

10%

Truth

20%Recognition 7%

ExcitingWork

18%Security

25%Pay

9%Educationand CareerGrowth

11%Conditions

Source: Kenexa High Performance Institute


RECOGNITIONA pat on the back from managers and the

organization at‐large20%

Recognition

I want to be respected and

recognized as a valuable team

member

Recognition when we do a good job - right now it is all

about getting chewedout when we mess up

More respect from senior

management



PAYFair compensation for a day’s work

25%Pay

Compensation that is fair and

respect(ful)

Good pay for agood day’s work

Unfreeze pay



Executive

Senior Management

Management; Senior Level Consultant

First Line Management; Senior Professional

Team Leadership; Technical Professional

Functions: Finance, Sales, HR, Marketing, Operations, Etc.

Competency ImpactCore and Leadership :

high impact, low frequency,

indirect

Technical: Tactical impact with high frequency, direct

Individual Contributor; Technician; Trainee

Make many operational decisions that impact direct product/service/customer facing actions. Frequency * Value can mean big numbers depending on either multiplier i.e.1000 Customer Reps, directed with poor operational management can be as impactful as one core or leadership competency.


WHATS A DESCRIBING A JOB WORTH?$5, $50 OR $5,000

Attracting wrong applicants = wasted time and cost for selection, assessment and processing.

How many people do you interview and not hire?

Improved onboarding effectiveness = Achieve initial goals quicker

Sales = more sales sooner/few losses

Quality = shorter role familiarization time = increased performance

Focused activity = greater productivity

More accurate marketing pricing = optimized salary budgets.

Make it a tool that is used, and reused.


CHALLENGES DEFINING COMPETENCIES

Copyright Kenexa®, 2012

Source: Competencies, Compensation and Technology Luncheons.- 2012

0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%

Manual process

Budget Constraints

Too difficult to define

competencies

Too many jobs

Lack of executive support

What prevents you from implementing competencies (or extending the competencies you

have) in your organization?


POLL:

How many of you rate (as in 1=Bad, 5= Good) these types of competencies in your annual performance and compensation planning process?

1. Core/Foundational (same for everyone)2. Functional, aligned to the job family3. Technical job role specific

How to link job performance and pay using competencies


Internal jobs and External SourcesYou need to analyse your benchmark jobs

– Similar/Common job title– Job Description – Type/Level: IC, Lead, Manager, Professional, etc– Status (exempt/non‐exempt)– Common expectations on the job

Compensation is used to using data.But there is no common performance data.What we need is a clear consistent way to describe what it is that’s required of a job, that defines what good looks like that can be used by employees, managers, and compensation analysts

Big data needs consistent structure, solvable measures, and common definitions.


COMPETENCIES ARE THE FOUNDATION

Using a Competency Framework

provides a common language

for your Talent Management

strategy .

Used WITH technology

systems it integrates those

systems.

Functional Job & Competency Framework

Career & Succession

Planning

Learning Needs

Analysis

Risk Analysis

Recruitment & Selection

Resource Planning

Compensation

Performance Management


The Pay for Performance Job Model

• Job Description – Title

– Summary

– Primary Responsibilities

– Compensation Market Data

• Competencies (KSA’s)– Definition – Behavior Statements

• Proficiency Target

– Performance Accelerators

• Learning References• Development Statements• Coaching Tips• Writing Assistance

– Interview Questions

Hierarchy and AlignmentJob Function, Job Level, Job Focus


JOB SAMPLE: Job Title Benefits Manager

Job Band ID 3

Job Family Compensation and Benefits

Job Definition Manages the development and administration of employee benefits programs, policies, and procedures and ensures compliance with related regulations.

Job Responsibility 1 Provides leadership in the planning, design, and implementation of benefits programs (e.g. medical, dental, vision, disability insurance, life insurance, and employee assistance programs) and ensures all activities comply with legal requirements.

Job Responsibility 2 Oversees the collection and overall accuracy of benefits data located within the organization's HRIS; evaluates current benefits programs and identifies and monitors critical performance.

Job Responsibility 3 Manages vendor relationships to ensure adherence to required service levels for outsourced benefits providers..

Job Responsibility 4 Monitors the employee benefits eligibility and enrollment process to ensure employees meet eligibility requirements.

Job Scope Description

Designs, plans, and implements corporate benefits programs, policies, and procedures. Responsible for ensuring programs meet employee needs, comply with legal requirements, and are cost effective. Requires a bachelor's degree in a related area and at least 7 years of experience in the field or in a related area. Familiar with a variety of the field's concepts, practices, and procedures. Relies on extensive experience and judgment to plan and accomplish goals. A wide degree of creativity and latitude is expected. Performs a variety of tasks. Leads and directs the work of others. Typically reports to a head of a unit/department.

