Evaluating and Evaluating and Compensating the General Compensating the General ManagerManager

The end result of an The end result of an effective performance effective performance appraisal process is appraisal process is

GROWTHGROWTHPhil KenkelBill Fitzwater Endowed Cooperative Chair, OSU

The Appraisal Goal: The Appraisal Goal: DevelopmentDevelopment

• Appraisal is measuring the Appraisal is measuring the individual against the job that is to individual against the job that is to be done for the purpose of be done for the purpose of developmentdevelopment

No ExcusesNo Excuses

Many boards find excuses for not appraising Many boards find excuses for not appraising their managers…their managers…

• The difficulty of being objectiveThe difficulty of being objective• Aversion to paperworkAversion to paperwork• The process tends to be awkward, The process tends to be awkward,

unpleasant and unproductive if improperly unpleasant and unproductive if improperly executedexecuted

BUT to avoid manager evaluation is to neglect BUT to avoid manager evaluation is to neglect one of the most important functions of the one of the most important functions of the board and truly jeopardize the future of the board and truly jeopardize the future of the co-op. co-op.

Appraising the ManagerAppraising the Manager

• Starts with a strong set of Performance Starts with a strong set of Performance StandardsStandards– Managers can appraise their own Managers can appraise their own

performance accurately knowing these performance accurately knowing these standards.standards.

– He/She can identify those areas of strength He/She can identify those areas of strength and weakness.and weakness.

– This frees the board up and allows them to This frees the board up and allows them to concentrate on analyzing what can be done concentrate on analyzing what can be done to improve the situation.to improve the situation.

The Four Questions of the The Four Questions of the Appraisal ProcessAppraisal Process

1.1. What is the manager doing really What is the manager doing really well?well?

2.2. Does the manager need help in Does the manager need help in any area? If so which areas?any area? If so which areas?

3.3. What is the reason for the failure What is the reason for the failure to meet the standards?to meet the standards?

4.4. What can be done about it?What can be done about it?

CEO AppraisalCEO Appraisal

Conduct an evaluation discussion Conduct an evaluation discussion with the full boardwith the full board

Have a special committee do the Have a special committee do the evaluation or make evaluation or make recommendations to the board recommendations to the board

Work with the regional Work with the regional representativerepresentative

Hire an outside consultantHire an outside consultant

Reaching Consensus in the Reaching Consensus in the Appraisal ProcessAppraisal Process

• Performance Appraisal Form is prepared Performance Appraisal Form is prepared and agreed on before hand.and agreed on before hand.

• When will the interview be held?When will the interview be held?• Where will the interview be held?Where will the interview be held?• Who will participate in the interview?Who will participate in the interview?These things must be decided with These things must be decided with

consensus from the entire board before consensus from the entire board before a proper appraisal can take place.a proper appraisal can take place.

Making the Process Making the Process EffectiveEffective

• Should focus on work-related activityShould focus on work-related activity• Should center on the manager’s Should center on the manager’s

strengths, not just weaknessesstrengths, not just weaknesses• Should concentrate on the future Should concentrate on the future • Should cite specific examples of good Should cite specific examples of good

and poor performance.and poor performance.• The manager should be told the truth, The manager should be told the truth,

even if it hurts.even if it hurts.

A Sound ApproachA Sound Approach

• Each board member reviews the position Each board member reviews the position description and performance standards description and performance standards

• Individually completes the performance Individually completes the performance appraisal formappraisal form

• The manager evaluates his/her own The manager evaluates his/her own performanceperformance

• The board reviews this in an executive The board reviews this in an executive sessionsession

• The actual performance appraisal The actual performance appraisal session is then heldsession is then held

No SurprisesNo Surprises

• Ask the manager to present his Ask the manager to present his evaluation first.evaluation first.

• If Performance Standards are well If Performance Standards are well developed, no surprises should be developed, no surprises should be forthcomingforthcoming

• The manager will usually bring up areas The manager will usually bring up areas of weakness first. of weakness first.

• With most if not all problems addressed With most if not all problems addressed in this way the board can focus on the in this way the board can focus on the future and what can be done differently.future and what can be done differently.

Rating PerformanceRating Performance

• Improved Results NeededImproved Results Needed– Generally inconsistent; performance improvement is Generally inconsistent; performance improvement is

neededneeded

• Standards MetStandards Met– Consistent achievementConsistent achievement

• Standards ExceededStandards Exceeded– Performance Results usually above standardPerformance Results usually above standard

• OutstandingOutstanding– Consistently above standard; overall performance Consistently above standard; overall performance

markedly surpasses normal level of performance expected.markedly surpasses normal level of performance expected.

Compensation PlanningCompensation Planning

The two edged swordThe two edged sword

In the role of stewards of the company’s In the role of stewards of the company’s assets, you would like to pay a manager assets, you would like to pay a manager as little as possibleas little as possible

But…This runs the risk of hiring an But…This runs the risk of hiring an unqualified manager or losing your unqualified manager or losing your current manager to a higher paying current manager to a higher paying businessbusiness

Base Compensation RangeBase Compensation Range

• Use the evaluation system Use the evaluation system • Complexity of the jobComplexity of the job• Difficulty of the jobDifficulty of the job• Scope of the jobScope of the job• Number of Employees SupervisedNumber of Employees Supervised• Number of branches operatedNumber of branches operated

Base Compensation RangeBase Compensation Range

• Number of business linesNumber of business lines• Financial ConditionFinancial Condition• Competitive FactorsCompetitive Factors

THE BASE SALARY IS FOR THE POSITION, THE BASE SALARY IS FOR THE POSITION, NOT THE PERSON. IT IS THE SALARY NOT THE PERSON. IT IS THE SALARY THAT WOULD BE OFFERED IN THE THAT WOULD BE OFFERED IN THE POSITION WERE VACANT.POSITION WERE VACANT.

