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12 Case Studies of Companies that Revised How They Compensate Employees

S HRM has partnered with ChiefExecutive.net to bring you relevant articles on key HR topics and strategies.

Higher compensation is part of the ransom for dealing with the pandemic for most American companies and industries. So salaries, wages, benefits and perks will cost them more—perhaps a lot more—in the year ahead.

The way CEOs and CHROs can make sure the Great Raise works to their companies' advantage is to be proactive, creative and equitable about it. Yet they also must weigh strategically the demands of the moment with their long-term compensation strategy.

"This is a time for real balance when it comes to how you deal with retention and attraction," said Paul Knopp, chair and CEO of KPMG US. "We all have to make sure we meet the market when it comes to base compensation, but the market has changed in a way that you also have to look at those benefits that are most attractive to employees for their careers."

While median full-time earnings of $1,001 per week in the third quarter of 2021 were nearly 9% higher than two years earlier, according to the Labor Department, expectations for 2022 remain frothy given the tight market for talent, the free-agent ethos encouraged by remote work, the geographic reshuffling of workers and decades-high inflation. U.S. wages will increase by 3.9 percent in 2022, according to the Conference Board, the highest rate since 2008.

The compensation surge is occurring at the high end, at a low end that's getting higher and everywhere in between. Goldman Sachs, for example, is offering paid leave for pregnancy loss and expanding the amount of time employees can take for bereavement leave while also boosting its retirement-fund matching contributions for U.S. employees to 6% of total compensation, or 8% for those making $125,000 a year or less.

Meanwhile, at Tyson Foods' chicken-processing plant in New Holland, Pa., the company has started offering a three-day workweek, plus pay for a fourth day that retains employees' status as full-time workers. Just for good measure, Tyson has created a $3,000 sign-on bonus for new hires.

"We're in a bidding war for talent that will go on for a long time," said Alan Beaulieu, president of ITR Economics.

For CEOs and CHROs, several new factors demand their attention along with the overall spike in compensation. They include:

• The end of retention. The "idea of a long-term commitment to one employer has been dead for a while, but it's really dead now," said Dave Roberson, CEO of the RoseRyan financial consulting firm. "You must have a stream of people. Assume you're going to be replacing people. So how do you keep the people you have, if you can, but also bring the next group in?"
• High-balling. A deal to recruit someone may not really be a deal these days. "You've made an offer and you think you've got a hire, and then they're asking for $5,000 or $10,000 more," said David Lewis, CEO of OperationsInc, an HR consulting firm. "Now you have to ask yourself what makes more sense strategically: say no and hold the line and lose the candidate and restart the process, not knowing how that will work out? Blow up your compensation structure? Or as a Band-Aid, give that person a sign-on bonus in hopes that the package will get them in the door?"
• Need for equalization. Recruiting with higher compensation also requires boosting pay and benefits for retention. "You need to be mindful of what you're paying others in the organization and understand the detrimental impact it will have when you bring someone in alongside a tenured employee," Lewis said. "Operate on the idea that everyone's salary is basically posted on the pantry door in your office."
• A focus on mental health. The pandemic, anti-contagion measures and the takeover of remote work has left many Americans isolated, confused, lonely—or at least disjointed. And they expect their employers to help them cope and adjust.

"Mental health is a real thing, regardless of how [a previous generation of leaders] feel and what we did," said Jeffrey Immelt, former CEO of General Electric. "Particularly post-Covid, it's something worth your time to try to understand."

Many Fortune 500 companies already offered mental-health benefits, but by now "mental health is just a place setter: You've got to have it in place to be competitive in the market today, across the board," said Richard Chaifetz, founder and CEO of ComPsych, a large provider of employee-assistance programs. "Companies understand the importance of keeping their people functioning at the highest level."

Codility, for example, has begun supplying all employees with 27 days of paid time off per year plus four mental-health days, which don't have to be approved. "We're offering these days in addition to personal-time-off days to recognize and bring to light the importance of mental health," said Natalia Panowicz, CEO of the platform that evaluates the skills of software engineers, with its U.S. hub in San Francisco.

CHRO360.com asked a dozen CEOs, CHROs and other top executives about their compensation strategies and practices for 2022. Here are some of their ideas:

Let Them Name Their Salary

Chris kovalik, ceo, rushdown revolt, a video-game maker in new york city.

We started as 12 part-timers, mostly people who were giving me their moonlight hours. That's not a lot different from now, except now we have 75 people. The magic of what we do is that we don't recruit anybody. We're just a magnet. We let people come to us.

When it comes to compensation, some say they wanted to volunteer, that they weren't expecting compensation. But we never, ever allow people to volunteer their time for us. So we say our company minimum wage is $15 an hour, and if you insist, we can pay you that per hour.

But generally people come to us with an expectation of compensation because they see that we're making money. When compensation came up, we'd say, "I don't know what your skill set is. I've never hired you before. How much do you think you're worth, and how much do you need?"

If every hour we're compensating them for the amount of money they want and need, if someone is part-time and only giving me 10 hours a week, I'd argue that they're giving me their best 10 hours. Because they're getting paid what they want and doing things that they want to be attached to and be part of.

There's no pattern to the compensation requests. If their number is too low, we'll say, "Are you sure? Are you just giving me a low-ball number I'll say yes to?" If it's high, I don't talk them down, but I ask them to justify it, and if the justification isn't adequate, what I say is, "How long do you think you'll need to prove that justification? Two to three weeks? Then let's pay you two-third to three-quarters of what you asked, and if you prove it, we'll go up to whatever you said."

Tailor Package for Youth Appeal

Ronald hall jr., ceo, bridgewater interiors, an auto-seat maker in detroit.

We enjoyed very low turnover pre-Covid, but during the last two years we have had to replace probably one-third of our workforce at our largest facility, about the same number from termination as voluntary. So we've had to work harder than ever to recruit.

Our most-tenured employees, who are the most highly trained, have had to pick up the slack, working record amounts of overtime and less-predictable production schedules.

In our upcoming negotiations with the United Auto Workers, we're trying to emphasize short-term bonuses rather than wage increases that get baked into our costs. But we have continued health insurance through the pandemic as well as our tuition-reimbursement program, and many employees have thanked me for that.

What I am hearing from new employees is that they're not as interested in benefits but rather in higher cash wages. We've long touted benefits like our generous 401(k) matching and better medical coverage versus our peers, but we're finding that doesn't resonate as readily now as it did a decade ago. So I've asked my team: Should we be looking at some kind of hybrid model of offering higher wages to people who want those and move those dollars from the benefits side to the wages side?

We've also looked at providing childcare in a partnering arrangement where there could be a center developed near our facilities, and we would arrange for some sort of company subsidy or guarantee some level of attendance. The challenge with that is the auto industry runs around the clock, and you'd need a daycare provider who'd be committed to opening around the clock and provide legal, regulated, benchmark-standard levels of care to all those children in the off hours.

Equalize as You Acquire

Diane dooley, chro, world insurance, a business and personal insurer in tinton falls, n.j..

We onboarded about 800 employees in 2021 through acquisitions of small agencies and organic growth, but there had been no compensation modeling. Now we're building out our compensation philosophy with commission plans, incentives and bonuses, centralizing components and ensuring we have the right framework.

When we do an acquisition, we might retain their compensation model for a year or two years then slowly migrate, but make sure employees aren't taking a cut in pay. We are also capitalizing commissions into base compensation—identifying what commissions would have been and what they will be, and recognizing roles that are moving away from a commission base.

Some agencies we acquire are smaller and may be below-market for total compensation. Now we're addressing those concerns. They need to be more front and center. We must do everything to retain our employee population. If they're woefully underpaid, or not at market, we risk losing people, and we don't want to do that.

Educating the owners of some of the agencies [we acquire] is a piece of this. As we partner with them, we are evaluating them and asking, "Did you give people an increase this year?" We're not telling them what to do but providing guidance about what to do.

We're also modifying and increasing our benefits, such as giving employees pet insurance. And making counteroffers is a critical piece today, usually for high-end employees. They work better than they used to because not a lot of people really want to make a move in this environment.

Innovate for the New World

Jason medley, chief people officer, codility, a provider of skill-evaluation software in london.

We really have to step back and be innovative and force ourselves to change. The companies that are going to win are going to be more progressive early and not fighting what's happening.

One thing we've done is change our outdated compensation models that give higher pay to employees living in tech hubs like San Francisco and New York and lower compensation for areas inside the coasts. Now, we've created a United States-wide salary band, so no matter where you live, the compensation is based on the role, not the location. You can go live and work wherever you want to.

We decided to approach compensation through a very human lens. People have seasonality in life, and maybe they are caregivers at different moments and want to live in different places. We want to be as flexible as possible, and this country band gives us that flexibility.

We are starting to see the same thing in Europe, where we have our headquarters in London and offices in Berlin and Warsaw, and employees all over, especially in Poland. People are wanting to live in the countryside of Spain but demanding a London salary. So we are transitioning to one European Union band and saying, "Here is your rate—live where you want to."