Base:Percentiles: 25%, 50%, 75%TCC:


Compare Functional RolesJob Bands

1 2 3 4 5 6

Exec Mgmt Senior Mgmt Management; Senior Level Consulting

First Line Management; Senior Professional

Team Leadership; Technical Professional

Technician, Trainee, Administrator

Top Compensation and Benefits Executive

Compensation and Benefits Director

Payroll Manager Payroll Supervisor Benefits Analyst Payroll Administrator

Top Compensation Executive

Compensation Director

Corporate Insurance Manager Benefits Analyst, Sr. Benefits Clerk, Sr. Benefits Clerk

Top Benefits Executive

Benefits Director Benefits Manager Compensation Analyst,

Sr.Stock Plan Administrator, Sr.

Stock Plan Administrator

Compensation and Benefits Manager Benefits Supervisor Benefits

AdministratorCompensation Administrator

Executive Compensation Manager

Executive Compensation Analyst

Compensation Specialist

Workers Compensation Administrator

Workers' Compensation Manager

Compensation Analyst Payroll Clerk

Compensation Manager Payroll Clerk, Sr.

International Compensation and Benefits Manager


COMPETENCY IMPACT

Functional Competencies

Core, Leadership

& Levels‐BasedCompetencies

Reflects strategy and cultureSupports selection and hiringReflects the leadership pipelineApplicable to all roles

Reflects functional strategy and key skillsApplies to all functional incumbents and candidates

“A combination of knowledge, skills and abilities (KSA’s) describing the demonstrable indicators of proficiency.”

Reflects job/role specific knowledge and skillsWell suited for skills assessment, skills inventory analysis and developmentApplies to incumbents and candidates by position

Technical and Domain Specific Competencies


SAMPLE: COMPETENCY PROFILEProfile Name: Job Title Benefits Manager

Competency Code Competency Name Proficiency Importance

B0295 Business Orientation 3 - Extensive experience High

B0750 Budgeting 3 - Extensive experience High

B1020 Planning: Tactical, Strategic 2 - Working experience High

B1060 Effectiveness Measurement 3 - Extensive experience High

B1100 Standard Operating Procedures (SOP) 3 - Extensive experience High

I0480 Effective Communications 3 - Extensive experience Medium

I0700 Decision Making and Critical Thinking 2 - Working experience High

I1000 Managing Multiple Priorities 3 - Extensive experience Medium

I1010 Relationship Management 3 - Extensive experience Medium

I1020 Analytical Thinking 3 - Extensive experience High

L0010 Accountability 3 - Extensive experience High

L0070 Goal Setting 2 - Working experience High

M0810 Outsourcing 3 - Extensive experience High

THR000 HUMAN RESOURCES POLICIES, STRATEGIES AND ENVIRONMENT 3 - Extensive experience Medium

THR010 HR: Trends and Direction 3 - Extensive experience Medium

THR020 HR: Policies, Standards and Procedures 3 - Extensive experience High

THR030 HR Legal and Regulatory Environment 3 - Extensive experience High

THR110 Employee Counseling 3 - Extensive experience Medium

THR200 Compensation Management 2 - Working experience Medium

THR300 BENEFITS PROGRAMS 3 - Extensive experience High

THRV- Specific Benefits Plan Development 3 - Extensive experience High


Competency ProficienciesCompetency Code THR200

Competency Name Compensation Management

Competency Description

Knowledge of and ability to design, implement and evaluate compensation programs, policies and processes within an organization.

Level 1 - Basic understanding

Describes key purposes (e.g. motivating employees) of compensation management.

Cites organizational examples of compensation management.

Lists government regulations and industry policies related to compensation.

Lists major compensation programs (e.g. executive compensation) used in the organization.

Level 2 - Working experience

Implements compensation packages for an organization's employees.

Assists in developing various compensation programs within an organization.

Maintains good relationships with staff from HR and business units.

Adheres to government and industry compensation regulations.

Conducts job analysis and salary survey activities within the department.

Level 3 - Extensive experience

Determines if compensation management objectives are in line with overall business objectives.

Oversees the implementation of compensation programs within the organization.

Advises the management team on compensation issues, such as pay structure.

Evaluates the effectiveness and competitiveness of existing compensation programs.

Improves implementation processes of different compensation programs, e.g. executive compensation.

Adjusts the organization's compensation polices based on market trends and industry policies.

Level 4 - Subject matter depth and breadth

Leads in aligning compensation strategies with overall organizational strategies.

Establishes organizational best practices for compensation program design.

Develops standard compensation program implementation processes that are suitable for the whole industry.

Monitors the market trends and industry directions of compensation management.

Champions organizational adoption of new methodologies and technologies for compensation management.

Elaborates on key issues of existing industry compensation policies; makes recommendations accordingly.


Proficiency vs Performance


Competency Code THR200


Learning References 15

LR1 BK-0417: Business Ethics: A Global and Managerial Perspective

LR2 BK-0833: Compensation and Motivation

LR3 BK-3011: Rewarding Excellence: Pay Strategies for the New Economy

LR4 PUB-HRDR: Human Resource Development Review

LR5 GOV-DOL: Department of Labor

LR6 ORG-ACOM: American Compensation Association

LR7 ORG-ECFC: Employers Council on Flexible Compensation

LR8 ORG-IFEBP: International Foundation of Employee Benefit Plans

LR9 ORG-SHRM: Society for Human Resource Mgmt. (SHRM)

LR10 ORG-WAW: World at Work

LR11 TR-005: Strategic Issues in Compensation

LR12 UNV-BOS: Boston University

LR13 VND-AHI: AHI's Employment Law Resource Center

LR14 VND-CPM: Compensation Venture Group, Inc.