Salary SurveySalary Survey

• Comparison of labor marketsComparison of labor markets• Comparison of positionComparison of position• Total compensation packageTotal compensation package• Timing and costTiming and cost• Sponsoring organizationSponsoring organization• Statistical interpretationStatistical interpretation• ProfessionalismProfessionalism• Investment Investment

Salary SurveySalary Survey

• Salary Base Salary Base • Salary RangeSalary Range• EquityEquity• Salary CompensationSalary Compensation• Flexible CompensationFlexible Compensation

Step 1: Salary BaseStep 1: Salary Base

• Amount paid for acceptable Amount paid for acceptable performanceperformance

Step 2: Salary RangeStep 2: Salary Range

• Flexibility in salary payments Flexibility in salary payments associated with levels of associated with levels of performanceperformance– Maximum amount is for superior Maximum amount is for superior

performanceperformance– Minimum amount is for less Minimum amount is for less

experience or technical expertiseexperience or technical expertise– Less than the base amount would be Less than the base amount would be

for less than acceptable.for less than acceptable.

Setting the Salary RangeSetting the Salary Range

• Multiply the base by 80% to set the low salaryMultiply the base by 80% to set the low salary

• Multiply the base by 120% to set the high Multiply the base by 120% to set the high salarysalary

• Can’t be “set in concrete”Can’t be “set in concrete”

• Should be reviewed periodically to assure Should be reviewed periodically to assure validityvalidity

Considerations in Setting the Considerations in Setting the Salary RangeSalary Range

• InflationInflation

• Competitive factorsCompetitive factors

• The jobThe job

• QualificationsQualifications

Pay for PerformancePay for Performance

• Start a manager with a base salaryStart a manager with a base salary• Offer additional compensation for the Offer additional compensation for the

completion of certain goals.completion of certain goals.• Allows boards to avoid the situation of Allows boards to avoid the situation of

offering large compensation plans up offering large compensation plans up front with little knowledge of the front with little knowledge of the potential managers capabilitiespotential managers capabilities

Advantages and DisadvantagesAdvantages and Disadvantages

• Attracts good Attracts good managersmanagers

• Choice of Choice of Quantitative or Quantitative or Qualitative goals Qualitative goals and criteriaand criteria

• Pays for resultsPays for results

• Seems to offer Seems to offer rewards for short rewards for short term results at the term results at the expense of long expense of long term successterm success

Issues to considerIssues to consider

• What is the relative balance between the What is the relative balance between the manager's base salary and performance based manager's base salary and performance based pay? pay?

• How will short-range criteria be weighted How will short-range criteria be weighted against long range criteria?against long range criteria?

• Will any of the incentive be available if the goal Will any of the incentive be available if the goal is only partially achieved? is only partially achieved?

• If qualitative criteria will be used, how will If qualitative criteria will be used, how will accomplishment be measured for these areas? accomplishment be measured for these areas?

• Will any of the bonus be available to be Will any of the bonus be available to be awarded on a discretionary basis? awarded on a discretionary basis?

Pay for PerformancePay for Performance

Two absolutes of pay for Two absolutes of pay for performanceperformance

1.1. The plan must be motivating to The plan must be motivating to the managerthe manager

2.2. The plan must be clear to all The plan must be clear to all involvedinvolved

Keys to a Successful Keys to a Successful EvaluationEvaluation

1.1.  It must be candid and honest. It must be candid and honest.

2.The appraisal should be presented 2.The appraisal should be presented in writing. in writing.

3.The appraisal form itself should be 3.The appraisal form itself should be relatively simple. relatively simple.

4.The comments given should be as 4.The comments given should be as specific as possible. specific as possible.

Keys to a Successful Keys to a Successful EvaluationEvaluation

5.The full board should participate in the 5.The full board should participate in the appraisal process. appraisal process. (Because the full board is legally accountable (Because the full board is legally accountable and because the manager needs the opinion of and because the manager needs the opinion of the full board) the full board)

6. The appraisal should be kept as impersonal as 6. The appraisal should be kept as impersonal as possible. possible.

7.The appraisal of the manager should be 7.The appraisal of the manager should be separated, to the extent possible, from salary separated, to the extent possible, from salary negotiations. negotiations.

The focus of the appraisal process should be the The focus of the appraisal process should be the future, not the past.future, not the past.

What not to doWhat not to do

• Don't get involved in personality discussions. Don't get involved in personality discussions. • Don't discuss salary and performance at the Don't discuss salary and performance at the

same meeting. same meeting. • Don't hold a manager accountable for things Don't hold a manager accountable for things

that are totally beyond his/her control. that are totally beyond his/her control. • Don't dwell on isolated incidents at the Don't dwell on isolated incidents at the

expense of overall results. expense of overall results. • Don't make up your mind about the results a Don't make up your mind about the results a

manager has achieved until you've discussed manager has achieved until you've discussed them. them.

• Don't nag.Don't nag.

The Results: Growth!The Results: Growth!

• Growth for the managerGrowth for the manager

• Growth for the boardGrowth for the board

• Growth for the CooperativeGrowth for the Cooperative