We are also seeing that with global warming, it's harder to get work done for people on the west coast of the U.S. and in Europe, because they didn't build homes with air conditioning. If you're sitting in a house at 90 degrees with no air conditioning, there's no way your performance is the same as someone with AC. Supplementing air conditioning isn't something we thought about before, but now we're very much having to look at those things.

Stay Ahead of Expectations

Traci tapani, ceo, wyoming machine, a sheet-metal fabricator in stacy, minn..

Our wages have gone up by about 20% for the typical worker. When I found people I could hire, I knew they were being brought in at an hourly rate that was too high for what I was paying my incumbent workers.

My strategy has been to be proactive about that and not wait for [existing] employees to say something about it or give them a reason to look for another job. We're proactively making wage adjustments to make sure our incumbent workers are in line.

Employees will leave for more money, so they're very appreciative of it. But in my shop, I also know that people like working here, and I know they don't want to leave. I don't want to give them a reason. If they can get an increase in pay that's substantial, I know that I can cut them off at the pass. Retaining my workforce is my No. 1 strategy. They're already here, and I'm going to do everything I can to keep them.

For that reason, we've also been more generous as time has gone on with paid time off, offering it sooner than we once would have, especially for new workers. We recognize that it's healthy for people to be away from work and also, in the pandemic, people need to be away from work. Knowing they have some paid time off makes it easier for them.

Leverage Benefits for DE&I

Mark newman, ceo, chemours, a chemical manufacturer in wilmington, del..

In general our company hasn't seen the Great Resignation. And in fact, we continue to believe our focus on being a great place to work is serving us well, along with appropriate benchmarking on compensation issues.

Chemours  is  a great place to work. We survey our employees every year, to improve our working environment from a compensation and benefits perspective. Also, from the [diversity, equity and inclusion] perspective, we're trying to make sure we tap into the full breadth of talent in our industry.

That means, for instance, we are helping people more with college loans. We are offering same-sex [marriage] benefits. We are providing more family leave for people who have kids. There is clearly an aspect of our benefits package that is evolving to be consistent with our strategy of making Chemours a great place to work.

Overall, we view compensation as something where we want to be either in the median or upper quartile. It's something we're very focused on from both a wage as well as benefit level. From Covid, there's been no fundamental change as it relates to us wanting to be in the median to top quartile.

We've had to make some local adjustments where the labor market is more super-charged. For example, we see a lot of that in the Gulf Coast region, especially with oil prices coming back, and petrochemicals and refining. But it's very much a regional factor. So if industries are moving to a certain region, like the South, you have to make sure you stay current with local benchmarks.

Offer Skin in the Game

Cesar herrera, ceo, yuvo health, a healthcare administrator in new york city.

We're a year-old company that provides tech-enabled administrative solutions for community health centers across the U.S. that are specifically focused on providing primary-care services for low-income individuals. We have a team of about 10 people right now, and we have a number of open roles and positions where we're likely going to be tripling the size of our team in 2022.

Google can compensate well above the market rate. We don't have that since we're an early-stage organization. What we do have as levers aren't up-front financial compensation but equity, support in your role and a relatively flat organization where you can have significant autonomy.

A lot of individuals are going to be driven by the mission; that's the case with the entire founding team. We've made sacrifices to create this organization. So you can come in at a meaningful position with a lot of decision-making.

But one of the biggest carrots we can give is, if you accept the lower pay and the risk that comes with an early-stage organization, you can have meaningful equity in the company. We have an options pool which is not to exceed 10% ownership of the organization, and as we grow and scale, we increase that options pool. For senior-level leaders, we do expect to be able to distribute up to 10% of the company to them.

Pay Extra for Continuity

Corey stowell, vice president of human resources, webasto americas, a maker of automotive sunroofs in auburn hills, mich..

We had to recruit for several hundred new openings at a brand-new facility right at the beginning of the pandemic. So we instituted an attendance bonus. For those who worked all their hours in a week, we paid an additional $3 an hour. We really had to keep it short-term, so we paid it weekly. If you wanted to pay it every month, you couldn't do it, because people needed that instant gratification.

Otherwise they could get it on unemployment. With our pay rate, they could earn more to stay at home and collect unemployment, a significant amount more than they could earn than working for us. So we also had to increase our wages, and we increased them by more than 20% in some classifications [in the summer of 2020].

We've filled all of our positions, but it's still a challenging market. We've had to increase all our wages, with the lowest for a position being $17 an hour, on up to $30 an hour.

We also have offered stay bonuses of $500 a month for three consecutive months, up to $1,500. And for hourly employees we've instituted a different attendance policy, where they can earn two hours of paid personal time for so many hours that they work consecutively with no attendance issues.

The key is the schedule—we can prepare and get someone to cover. That's easier to do than just managing whoever's going to come in today. In this environment, that really has changed with our workforce, and it's tough to rely on our current workforce.

Give Them the Keys

Elliott rodgers, chief people officer, project44, a freight-tracking software provider in chicago.

We have equipped and subsidized a van that we call Romeo, which employees can use to combine work with personal uses like family road trips. We cover the cost of the rental. It's a luxury van that comes equipped with a bed, a toilet and shower, Wi-Fi, device charging and a desktop workspace. And it's pet friendly.

We started it as a pilot project and reservations were full within 10 minutes of when we posted it internally. Then we extended it into 2022. By the end of 2021, more than 20 unique team members completed or nearly completed reservations. They've ventured out to places spanning Mount Rushmore and the Badlands; Rocky Mountain National Park; Salem, Mass.; and Pennsylvania. A pretty broad number of places.

It's something we're really proud of. It allows our team members the opportunity to work in a lot of different places while still being connected to us. And they've appreciated the opportunities to stay connected, but also be connected in other ways with nature and other places in the world. They can maintain their perspective while also continuing to contribute to their role in a productive way.

When you place a team member at the center of what they'd want in an experience like that, the value of it answers itself. It creates a comfort level where it provides the necessities for you to be able to continue to work, and you can work from anywhere. It's the best of both worlds. It's one thing to find that on your own but another to have that accessible to you via work, but done in a way that caters to you.

Help Them Come, Go—and Stay

Aamir paul, country president - u.s., schneider electric, a maker of electrical distribution and control products in andover, mass..

With our knowledge workforce, it's been about intentional flexibility. So, for instance, we launched a "returnship" program for women who'd left the workforce but might want to come back even at reduced hours. That means 20, 30, up to 40 hours a week, and we're finding some incredibly talented people who haven't been in the workforce.

This program is available to men as well. If there's a field engineer who's been in the electrical industry for 35 years and he's now retiring, but he's five years from getting his medical benefits, we say: Don't retire. Go on the program. Work 20 hours a week. Work from home. We'll reduce your pay proportionally, but we will couple you with three university hires, and they will call you on Microsoft Teams and show you what's happening on the job site, and you're going to walk them through it. Work just three days a week. We'll cover your benefits.

We've also expanded the parental leave policy, which already was one of the best in the industrial sector. And we created a way for people to buy more time off without having to leave their positions. They apply for more unpaid time off and we allow them to retain their position and seniority and allow them to work through whatever life event it is.

We landed on six weeks for the maximum. In the most intense industries—such as a fighter pilot or a surgeon—they've found that six weeks of being out of the rotation allows them to re-set. So that's what we did. Before, the limit was two weeks.

Give Sway to Local Management

Tom salmon, ceo, berry global, a maker of plastic packaging in evansville, ind..

We've got to be competitive in all the geographies we serve. We have 295 sites around the world and manage our employees in those sites geographically. Every geography will be a different labor environment. There are different criteria that employees are looking for. It's not just about wages but taking everything into consideration.

We let local management handle things with their insight about wages and competition. They're hearing directly from employees about what they like and don't like, what they want more of and less of. It's a site-by-site discussion.

For example, at some sites, it may be important for employees to be able to access the internet at lunch; at other sites, they may not value that as much. Some want a more advanced locker facility, with different shower facilities. That includes the southwestern United States, where the temperatures are warmer; but in New England, some might not want that.

In any event, if you treat these things locally, you're going to be able to affect that local population and address the need of that geography. If you blanket something across our entire plant population, you may provide something that's not desired or needed.

We depend on our local management to respond to the different demands in terms of compensation and benefits at their sites. The better the front-line leadership is, and the more satisfied their team is, the higher our retention rate and productivity and safety performance. So these leaders participate in profit-sharing plans for those respective sites, because they have a great influence on the success of a given facility.

Focus Benefits on Flexibility

Paul knopp, chair and ceo, kpmg us, a financial consulting firm in new york.

We announced a new package of enhancements to our benefits and compensation, tied to mental, physical, social and financial well-being. These increases are the biggest in the history of the company. You have to make sure your base compensation meets the market, but you also must have attractive benefits.

For example, we cut healthcare premiums by 10% for 2022 with no change in benefit levels, and we introduced healthcare advocacy services. We are replacing our current 401(k) match and pension programs with a single, automatic company-funded contribution within the plan that's equal to 6% to 8% of eligible pay.

