an alternative to annual salary increases axiom consulting partners

STRATEGY § ORGANIZATION § TALENT

Annual Salary Increases: Is the Juice Worth the Squeeze?

JuanPabloGonzalezPartnerAxiomConsul1ngPartners

[email protected]

BruceO’NeelVP—HumanResourcesCSGInterna1onal

[email protected]

|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.


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”


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.


Session Objectives

Learnanewapproachthataddresseslong-standingchallengesinrewardingperformanceby:

Increasingthemeaningfulnessofrewards

Aligningrewardswiththenatureoftheperformanceachieved

MakingbeaeruseoftheDmeofbothmanagersandemployees


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


People & Process Perspective

PEOPLE&PROCESSPERSPECTIVEDevelopourpeopletocompeteinthe

globalmarket,allowingpersonalgrowth

Ensureemployeeshavetherightskillsandtalentstodeliveronour

businessobjecDves

Expandin-depthdomainexperDse

necessarytoensurelong-term

success

AlignorganizaDontomaximizevalue

delivery—BusinessUnits,

DevOps

Embraceacultureofstrongaccountability—deliveringon

commitmentstocolleaguesandcustomers

AligngoalsandcompensaDonplanstomeetourbusinessobjecDves


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


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


You’ve made it this far… Nowwhat?!?!

OnceyourorganizaDonhasrisentothechallengeoftransformingperformancemanagement,employeesandtheirmanagers

willexpectappropriaterewardsfortheperformanceachieved.

Willyourcompensa9onprogramsbebarriersorenablersinrewardingperformance?


Should you consider Achievement-Based Compensation?

!  Alignrewardswiththeverynatureofperformancethatisachieved;toprovidegreaternuanceandclarityregardingexpecta1onsandconsequences?

!  Fosterbe^ercommunica1onwithafocusonprogressandgrowth?

!  Increasethemeaningfulnessofrewards?

!  Makebe^eruseofmanager,employeeandHR1me?

AreyourcurrentcompensaDontoolssufficientto:


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


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


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


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


Are we ready to break loose?

SomewillseethedegreeofchangedaunDng.“Howwillwedeliveronthis?”

Currentrewardsinfrastructureisentrenched.“CanourfinancialandHRISsystemssupportanewapproach?

Employeeswillhavetounderstandandadapttochange.

“WespentyearseducaAngmanagersandemployeesonhowourcurrentsystemworksandnowwearegoingtochangeit?”

Dowehavethecouragetobreakwithconven9on

andaddresstheissueswe’vebeenfacingforsolong?

an alternative to annual salary increases axiom consulting partners

Leadership & Management