LR15 WEB-HRLAW: Human Resource Law Index

Development Statements

Development Statement Group

Development Statement Name Development Statement Description

Quantitative Implement Compensation Packages

Implement compensation packages for 2 business units each month next year.

Quantitative Conduct Salary Survey Activities

Conduct job analysis and salary survey activities for 3 business units within the next month.

Qualitative Design a Compensation Program

Design an organizational compensation program (e.g. executive compensation) in one month.

Qualitative Evaluate a Compensation Program

Evaluate the effectiveness and competitiveness of an existing compensation program in 3 weeks.


Competency Code THR200


Coaching Tips

Coaching Tip Group Coaching Tip Name Coaching Tip Description

Professional Development Attend Compensation Policies Training

Attend training sessions or conferences to learn about the latest industry compensation policies.

Career Building Assist in Compensation Program Development

Assist senior level colleagues in developing an organizational executive compensation program.

Improving Operations Consult Compensation Management Experts

Consult experts on how to improve the organization's productivity and competitiveness through compensation management.

Improving Operations Document Compensation Issues and Solutions

Document common compensation issues that are raised by the organization's management team and their associated solutions.

Relationship Building Organize HR SeminarsOrganize seminars for employees from HR and

business units to enhance their relationships.

Interview Questions

Interview Question Group Interview Question Name Interview Question Description

FitExperience with

Compensation Programs

What kinds of compensation programs have you designed?

Knowledge Describe Compensation Regulations

Describe the main industry and government regulations governing compensation.

Problem Compensation Issues from Management

What are common compensation issues that are raised by the organization's management team?

Solution Improve the Compensation Implementation Process

How did you improve the organization's compensation program implementation process?

Results Compensation Program's Impacts

What were the impacts of a compensation program you implemented on the business's overall performance?


IMPLEMENTATION – SHORTEN THE PROCESS REUSING CONTENT

Develop and use quickly and update over time.Focus on buy‐in and change management processes.Make sure you get to the applications; don’t get stuck in model development

Get the “big things right”; “don’t dwell on the small stuff”.Apply existing materials and best practices in developing a rapid draft Focus on the overall architectureKey success criteria and themes.

Position models as prototypes for learning how to change behaviors (vs. a perfect output image).

ApplicationIntegration Iteration

Launch & Communication

ImplementationKenexa / IBM Competency

Development

80% of the effortRecommended Approach

20% of the effort

Typical Competency DevelopmentApplicationIntegration Iteration

Launch & Communication

Implementation

20% of the effort (if able to move out of development stage)

Typical Approach 80% of the effort


SALARY MARKET DATAAggregated, employer reported

salary surveys.Monthly data modeling and updates

INTEGRATE YOUR TALENT MGMT TOOLS AND PROCESSES

Talent Management / LMS / HRIS

CAMD•Survey Mgmt•Aggregated Market Data•Salary Structures

Competency Manager Tool

* Edit existing, * Create new,

* Assemble New, * Compare

Competencies/skills

EXCEL Export

JOB COMPETENCY LIBRARY

Industry specific Job Functions JOB PROFILES and COMPETENCIES

TARGET PROFICIENCY level & Behaviors

Interview Questions, Learning Resources, SMART Goals, Coaching

Tips


COMPETENCY IMPLEMENTATION (BEST PRACTICES)

Model Building•Ensure linkage between jobs, competencies and organization strategies•Keep models simple at launch•Add dimensional criteria and keep the momentum•Start with a library or Competency Framework

Applications• Focus on assessment and development first, then evaluation and pay applications• Integrate of the competencies with all processes, even if tools aren’t• Ensure consistency of applications rather than allowing too many variations

Change Management• Clarify and communicate specific objectives of your applications up front• Ensure top management and line management buy-in and ongoing support• Be focused in implementation (i.e., one function, one pilot group first)• Provide training and communication more consistently and carefully (building in training at

all stages of implementation)• Develop and consistently apply a measurement system used to evaluate the effectiveness

of implementation over time


• Merit Pools:• We suggest that there be

two basic pools of money for merit increases:• Management pool• Employee pool

REPAIRING THE LINK

Each of these pools should have two subsidiary pools. One for those in the performance category and one for the balance of the organization’s employees addressing wage relevance to cost of living, etc.


• Employee motivation to become a high achiever is increased

• The organization has a better chance of retaining top performers

• Lesser performers are motivated to increase performance level or look elsewhere

If pay increases are made contingent upon clear definitions of what good performance looks like:

PAY FOR PERFORMANCE


DON’T FORGET!!

Pay for Performance, NOT

Increase for Performance!

REPAIRING THE LINK


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Pay for Performance: Building the Foundation Through Job Competencies

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