As part of this, we're focusing on the crucial element of ensuring that employees know you're watching out for them. They also are looking for flexibility—you don't want to under-index on how important that is. So we also are providing up to three weeks additional caregiver leave, separate and apart from PTO. And all parents will receive 12 weeks of paid parental leave, in addition to disability leave for employees who give birth, allowing some up to 22 weeks of paid leave. We also have expanded our holiday calendar to now include Juneteenth.

Dale Buss is a long-time contributor to Chief Executive, Forbes, The Wall Street Journal and other business publications. He lives in Michigan.

This article is adapted from www.ChiefExecutive.net with permission from Chief Executive. C 2022. All rights reserved.

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Performance Management Case Study: Fossil Group

Jocelyn Stange

February 4, 2021 | 2 minute read

In this blog, we'll share how Fossil Group evolved its performance management process and 3 simple steps.

The Evolution of Fossil's Performance Management Process

Fossil Group was using a complex, 100% paper process for performance reviews and check-ins for more than 15,000 global employees. They wanted to move toward a digital performance management strategy, but knew they needed to simplify the process first.

Fossil Group set up four traditional components that were stretched across three strategic touch points throughout the year. These touch points were supplemented with ongoing performance conversations that could be initiated by any employee, at any time.

As Fossil Group evolved its company-wide performance appro a ch , they were happy to see immediate progress.

92% of employees were participating in goal-setting reviews, setting an average of six goals per employee.

However, when they dug into the data, they found that 35% of individual goals created were misaligned or did not have an impact on the organization and its strategic priorities. They knew they needed to get better at goal alignment if they wanted to meet important business objectives.

Explore the three ways Fossil Group simplified performance management.

1. They scheduled ongoing performance conversations and continuous feedback.

Although the three formal performance touch points in place were working, Fossil Group knew teams needed to have goal conversations more frequently. They implemented informal “check-ins” that could be launched by any employee at any time.

To ensure  adequate time was made for important performance conversations and other performance related activities, Fossil Group implemented "Performance Days" — days strictly dedicated to employee performance. On these days, n o task-related meetings are scheduled, and all work is set aside for the day. Conversations between managers, employees, and teams are all centered on performance.

2. They created intuitive goal conversation templates.

Fossil Group recognized that simply having more performance conversations wasn’t enough — the conversations needed to include healthy dialogue, debate, and collaboration from managers and employees. They created 1-on-1 templates to help guide managers and employees through an effective and productive goal conversation.

Check-in templates could be customized to the needs and work of individual teams and team members. The templates helped ensure conversations were focused on creating clear, aligned, and motivating goals. 

3. They used recognition to keep performance conversations fresh.

Fossil Group wanted to bring performance conversations full circle by recognizing employee performance daily. They created recognition toolkits for managers including fun notecards, gift cards, and employee recognition tips. They  also  launched an online, peer-to-peer recognition program that generated an average of 140 recognition stories each week.

By  taking time to uncover the needs of its employees, and delegating time for managers to focus on perf ormance,  Fossil Group  was able to listen and act on employee voices and evolve their performance strategy f or  succes s .

Download our latest ebook: Making Time for Performance Management to get more tips for simplifying your performance management process.

Published February 4, 2021 | Written By Jocelyn Stange

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Performance Management Case Study

In collaboration with mckinsey & company.

Rebooting Work for a Digital Era

How ibm reimagined talent and performance management, february 19, 2019, by: david kiron and barbara spindel, introduction.

In 2015, IBM was in the midst of a tremendous business transformation. Its revenue model had been disrupted by new technology and was shifting toward artificial intelligence and hybrid cloud services. To increase its rate and pace of innovation, the company was rapidly changing its approach to getting work done. New, agile ways of working together with new workforce skills were required to accomplish its portfolio shift. But standing in the way was an outdated performance management (PM) system employees did not trust. Diane Gherson, chief human resources officer and senior vice president of human resources, recognized that IBM’s approach to performance management would need to be entirely reimagined before the organization could fully engage its people in the business transformation.

Gherson says the performance management system then in place followed a traditional approach, one that revolved around a yearlong cycle and relied on ratings and annual reviews. “You’d write in all your goals at the beginning of the year, and at the end of the year, your manager would give you feedback and write a short blurb and then give you your rating,” she says.

IBM’s approach to performance management would need to be entirely reimagined before the organization could fully engage its people in the business transformation.

That approach was “holding us back,” Gherson says. “The massive transformation meant we were shifting pretty dramatically into new spaces and doing work really differently. Whereas efficiency was very important in the prior business model, innovation and speed had become really important in the new business model. And when you’re trying to make that kind of a fundamental shift, it’s important, obviously, to bring your employees along with you.”

Gherson knew from employee roundtables and surveys that IBMers didn’t have confidence or trust in the existing PM system. This view was at odds with the views of other senior leaders, who felt the system in place was working well from their perspective.

It took Gherson more than a year to convince her peers in senior leadership that IBM’s digital transformation would not succeed without higher levels of employee engagement, and that meant focusing on the existing PM system. Eventually she won them over. As for the traditional PM system that was holding the company back? “We threw all that out,” Gherson says. “We kept our principle of cultivating a high-performance culture, but pretty much everything else changed.”

Company Background

2015 was hardly the first time the company had found itself in the midst of a fundamental shift. IBM has had to reinvent itself time and again to remain relevant. Founded in 1911 as machinery manufacturer Computing-Tabulating-Recording Co., IBM (International Business Machines) over the decades has repeatedly adjusted its business focus — from early data processing to PC hardware to services to software systems — in response to evolving markets and competitive pressures.

Today, IBM, headquartered in Armonk, New York, employs about 360,000 people in 170 countries. After 22 consecutive quarters of declining revenue, the company reversed the trend in the fourth quarter of 2017 and subsequently has shown revenue growth. Growth in its cloud, artificial intelligence, cybersecurity services, and blockchain units have contributed to the turnaround, with about half of its revenues now derived from new business areas. Indeed, these days, IBM is betting big on AI and hybrid cloud, recently announcing plans to acquire open-source software pioneer Red Hat, an innovator of hybrid cloud technology, for $34 billion. With that notable acquisition, the company is making a bold bid to compete against heavyweights like Google, Amazon, and Microsoft in the cloud services market.

The new strategic direction has necessitated a change in how IBM’s talent is managed and how the work of the digital enterprise is done. “In a classic, traditional model, a manager will oversee the work of an employee and, therefore, have firsthand knowledge of how they’re doing,” Gherson observes. “That traditional model is long gone in most companies. Work is more fluid.”

At IBM, work is being done differently in three fundamental ways. One is a stronger emphasis on project work: Individuals move around the organization to work on various projects and initiatives, joining teams for short stints before moving on to new teams to tackle new challenges. Two, the entire concept of performance is shifting from primarily emphasizing performance outcomes to a model that also emphasizes the “how,” including the continuous development and application of new skills to keep up with the exponential rate of change in technology. Finally, with the adoption of agile ways of working, continuous feedback becomes a critical part of workflow. The new PM system needed to abandon the concept of an annual feedback event and find a way to reinforce a culture of feedback ― up, down, and across.

Meanwhile, digital transformation in the economy at large is exerting pressure on IBM as the tech giant strives to maintain an edge over its competitors. As a result of these internal and external changes, the company has seen the need to prioritize not only innovation and agility but also the continual development of employee skills, since what it requires of its talent base has also changed, with the need to continually develop employee skills becoming paramount.

Test-Driving a New System

The company’s key decision was to crowdsource its new performance management system rather than impose something top-down on its workforce, which was not consistent with agile methodologies or design thinking. Gherson says it was “really important to have employees feel like they were stakeholders in the new design, not just bystanders or consumers of it.” To that end, IBM undertook a process for designing the system that was a radical departure from the past. “There were many skeptics initially,” Gherson recalls, highlighting the challenges of the project. IBM relied heavily on enterprise design thinking, creating a minimum viable product (MVP), and invited the workforce to test it and offer feedback. Gherson likens the process to “giving people a concept car that they can drive and kick the tires as opposed to asking them what they would like to have in a car.” The rollout was fast: The September 2015 launch of the MVP happened within a couple of months of the first design-thinking session.

While many employees were thrilled that the traditional approach to performance management was on its way out the door, most were skeptical that the replacement program would be an improvement. As Joanna Daly, IBM’s vice president of global talent, recalls, “Employees actually said to us, ‘We don’t believe that you want our input. We think you already know what you’re going to do, and you’re just sort of pretending to ask for our input.’ We had to figure out how to prove to employees that we were authentic and serious in wanting them to shape this.”

Changes to IBM’s Performance Management

HR did so in a simple way: by asking employees what they wanted, giving their responses due consideration, and playing back what it was hearing. “We asked, ‘What do you want to get out of our approach to performance?’” Daly says. “And the answer we got was they wanted richer feedback. And they hated being defined by a single assessment rating.”

