Unit Performance Differentiation
It’s hard to read the numbers in the chart below, but it’s easy to see what the chart is saying.
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The collection of data on the bottom left is for employees rated “needs improvement.” The middle grouping is for “successful” performers, and the grouping at the right is for “exceptional” performers. The chart shows the percentages of employees in each performance category over a 4-year period.
As you can see, Business Unit A (diamonds) does the best job at limiting the number of exceptional performers, generally below 20 percent of rated employees (and, thus, can reward them well). Business Unit C (triangles) does the worst job, with an almost equal number of “successful” and “exceptional” employees (and, thus, probably cannot differentiate meaningfully).
Source: Sibson Consulting
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Comparative Compensation Scorecard
This chart, says Insler, compares compensation actions across units. In this case, for example, Business Unit D has the highest performance ratings but low merit increases in spite of its low compa ratio. This might bear looking into.
| Business
Unit |
Average
Performance Rating (1–5) |
Average Merit
Increase (4% Budget) |
Grade
Inflation |
Compa
ratio |
Annual
Incentive (% of Target) |
| A | 3.4 | 4.0% | -3% | 101% | 100% |
| B | 3.2 | 4.0% | 0% | 98% | 110% |
| C | 4.0 | 4.2% | 12% | 96% | 105% |
| D | 4.1 | 3.8% | 8% | 99% | 100% |
| E | 3.6 | 3.6% | 17% | 88% | 110% |
| F | 4.1 | 4.5% | 20% | 105% | 118% |
| G | 3.2 | 3.5% | -5% | 99% | 100% |
| Average | 3.5 | 3.8% | 7% | 98% | 102% |
Source: Sibson Consulting
Connect Pay to Business Data
It is helpful to evaluate your average pay competitive position. This can be done in the aggregate, by business unit, or by employee level.
Be careful, however. Some companies may prefer to have fewer highly compensated employees while others desire a greater number of employees who are not as well compensated.
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In the table below, business unit performance is compared to selected compensation data. Unit F, for example, has the highest net income per employee and the highest annual incentive. That’s what one might expect. However, Unit D, which has the lowest net income per employee, has the second highest annual incentive percentage; that might bear looking into.
Comparative Compensation Scorecard
With Business Data
|
Business
Unit |
Revenue Per Employee | Net Income Per Employee | Average
Performance Rating (1–5) |
Average Merit
Increase (4% Budget) |
Annual
Incentive (% of Target) |
| A | 320K | 64K | 3.4 | 4.0% | 100% |
| B | 280K | 42K | 3.2 | 4.0% | 110% |
| C | 350K | 77K | 4.0 | 4.2% | 105% |
| D | 290K | 52K | 4.1 | 3.8% | 100% |
| E | 180K | 45K | 3.6 | 3.6% | 110% |
| F | 360K | 82K | 4.1 | 4.5% | 118% |
| G | 320K | 70K | 3.2 | 3.5% | 100% |
| Average | 285K | 58K | 3.5 | 3.8% | 102% |
Tips for Developing a Compensation Scorecard
1. Build a business case for why, what value, how to make better decisions, or keeping employees better informed.
2. Start small and narrow, with just a few data points, to a few people, perhaps just senior executives.
3. Make it “blind” at first, with no unit identification.
4. Indicate how you compare: “our average merit was 3%, national average 2.5%” or break down management v. hourly, etc.
5. Expand as the organization gets comfortable with transparency.
Metrics and scorecards—HR is never as easy as you wish it were. And then there’s the compensation program itself. It’s based on plans and systems, but in an era of tight budgets, it also has to be flexible. How to do it?
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