Hellerman and Kochanski, who are Sr. Vice Presidents at Sibson Consulting, offered their tips at WorldatWork’s Total Rewards Conference and Exhibition, held recently in San Diego.
Promotions as Performance Reward
Big Bang Companies manage promotions and the accompanying promotional increase as a key reward for high performance, says Hellerman.
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Sameness |
Big Bang |
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Promotion is an entitlement |
Promotion is a reward for individual achievement consistent with needs of the business |
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No budget |
Rate of promotion budgeted and tied to business growth and turnover—no historic precedent |
|
No tracking or reporting |
Tracked and reported |
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Few standards |
Clear standards |
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Approval process unclear |
Approval process and period clear |
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Key opportunity for favoritism |
Clear standards and process reduce or eliminate favoritism |
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Constant flow of job reevaluations to qualify for promotions |
Promotion to real job the business needs filled |
Big Bang Companies Execute Better
Kochanski notes that they have found that Big Bang companies do execute better:
- Pay plans and protocols are easy to understand
- Narrow discretion makes them hard to screw up
- Plan administration is automated
- There are formal consequences for poor execution
- The real intention of the plans is supported by leadership
- Pay decision transparency creates possibility of public embarrassment
- The process fits with the business need and cycle
The parameters are updated annually for business and market conditions
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Differentiation Through Carve Outs
“Carve outs” from merit and incentive pools enable Big Bang companies to differentiate rewards for high performers.
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Merit Example |
Annual Incentive Example |
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3% budgeted for increases |
22% average payout budgeted |
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5% carve out for high performers |
2% carve out for high performers |
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2.5% average payout for average performers (75% of population) |
18% for average performers (75% of population) |
|
4.5% average payout for high performers (25% of population) |
26% for high performers (25% of population) |
Differentiation Through Cross Calibration
Big Bang Companies use cross calibration to increase visibility of ratings and pay actions among peer managers. This helps to ensure truly top performers are identified and rewarded. Calibration works because it gives leaders a chance to express their intentions, it provides transparency, and it may embarrass managers who are not compensating at recommended levels.
Want to Break Away?
If you decide to break-away from sameness and make business needs and business realities drive pay decisions, here are the first steps:
- Become well informed about the business’ performance imperatives from both an external and internal perspective
- Get a few leaders on board in areas that really want stretch performance
- Use multiple pay vehicles rather than trying to use one or two vehicles for everything
- Make pay actions transparent with calibration and scorecarding
- Create a two-year roadmap of design, execution, and leadership actions
Should you break away from sameness? It’s a tough decision – and one of what, 20 compensation questions you’ll deal with today? Not one of them is going to be an easy one. “Maintain internal equity and external competitiveness and control turnover, but still meet management’s demands for lowered costs.” That’s a typical comp challenge. Many of the professionals we serve find helpful answers to all their compensation questions at Compensation.BLR.com, BLR’s comprehensive compensation website.
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The services provided by this unique tool include:
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- Merit Increase, Salary, and Benefits Surveys. The service includes the results of three surveys a year. Results for exempt and nonexempt employees are reported separately.
- Daily Updates. Comp and benefits news updated daily (as is the whole site).
- "Ask the Experts" Service. E-mail a question to our editors and get a personalized response within 3 business days.
If we sound as if we’re excited about the program, it’s because we are. For about $3 a working day, the help it offers to those with compensation responsibilities is enormous.
This one’s definitely worth a look, which you can get by clicking the links below.
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