When Gherson blogged about the new system on the company’s internal platform, her first entry was viewed by 75,000 IBMers within hours, with 18,000 responding with detailed suggestions. The company used its proprietary Watson text analytics to sort through what employees wrote, enabling Gherson to put out a second blog within 48 hours enumerating which elements employees liked and which they disliked. The company proceeded through numerous iterations and playbacks, with employees continuously participating in the design process. Management even reached out personally to the most vocal critics at every step, directly engaging their input in producing the next prototype. The eventual result ― officially launched in February 2016 and called Checkpoint ― was aligned to the employees’ input, providing a PM system focused more on feedback and less on assessment. (See “Changes to IBM’s Performance Management” for key differences between the old and new system.)

The eventual result was aligned to the employees’ input, providing a performance management system focused more on feedback and less on assessment.

Rather than receiving a single rating at an annual review, employees now have more frequent check-ins with managers. Through the company’s mobile ACE (appreciation, coaching, and evaluation) app, they also can seek feedback from peers, managers, or employees they manage.

The new and more agile system allows IBMers to revise their goals throughout the year. In response to crowdsourced input during the design process, employees are assessed according to their business results, impact on client success, innovation, personal responsibility to others, and skills. Managers are held accountable through pulse and mini-pulse surveys of the people they oversee, with poor results leading to training or, in some cases, removal from management.

Checkpoint is a far cry from the previous stand-alone HR program that rated and ranked employees. It’s aligned to the critical factors for IBM’s success and designed to ensure that the company achieves advantage with its talent in a fast-moving competitive landscape.

Checkpoint has been a major contributor to employee engagement, which has increased by 20% since IBM deployed the revitalized performance management system. In fact, in the company’s annual engagement pulse survey, employees pointed to Checkpoint as the change that made the biggest difference in their experience at IBM.

Focus on Learning and Growing

Technological change ― in the marketplace and in IBM’s business focus ― is driving an unremitting need for new skills, making their development an essential part of IBM’s corporate strategy. “In today’s world, skills are actually more important than jobs,” Gherson declares. “In order to reinvent our company, we need everyone to reinvent their skills on a continuous basis. You can’t hire someone because they have a particular skill. You have to hire someone because they have the capacity to continue to learn.” To that end, in addition to the new approach to performance management, talent management at IBM now includes a personalized learning platform and a personalized digital career adviser.

The platforms use data to infer which skills employees have and connect them with learning to build those skills that are increasingly in demand. The personalized program is “really accessible, very consumer-friendly,” Gherson says. “It has everything: internal and external courses, Harvard Business Review articles, MIT Sloan Management Review articles, YouTube videos ― you name it. And it serves it up for you as an individual, based on your unique role. It will say, ‘Given what you’ve taken so far and your career goals, here are some recommendations and here’s what people like you have taken and how they’ve rated it.’”

To encourage career mobility, IBM launched a digital coach for employees wishing to advance their careers within the company. My Career Advisor (known commercially as Watson Career Coach) was created by employees during a company-wide hackathon. It features a virtual assistant that uses data to provide personalized career counseling, such as average time to promotion from an employee’s current role and career steps taken by others to acquire the job a user might want. Another related platform, Blue Matching, serves IBM employees internal job opportunities tailored to their qualifications and aspirations, inferred from their CVs.

What enables these learning and career programs, says Daly, is “having more data available and having better insights to guide the user. These new digital platforms mean we can get these insights directly into the hands of employees and their managers.” Also essential has been uniting these platforms. “It’s not about having a learning platform and having separately an internal jobs platform,” Daly notes. “It’s how do we integrate these two together with AI-enabled advice for employees to explore? What kind of job should I do next? What are my skills gaps if I want to pursue that job, and then what learning would I take to close that gap?”

Real-Time Insights

The new PM system was about agility and prioritizing feedback over assessment. IBM elected to go further and figure out how to use all the insights it was developing from its analytics and AI capabilities to ensure that useful insights could readily emerge and be accessible to both HR and the workforce.

More predictive and prescriptive insights will be transmitted directly to managers and employees at the moment they’re needed most, embedded in the workflow.

“Thanks to these digital experiences, we’ve modernized how to deliver insights to our workforce and management ― right when they need it,” Daly says. She cites compensation decisions as an example. Using machine learning, “we advise managers about which employees should get the highest salary increase. We arrive at the recommendation using dozens of internal and external data sources. This helps with more transparent conversations between the manager and her employee,” she says. “We give managers talent alerts directly on their personalized dashboard. For example, the system might observe, ‘Hey, your team member has been in her band level for a few years and is a good performer and is building her skills. Have you thought about promoting her?’”

Going forward, Daly anticipates that more predictive and prescriptive insights will be transmitted directly to managers and employees at the moment they’re needed most, embedded in the workflow.

Preventing Attrition

“In our industry, talent is the No. 1 issue,” Gherson contends. “And so, it’s really important that we attract and develop and continue to upgrade our skills and retain talent if we’re going to win in this market.” Despite more than 7,000 job applicants coming into IBM every day, with a tech talent shortage and ongoing talent wars in AI and cybersecurity, retention becomes particularly crucial; experts agree that in the coming decades, there won’t be enough qualified people to fill available jobs.

Gherson and her team received a patent for their predictive attrition program, which was developed at IBM using Watson AI algorithms to predict which employees were likely flight risks. Most managers were initially skeptical at the notion that algorithms could have more insight into their employees’ intentions than they did — until the algorithm consistently made correct predictions. Then, Gherson recalls, “We started getting these little notes from managers saying, ‘How did you know?’”

Significantly, the technology is about prescription in addition to prediction. “We reach out to you as a manager,” Gherson explains, “and we tell you that you’ve got someone who is at high risk to leave and here are the actions we recommend you take.” Because the AI is able to infer which skills individual employees possess, it can then recommend actions for managers to implement — often related to furthering skills development — to prevent them from leaving. By helping their employees develop new skills, managers bolster employee engagement and increase job satisfaction, advantages in a talent-scarce market environment. “The attrition rate of the people we touch with this program is minuscule compared to the control group,” Gherson says, noting the improvement in employee retention has already saved IBM nearly $300 million.

The Evolving Role of HR

Given the heightened significance of talent, HR, as the function primarily responsible for talent, has a revitalized role to play in executing corporate strategy and driving value at IBM.

To achieve a more central role in value creation, IBM’s HR function had to be freed from the tasks that traditionally consumed so much of its managers’ time. “People have a million questions: ‘When do I have to sign up for my 401(k)?’ ‘What’s the deadline for the health benefits program enrollment?’ These are all findable pieces of data, but actually finding them has always been the hardest part,” Gherson says. “I wouldn’t say that’s the highest value that HR could provide, but it’s a lot of what HR has been doing. Maybe in some companies that’s all HR does. But that’s not the purpose of HR. You don’t need HR to answer those questions. You just need really great bots and virtual assistants.”

Here, the company again exploited its own capabilities in AI and analytics. In HR alone, IBM currently deploys 15 virtual assistants and chatbots, and the company is diligent about measuring both employees’ experience and the effectiveness of the bots in responding to questions. With the bots taking on routine tasks previously performed by people, IBM’s HR function can devote itself to what Gherson sees as its real purpose: “to create competitive advantage with your talent and improve the employee experience.”

Of course, technology and data are vital not just in freeing up the humans on the HR team but also in optimizing their performance. “For too long, HR people have relied on just being highly intuitive: ‘I think this person’s going to be a good fit for the job’ or ‘I think a two-year assignment is the right length,’ or whatever,” Gherson observes.

“And actually, you can employ science-based methods to come up with an estimate ― for example, there’s an 80% chance they’ll fail in this job because they lack these capabilities or there’s a 50% chance that you’ll get no return on your investment in that international assignment because it’s too short,” she says. “So, we should be able to give much better advice to the people that we support.”

Gherson acknowledges that working this way also requires culture change within the HR function, which demands different skills like data science and different job roles to fully realize the disruption. She has invested in a robust re-skilling education program for her team of HR professionals.

Gherson says HR can’t simply stop at using technology to detect patterns. Giving managers data on, say, turnover rate, without also offering guidance on how to use that information, leaves them to rely once again on intuition to solve problems. As with the predictive attrition program, IBM pairs reporting data with recommendations for action.

“Technology enables us to not just report, but to then say, ‘If you keep doing what you’re doing, here’s what the picture will look like a month from now, a year from now. Your cost of labor will be higher than your competitors by 12% if you carry on hiring at the rate you’re hiring. So here’s a prediction that’s going to be a bit of a wake-up call for you. But if you take these actions, here’s the impact,’” Gherson explains.

“We’re going from intuitive to reporting to predicting to prescribing,” she adds. “And if we can take it all the way to that level, then we’re really adding value. We’re very proud of the fact that through these talent programs, HR delivered more than $107 million in benefits in the last year.”

IBM’s efforts to modernize its performance management system are part of an ongoing process. “We will continue to refine the measurement and expectations of skills growth in IBM as it becomes clear that we need to become a fabulous re-skilling-at-scale machine and hold ourselves accountable to that,” Gherson says. Daly echoes that point: “These aren’t programs that HR is developing. This is a new way of working that all IBMers are developing together so that we can keep our skills up to date as things keep changing in the future.”

Joanna Daly

vice president, global talent

Joanna Daly is IBM’s vice president of talent with global responsibility for talent acquisition, people analytics, AI strategy for HR, employee experience, performance management, and careers and skills. Her previous roles at IBM have included leading compensation and running HR for the company’s global industry platforms, blockchain businesses, and European business services operations, with stints in Singapore and India as well. Joanna is a frequent speaker at conferences and in the media on AI in HR, diversity and inclusion, skills, and the future of work.

Diane Gherson

chief human resources officer and senior vice president, human resources

As chief human resources officer and senior vice president of human resources, Diane Gherson is responsible for the people strategy, leadership, skills, careers, engagement, employee services, labor cost, and diversity and inclusion of IBM’s 360,000-person global workforce. During her tenure as CHRO, as IBM has dramatically shifted its business portfolio, Gherson has redesigned all aspects of the company’s people agenda and management systems to shape a culture of continuous learning, innovation, and agility. At the same time, she has digitally transformed the HR function, incorporating AI and automation across all offerings, resulting in more than $100 million in net benefits in the past year.

HR Transformation as the Engine for Business Renewal

Commentary by Anna A. Tavis

Industry disruptions have headlined business news since the early 2000s. With the cloud revolution driving change in global markets, traditional built-to-last companies have had to rapidly transform themselves to survive, adapt, and compete. Market-facing customer service, sales, and marketing functions reinvented themselves in the new digital image a decade ago. Although HR is a latecomer to the digital scene, it stands ready to undergo its own reinvention armed with smart technology, data-driven insights, and a renewed sense of purpose.

To paraphrase Diane Gherson, IBM’s chief human resources officer, talent is unquestionably the new economy’s number one competitive asset. HR, as a traditional caretaker of talent, has to leapfrog generations of evolution, moving from intuition to reporting to predicting and ultimately to prescribing — all in a matter of a few years. Some companies, like IBM, are successfully making this leap. Critics, so ready to question HR’s relevance and viability, should take note.

This case study describes HR transformation at IBM. It is particularly instructive for companies embarking on their own HR digital transformation efforts. IBM’s most important lessons are less about the specific solutions they introduced and more about the way they went about finding their new philosophy and their new operating model. The IBM story is as much about what they decided not to do as it is about what they ended up doing.

Diane Gherson’s most consequential first step was to abandon the practice of benchmarking other companies and not to rely on HR experts to renew her strategy. She turned instead to IBM’s own employees for answers. Not surprisingly, the message her team heard from employees was not always in line with the view of senior management, which did not believe much in HR could change. It became clear that IBM’s transformation was to be anchored in agile ways of working. The company’s traditional performance management (PM) was seen by employees, however, as an administrative chain holding back the adoption of fast agile ways of working. The decision was made to radically redesign PM with employee experience in mind. In the process, all other functional areas in HR were redesigned and realigned to serve HR’s new purpose.

The following 10 decision points are worth considering when reviewing the IBM case in the context of your own organizational transformation:

1. Decide where to start. IBM’s first and highest priority was to redesign its PM system. The team turned to its own employees for redesign ideas, not HR experts or senior leaders.

What you can do: Identify the weakest link in your talent management system. If it’s your PM approach, this is where change should begin.

2. Connect your transformation to an existing element of your strategy. IBM used its adoption of agile practices across the organization as the primary catalyst to overhaul its entire talent management system.

What you can do: Choose the one key performance indicator (KPI) that intersects with talent that will have the most impact on your business.

3. Renew your talent/HR purpose. By committing to employee experience, engagement, and learning, IBM shifted away from an earlier focus on differentiation and high potentials.

What you can do: Decide what type of culture you want to have. Assess how fast you can move from an administrative compliance- and appraisal-based approach to being employee-centric and learning-focused.

4. Decide where to start: Identify the most consequential first step with the broadest possible impact. IBM made a PM redesign the priority in its talent transformation process and had the capacity, capability, and political capital to go global with its minimum viable product (MVP) for the entire organization.

What you can do: Identify whether performance management is the weakest link in your talent management system and where the pain points are for your employees and management.

5. Select the design method consistent with your new purpose. For IBM, agility and design thinking became key methodologies HR successfully applied.

What you can do: Select and agree on design principles and method(s) consistent with your talent philosophy and aligned with your purpose. Teach those skills and test to see if they work for all.

6. Get your organization’s buy-in to support your transformation effort. IBM took a two-tiered approach to secure buy-in: (1) It earned employee trust and engagement by crowdsourcing design ideas from across the company. (2) It won over senior management by running successful experiments proving that attrition could be predicted by data.

What you can do: Learn to listen. Generate insights and communicate decisions supported by the evidence you collect. Engage key stakeholder groups with data relevant to them.

7. Decide how to test and improve the designed product. IBM went for speed, customer feedback, and continuous improvement. Having designed and released their crowdsourced PM process, Checkpoint, in record time, the company “proceeded through numerous iterations and playbacks, with employees continuously participating in the design process.”

What you can do:

Choose one of three approaches:

• Launch a company-wide MVP: Your priority initiative is based on your company’s KPIs and readiness for the company-wide rollout.
• Experiment and create a proof of concept. Run a series of experiments starting with the business units most ready to innovate. Show results to others.
• A combination of the above two approaches.

8. Go beyond performance management: Decide on your next steps. Successful implementation of the redesigned PM process revealed further strategic talent needs for IBM:

• Accelerate and personalize skills renewal.
• Customize decision support for managers.
• Create an internal marketplace for jobs.

What you can do: PM renewal has a domino effect on all HR processes and tools. What comes next on the renewal list will have to be decided by your company depending on its strategic priorities. Meanwhile, HR will have to renew and upskill itself as the transformation process continues.

9. Assess how to turn technology and data into the greatest enablers of transformation. IBM HR fully leverages its tech and AI capabilities, often creating its own tech tools. My Career Advisor, for example, is IBM’s mobile in-house career coach created by employees at a company-wide hackathon. Blue Matching serves IBM employees with notice of new internal job opportunities tailored to their qualifications and aspirations.

What you can do: Technology and automation are central to the transformation of HR. Yet, no two companies’ technological and data capabilities are alike. Choose your tools wisely, develop technical expertise internally, or borrow your experts. Do not overspend on systems unless you understand how they will deliver.

10. Integrate tools, platforms, and processes with employee experience in mind. IBM’s case shows how to bring all processes, tools, and platforms together into one renewed talent ecosystem. “It’s not about having a learning platform and…an internal jobs platform,” noted Joanna Daly, IBM's vice president of global talent; it’s how they integrate together with AI-enabled advice for employees to explore what jobs they should do next.

What you can do: No matter where you decide to start, integration should be your final destination.

IBM’s case could be the timely accelerator of your own company’s HR transformation. There is a lot to learn here, but no one’s “best practice” is a replacement for your own discovery. The best lesson to learn from Diane Gherson and her team is their innovative attitude and openness to experiment in the face of the unknown. Learning to innovate, take on risks, and show courage is what IBM’s HR has shown us how to do. It is now the right time to take the right lessons from IBM and apply them and scale. Best of luck as you begin.

Anna A. Tavis is a clinical associate professor of human capital management and academic director of the human capital management program at New York University. She tweets @annatavis .

About the Authors

David Kiron is the executive editor of MIT Sloan Management Review ’s Big Ideas Initiative, which brings ideas from the world of thinkers to the executives and managers who use them.

Barbara Spindel is a writer and editor specializing in culture, history, and politics. She holds a Ph.D. in American studies.

Contributors

Carrie Altieri, Michael Fitzgerald, Jennifer Martin, Allison Ryder, Karina van Berkum

Acknowledgments

Joanna Daly, vice president, global talent, IBM

Diane Gherson, chief human resources officer and senior vice president, human resources, IBM

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Reinventing Performance Management

• Marcus Buckingham
• Ashley Goodall

Like many other companies, Deloitte realized that its system for evaluating the work of employees—and then training them, promoting them, and paying them accordingly—was increasingly out of step with its objectives. It searched for something nimbler, real-time, and more individualized—something squarely focused on fueling performance in the future rather than assessing it in the past. The new system will have no cascading objectives, no once-a-year reviews, and no 360-degree-feedback tools. Its hallmarks are speed, agility, one-size-fits-one, and constant learning, all underpinned by a new way of collecting reliable performance data.

To arrive at this design, Deloitte drew on three pieces of evidence: a simple counting of hours, a review of research in the science of ratings, and a carefully controlled study of its own organization. It discovered that the organization was spending close to 2 million hours a year on performance management, and that “idiosyncratic rater effects” led to ratings that revealed more about team leaders than about the people they were rating. From an empirical study of its own high-performing teams, the company learned that three items correlated best with high performance for a team: “My coworkers are committed to doing quality work,” “The mission of our company inspires me,” and “I have the chance to use my strengths every day.” Of these, the third was the most powerful across the organization.

With all this evidence in hand, the company set about designing a radical new performance management system, which the authors describe in this article.

HBR Reprint R1504B

How one company is rethinking peer feedback and the annual review, and trying to design a system to fuel improvement

Idea in Brief

The problem.

Not just employees but their managers and even HR departments are by now questioning the conventional wisdom of performance management, including its common reliance on cascading objectives, backward-looking assessments, once-a-year rankings and reviews, and 360-degree-feedback tools.

Some companies have ditched the rankings and even annual reviews, but they haven’t found better solutions. Deloitte resolved to design a system that would fairly recognize varying performance, have a clear view into performance anytime, and boost performance in the future.

The Solution

Deloitte’s new approach separates compensation decisions from day-to-day performance management, produces better insight through quarterly or per-project “performance snapshots,” and relies on weekly check-ins with managers to keep performance on course.

At Deloitte we’re redesigning our performance management system. This may not surprise you. Like many other companies, we realize that our current process for evaluating the work of our people—and then training them, promoting them, and paying them accordingly—is increasingly out of step with our objectives.

• Marcus Buckingham is a researcher of high performance at work, co-creator of StrengthsFinder and StandOut, and a coauthor of Nine Lies About Work: A Freethinking Leader’s Guide to the Real World (Harvard Business Review Press). His most recent book is Love + Work: How to Find What You Love, Love What You Do, and Do It for the Rest of Your Life (Harvard Business Review Press).
• Ashley Goodall is the senior vice president of leadership and team intelligence at Cisco Systems and a coauthor of  Nine Lies About Work: A Freethinking Leader’s Guide to the Real World (Harvard Business Review Press).

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Performance Management Case Studies: Revolutionaries and Trail Blazers

Five com­pa­nies that have led the way in set­ting new per­for­mance man­age­ment trends

Note: This blog post was updat­ed in July 2019 for accuracy.

Per­for­mance man­age­ment is an ever-evolv­ing field. The more we learn, the bet­ter we can adapt our per­for­mance man­age­ment sys­tems to make our com­pa­nies health­i­er, more moti­va­tion­al places to work. This is why it is so impor­tant to keep up with the lat­est per­for­mance man­age­ment trends . Com­pa­nies who fall behind lose out to their com­peti­tors. They also run the risk of los­ing their best per­form­ers along the way.

Since 2012 , com­pa­nies all over the world have been mov­ing away from old-fash­ioned annu­al appraisals and towards con­tin­u­ous per­for­mance man­age­ment . More than ever before, human resources exec­u­tives and line man­agers alike under­stand the human need for reg­u­lar feed­back, effec­tive coach­ing and human interaction.

A num­ber of rev­o­lu­tion­ary com­pa­nies have led the way in dra­mat­ic changes to how organ­i­sa­tions — both For­tune 500 multi­na­tion­als and SMEs — con­duct their per­for­mance reviews and moti­vate their employ­ees. In their wake, com­pa­nies the world over are adapt­ing their per­for­mance man­age­ment prac­tices and read­just­ing their once-fir­m­­ly held beliefs regard­ing per­for­mance rat­ings and annu­al per­for­mance appraisals. Here at Clear Review, we have helped over 200 organ­i­sa­tions effort­less­ly shift away from tra­di­tion­al annu­al appraisals.

Below, we have col­lat­ed five notable per­for­mance man­age­ment case stud­ies. These organ­i­sa­tions have shak­en up their exist­ing process­es and have reaped sig­nif­i­cant ben­e­fits in terms of pro­duc­tiv­i­ty, employ­ee engage­ment, morale and performance.

1 . Adobe Intro­duced Con­tin­u­ous per­for­mance Man­age­ment in Place of Per­for­mance Appraisals

Adobe was the fore­run­ner of change when they aban­doned annu­al per­for­mance appraisals back in 2012 . They felt that while they were forg­ing ahead and evolv­ing as a com­pa­ny, their per­for­mance man­age­ment sys­tem was archa­ic and inef­fec­tive. It was a waste of time and had, ulti­mate­ly become a box-tick­ing exer­cise. Adobe esti­mat­ed annu­al appraisals con­sumed 80 , 000 man­age­ment hours each year . This was the equiv­a­lent of near­ly forty full-time employ­ees work­ing year-round. Clear­ly, a change was needed.

Adobe replaced annu­al appraisals with reg­u­lar one-on-one check-ins , sup­port­ed by fre­quent feed­back  — both pos­i­tive and con­struc­tive. There are no per­for­mance rat­ings or rank­ings and they allow dif­fer­ent parts of the organ­i­sa­tion to deter­mine how fre­quent­ly they should hold check-in con­ver­sa­tions, based on their work cycles. Now that forced rank­ing has been abol­ished, employ­ees at Adobe are assessed based on how well they meet their goals . Man­agers are also trained on the nuances of giv­ing and receiv­ing feedback.

The result has been a marked increase in employ­ee engage­ment, with vol­un­tary turnover decreas­ing by 30 % since check-ins were intro­duced. This makes Adobe a per­for­mance man­age­ment case study we should all be aware of.

Take a Tour of Our Con­tin­u­ous Per­for­mance Man­age­ment Soft­ware .

2 . Deloitte Saved 2  Mil­lion Work­ing Hours per Year with Week­ly Employ­ee Check-Ins

In 2015 , Deloitte was the first big name to announce it was scrap­ping once-a-year per­for­mance reviews, 360 -degree feed­back and objec­tive cas­cad­ing. This change occurred after the com­pa­ny cal­cu­lat­ed these process­es were con­sum­ing a remark­able two mil­lion hours a year across the organisation.

Deloitte’s new per­for­mance man­age­ment process requires every team leader to check in with each team mem­ber once a week to dis­cuss near-term SMART goals and pri­or­i­ties, com­ment on recent work and pro­vide coach­ing. The check-ins are ini­ti­at­ed by the team mem­bers, rather than the team lead­ers to ensure these check-ins take place fre­quent­ly. This also serves to give employ­ees a sense of own­er­ship over their work, role and time.

These week­ly employ­ee check-ins are sup­port­ed by quar­ter­ly reviews when team lead­ers are asked to respond to four future-focused state­ments about each team mem­ber. Rather than ask­ing team lead­ers what they think of the team mem­ber — which is what tra­di­tion­al per­for­mance rat­ings do — they ask what the team leader would do with the team member.

3 . Gen­er­al Elec­tric ( GE ) Put an End to​Forced Rank­ing per­for­mance Management

Under the reign of its for­mer CEO , Jack Welsh, Gen­er­al Elec­tric was the most well-known pro­po­nent of annu­al per­for­mance rat­ings and forced dis­tri­b­u­tion curves. 

For decades, GE oper­at­ed a ​ “ rank and yank ” sys­tem, where­by employ­ees were appraised and rat­ed once a year. After­wards, the bot­tom 10 % were fired. Not exact­ly a recipe for employ­ee engage­ment! Such an envi­ron­ment is a breed­ing ground for unhealthy com­pe­ti­tion, reduced team­work and employ­ee burnout.

In 2015 , under CEO Jeff Immelt, GE announced it was replac­ing this approach with fre­quent feed­back and reg­u­lar con­ver­sa­tions called​” touch­points ” to review progress against agreed near-term goals. This new approach was sup­port­ed by an online and mobile app, sim­i­lar to our own Clear Review per­for­mance man­age­ment tool , which enables employ­ees to cap­ture progress against their goals, give their peers feed­back and also request feedback.

Man­agers will still have an annu­al sum­ma­ry with employ­ees, look­ing back at the year and set­ting goals. But this con­ver­sa­tion is more about stand­ing back and dis­cussing achieve­ments and learn­ings, and much less fraught than annu­al reviews.

4 . Accen­ture Aban­doned Rat­ings for per­for­mance Development

As of Sep­tem­ber 2015 , Accen­ture, one of the largest com­pa­nies in the world, dis­band­ed its for­mer rank­ing and once-a-year eval­u­a­tion process . Like GE , Accen­ture has decid­ed to put fre­quent feed­back and con­ver­sa­tions at the heart of its new process and focus on per­for­mance devel­op­ment, rather than per­for­mance rating.

As Accenture’s CEO , Pierre Nan­terme, stat­ed at the time ​ “ It’s huge, we’re going to get rid of prob­a­bly 90 per cent of what we did in the past.”

As Ellyn Shook, Chief HR Offi­cer at Accen­ture , stat­ed:​“Rather than tak­ing a ret­ro­spec­tive view, our peo­ple will engage in future-focused con­ver­sa­tions about their aspi­ra­tions, lead­ing to actions to help them grow and progress their careers.”

5 . Cargill Intro­duced Coach­ing Con­ver­sa­tions in Place of Annu­al Appraisals

Like Adobe, Cargill, the US food pro­duc­er and dis­trib­u­tor, start­ed to trans­form its tra­di­tion­al per­for­mance man­age­ment process­es back in 2012 , when it intro­duced ​ “ Every­day Per­for­mance Man­age­ment ”.

Cargill removed per­for­mance rat­ings and annu­al review forms and instead focused on man­agers hav­ing fre­quent, on-the-job con­ver­sa­tions and giv­ing reg­u­lar, con­struc­tive feed­back. They have made this work by:

• Reg­u­lar­ly reward­ing and recog­nis­ing man­agers who demon­strate good day-to-day per­for­mance man­age­ment practices.
• Shar­ing the expe­ri­ences and tips of their suc­cess­ful managers.
• Hold­ing teams account­able for prac­tis­ing day-to-day per­for­mance management.
• Build­ing the skills need­ed to suc­ceed at Every­day Per­for­mance Man­age­ment, includ­ing effec­tive two-way com­mu­ni­ca­tion, giv­ing feed­back, and coaching.

The out­come has been impres­sive, with 70 % of Cargill employ­ees now say­ing they feel val­ued as a result of their ongo­ing per­for­mance dis­cus­sions with their manager.

Per­for­mance Man­age­ment Lessons to Be Learned from These Per­for­mance Man­age­ment Case Studies

When we look at what these five organ­i­sa­tions have imple­ment­ed, we can see some evi­dent trends emerg­ing, which are like­ly to form the basis of per­for­mance man­age­ment for the years to come. These trends are:

• Reg­u­lar one-to-one per­for­mance con­ver­sa­tions, or ​ “ check-ins ”, ini­ti­at­ed by the employee.
• Fre­quent, in-the-moment, pos­i­tive and con­struc­tive feed­back from peers and man­agers Near-term objec­tives rather than annu­al objec­tives. Set­ting and review­ing objec­tives reg­u­lar­ly, rather than once a year.
• For­ward-look­ing per­for­mance reviews, focus­ing more on devel­op­ment and coach­ing and less on assessment.
• Drop­ping per­for­mance rat­ings .
• Per­for­mance process­es sup­port­ed by mobile-friend­­ly, online per­for­mance man­age­ment soft­ware .

Move away from annu­al appraisals to con­tin­u­ous per­for­mance management

Find out how our sim­ple, effec­tive per­for­mance man­age­ment soft­ware can help you move away from annu­al per­for­mance appraisals towards a more agile, intu­itive per­for­mance man­age­ment sys­tem. Book a free demo of Clear Review where our expert team will take you through the platform. 

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Performance and Compensation Management | Do’s and Don’ts

Do your employees feel like they are being fairly compensated?

Nearly a quarter of the respondents answered “No” in one survey . Employees under age 35 are more likely to agree that they are paid unfairly, as are women and those who work at large organizations.

Plus, 63 percent of workers who quit a job in 2021 said low pay was the reason for leaving their job. It’s clear that companies should think carefully about their compensation management strategy .

So, how do you make employees feel like they have more control over their income? One way is by combining performance and compensation management.

Of the 250 largest companies in the S&P 500, 83 percent tie at least some employee income to performance . These companies do this through the use of a formulaic annual incentive plan.

Many other companies are doing the same. User Insight is one such example. They link performance with compensation to get a better understanding of company performance. 

Wondering if connecting compensation management and employee performance is right for your business? Here’s what you need to know about the relationship between performance and compensation management.

We’ve got five tips that will walk you through the dos and don’ts of tying these two concepts together.

The right software makes it easy to connect performance and compensation management. Learn More

What Is the Relationship Between Performance and Compensation Management?

Performance management can be an effective way to lay the groundwork for compensation decisions. It enables HR and managers to monitor and evaluate employee work against the strategic objectives of the company.

HR is armed with accurate information and a big-picture view of the performance of the organization. That makes it easy to use data to drive compensation decisions .

But, that’s only when it is done properly. Tying pay to performance is more than twice as likely to produce above-average engagement among employees. However, that’s only if they feel like their performance is accurately assessed.

The best way to accurately assess employee performance is to use performance management software . It is specially designed to track detailed performance metrics. Software eliminate human error and enables employees to see their performance data clearly. Employees can simultaneously understand exactly how their performance is measured.

The software can also store compensation data and performance data . This makes it easier for management to give out promotions, raises, and/or bonuses without delay.

PerformYard can show you salary info alongside performance reviews. Learn More

5 Tips for Linking Performance and Compensation Management

The right software program streamlines the relationship between performance and compensation management. However, there are still more steps to set up a system that’s right for your employees business.

Here are our five tips for linking performance with compensation:

• Figure out how you’re going to track performance
• Establish timelines and compensation updated schedules
• Define important metrics for each team and individual
• Implement HR software to track compensation and performance
• Start with a small team and then consider expanding

1. Figure out how you’re going to track performance

Most companies follow the same process when they first tie performance and compensation management. They think about tying compensation to individual monetary achievements, like sales. It is an option, but it may not encourage employees the way you might expect.

This type of performance-based pay structure can encourage employees to work harder, but they can also end up with higher levels of stress . This can offset the gains in employee productivity that the new pay structure is trying to create.

If you worry about this possibility with your team, there are other metrics you can use to tie performance to compensation. For example, performance might be considered team- or company-wide based on revenue.

Everyone receives a bonus or a pay increase when the group is doing well. Some companies even tie executive pay to ESG (Environmental, social, and corporate governance). Others turn to operational and/or safety data when considering increased compensation. 

Goal setting is an important part of the process. It ensures employees have an active role in setting their own goals, as well as what successfully reaching their goals looks like.

Track goals and reviews in the same place with PerformYard. Learn More

2. Establish timelines and compensation update schedules

You don’t want employees wondering whether or not they’re going to receive increased compensation. You don’t want them to feel like an unfair performance review meant losing out on a raise. Always clarify expectations when you're combining compensation management and employee performance .

Your performance review process should be clear. You have to determine whether you want to conduct quarterly, annual, or bi-annual reviews. It’s also important to determine what type of review aligns with individual and company-wide goals.

Then, create a compensation update schedule. That way, employees know what kind of pay increase or bonus they can expect if they meet their goals.

The best approach is to be transparent about the timeline and compensation schedules you have created. Employees won’t wonder when they’re going to receive their next raise, or how much it’s going to be.

PerformYard can help you schedule review cadences that align with your schedule and the goals you have for your company.

3. Define important metrics for each team and individual

Once you have figured out how you're going to track performance , it’s important to dig into the details . That means knowing whether or not you’re going to use team-based metrics or individual metrics.

Then, you have to define exactly what it will look like when the goal is accomplished. It might mean reaching a certain number of sales for an individual employee. It could mean accomplishing a revenue increase within a certain period among the team as a whole. When that goal is achieved you can activate a bonus, pay increase, or other compensation.

Some companies choose a combination of both team and individual metrics. That way, the pressure of individual performance isn’t too great. There’s still an opportunity to obtain increased compensation depending on team performance.

Cascading goals in PerformYard can help you track individual goals alongside company goals. Learn More

No matter what you choose, it’s important to outline exactly what each goal is and what is needed to obtain the raise. Not only does it give employees a clear goal to work towards, but it also means there are no surprises . They already know whether or not they met their goal before their next performance review.

4. Implement HR software to track compensation and performance

If you want to implement a high performance management system that’s tied to compensation, you have to have the right software.

Attempting to track data by hand is time-consuming and prone to mistakes. Performance management software is designed to track any data points you ask it to. A program like PerformYard enables you to monitor goals to see how employees are performing. It also gives you the chance to update goals when necessary.

PerformYard also integrates with your HRIS to track compensation details. This enables you to compare current compensation with performance. In turn, you can implement an effective compensation update schedule.

Performance management software also lets your employees log in and see performance data themselves. This enables complete transparency among employees and management.

5. Start with a small team and then consider expanding

If you like the idea of linking performance and compensation, don’t feel like you have to start with a company-wide rollout. Start small instead.

Start with one sales team, for example. Gather feedback from the team and observe how it impacts their productivity and attitude . You can also see how it affects your bottom line. This will help you work out the kinks in your compensation schedule before a potential widespread raise mistakenly puts you in the red .

Some positions aren’t directly tied to revenue, like marketing and strategy teams. It is especially important to start small while you work out which metrics paint a clear picture of performance. That will help you figure out what type of compensation increases are fair.

Once you feel confident with the process, you can expand the concept to other teams. Your eventual goal could be implementing a company-wide compensation schedule that work for every employee .

Should you tie compensation to performance?

The answer to this question is unique to every business. Can you accurately track important metrics? Can you create a fair compensation schedule? Can you keep the process as transparent as possible so employees know exactly what to expect? If so, linking performance with compensation management might be a great strategy.

What does performance compensation mean?

Performance compensation means tying performance and compensation management together. Performance influences compensation. For example, employees or teams that meet goals receive a raise or a bonus according to your compensation schedule.

What is the main purpose of performance management?

The purpose of performance management is to boost employee engagement and productivity. Good performance management encourages employees to work towards goals that are aligned with company objectives. A good plan provides them with support and opportunities for professional development. It also provides increased compensation when appropriate.

What is the main purpose of compensation management?

The main purpose of compensation management is to distribute pay or bonuses in exchange for work. It is determined by company policy and procedures. Compensation management also includes benefits, like insurance and retirement benefits.

The tools to streamline your performance management process.

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12.9 Performance Management and Compensation

Matching compensation with core values.

As you review the compensation package your company offers, one thing that stands out is that it no longer matches the core values of your organization. When your organization merged five years ago with a similar firm that specializes in online shoe retailing, your company had to hire hundreds of people to keep up with growth. As a result—and what happens with many companies—the compensation plans are not revised and revisited as often as they should be. The core values your company adopted from the merging company focused on customer service, freedom to work where employees felt they could be most productive, and continuing education of employees, whether or not the education was related to the organization. The compensation package, providing the basic salary, health benefits, and retirement plan, seems a bit old-fashioned for the type of company yours has become.

After reviewing your company’s strategic plan and your human resource management (HRM) strategic plan, you begin to develop a compensation strategy that includes salary, health benefits, and retirement plan.  You decide a good place to start would be with a better understanding of what is important to your employees. For example, you are considering implementing a team bonus program for high customer service ratings and coverage for alternative forms of medicine, such as acupuncture and massage. Instead of guessing what employees would like to see in their compensation packages, you decide to develop a compensation survey to assess what benefits are most important to your employees. As you begin this task, you know it will be a lot of work, but it’s important to the continued recruitment, retention, and motivation of your current employees.

So, what is compensation, and how is it determined?

Developing A Compensation Package

There are a few basic aspects of compensation packages we should discuss before moving into the specific aspects of compensation. These foundations can assist in the development of a compensation strategy that meets the goals of your organization and is in line with your strategic plan.

Before beginning to work on your compensation packages, some analysis should be done to determine your organization’s philosophy in regard to compensation. Before developing your compensation philosophies, there are some basic questions to address:

• From the employee’s perspective, what is a fair wage?
• Are wages too high to achieve financial health in your organization?
• Do managers and employees know and buy into your compensation philosophy?
• Does the pay scale reflect the importance of various job titles within the organization?
• Is your compensation competitive enough to attract and retain employees?
• Are you abiding by the laws with your compensation package?
• Is your compensation philosophy keeping in line with labour market changes, industry changes, and organizational changes?

Once these basic questions are addressed, we can see where we might have “holes” in our compensation package and begin to develop new philosophies in line with our strategic plan, which benefits the organization. Some possible compensation policies might include the following:

• Are salaries higher or lower depending on the location of the business? When looking at what to pay in a given country or area of a province different facets come into play…these could include cost of living in the area and fewer qualified people in a given area.
• Are salaries lower or higher than the average in your region or area? If the salary is lower, what other benefits will the employee receive to make up for this difference? For example, wages might not be as high, but offering flextime or free day care might offset the lower salary.
• Should there be a specific pay scale for each position in the organization, or should salaries be negotiated on an individual basis? If there is no set pay scale, how can you ensure individual salary offers are fair and nondiscriminatory?
• What balance of salary and other rewards, such as bonuses, should be part of your compensation package? For example, some organizations prefer to offer a lower salary, but through bonuses and profit-sharing, the employee has the potential to earn more.
• When giving raises, will the employee’s tenure be a factor, or will pay increases be merit-based only, or a combination of both?

Let’s discuss some pay policies that are used in determining compensation in more detail.

Compensation Policy

Some organizations choose a market compensation policy, market plus, or market minus philosophy. A market compensation policy is to pay the going rate for a particular job, within a particular market based on research and salary studies. The organization that uses a market plus philosophy will determine the going rate and add a percentage to that rate, such as 5 percent. So if a particular job category median pays $57,000, the organization with a market plus of 5 percent philosophy will pay $59,850. A market minus philosophy pays a particular percentage less than the market; so in our example, if a company pays 5 percent less, the same job would pay $54,150.

Market Plus Philosophy

An example of an organization with a market plus philosophy is Cisco Systems, listed as one of the top-paying companies on  Fortune ’s annual list. For example, they pay $131,716 for software engineers, while at Yahoo! software engineers are paid an average of $101,669, using a market philosophy.  The pay at Cisco reflects its compensation philosophy and objectives:

Cisco operates in the extremely competitive and rapidly changing high-technology industry. The Board’s Compensation Committee believes that the compensation programs for the executive officers should be designed to attract, motivate, and retain talented executives responsible for the success of Cisco and should be determined within a framework based on the achievement of designated financial targets, individual contribution, customer satisfaction, and financial performance relative to that of Cisco’s competitors. Within this overall philosophy, the Compensation Committee’s objectives are to do the following:

• Offer a total compensation program that is flexible and takes into consideration the compensation practices of a group of specifically identified peer companies and other selected companies with which Cisco competes for executive talent.
• Provide annual variable cash incentive awards that take into account Cisco’s overall financial performance in terms of designated corporate objectives, as well as individual contributions and a measure of customer satisfaction.
• Align the financial interests of executive officers with those of shareholders by providing appropriate long-term, equity-based incentives.

Market Minus Philosophy

Organizations that compensate staff based on a market minus philosophy pay lower than the average market rate. This can be particularly positive when it comes to the wages of upper management. Employees often resent the significant disparity in wages between themselves and the executive team.

There are many reasons why an organization would choose one philosophy over another. A market minus philosophy may tie into the company’s core values, as in Whole Foods, or it may be because the types of jobs require an unskilled workforce that may be easier and less expensive to replace. A company may use a market plus philosophy because the industry’s cutting-edge nature requires the best and the brightest.

Other internal pay factors might include the employer’s ability to pay, the type of industry, and the value of the employee and the particular job to the organization. In addition, the presence of a union can lead to mandated pay scales.

External pay factors can include the current economic state. Unemployment rates are a factor in this assessment. As a result of surplus workers, compensation may be reduced within organizations because of the oversupply of workers. Inflation and the cost of living in a given area can also determine compensation in a given market. Finally, government legislation such as the  Employment Standards Act  determines the minimum amount that can be paid to certain workers in Ontario.

Once an organization has looked at the internal and external forces affecting pay, it can begin to develop a pay system within the organization.

Goals of a Compensation Package

Most of us, no matter how much we like our jobs, would not do them without a compensation package. When we think of compensation, often we think of only our paycheck, but compensation in terms of HRM is much broader.

This is the concept of Total Compensation Package .  A compensation package can include pay, health-care benefits, and other benefits such as retirement plans, which will all be discussed in this chapter.

A compensation package should be positive enough to attract the best people for the job. An organization that does not pay as well as others within the same industry will likely not be able to attract the best candidates, resulting in poorer overall company performance.

Once the best employees and talent come to work for your organization, you want the compensation to be competitive enough to motivate people to stay with your organization. Although we know that compensation packages are not the only thing that motivates people, compensation is a key component.

Compensation can be used to improve morale, motivation, and satisfaction among employees. If employees are not satisfied, this can result not only in higher turnover but also in poor quality of work for those employees who do stay. A proper compensation plan can also increase loyalty in the organization.

Pay systems can also be used to reward individual or team performance and encourage employees to work at their own peak performance.

With an appropriate pay system, companies find that customer service is better because employees are happier. In addition, having fairly compensated, motivated employees not only adds to the bottom line of the organization but also facilitates organizational growth and expansion. Motivated employees can also save the company money indirectly, by not taking sick days when the employee is not really sick, and companies with good pay packages find fewer disability claims as well. Websites such as  Glassdoor  or  Indeed  give you easy access to salary information of companies.

So far, our focus on HRM has been a strategic focus, and the same should be true for the development of compensation packages. Before the package is developed for employees, it’s key to understand the role compensation plays in the bottom line of the organization. The next few sections will detail the aspects of creating the right compensation packages for your organization, including legal considerations.

Types of Pay Systems

Once you have determined your compensation strategy based on internal and external factors, you will need to evaluate jobs, develop a pay system, and consider pay theories when making decisions.

Job Evaluation Systems

As mentioned when we discussed internal and external factors, the value of the job is a major factor when determining pay. There are several ways to determine the value of a job through job evaluation. Job evaluation is defined as the process of determining the relative worth of jobs to determine pay structure. Job evaluation can help us determine if pay is equitable and fair among our employees. There are several ways to perform a job evaluation.

Job Ranking System

One of the simplest methods, used by smaller companies or within individual departments, is a job ranking system – to assist in attributing a pay grade to each job.

In this type of evaluation, job titles are listed and ranked in order of importance to the organization. A paired comparisoncan also occur, in which individual jobs are compared with every other job, based on a ranking system, and an overall score is given for each job, determining the highest-valued job to the lowest-valued job. For example, in the table below“Example of a Paired Comparison for a Job Evaluation”, four jobs are compared based on a ranking of 0, 1, or 2. Zero indicates the job is less important than the one being compared, 1 means the job is about the same, and 2 means the job is more important. When the scores are added up, it is a quick way to see which jobs are of more importance to the organization. Of course, any person creating these rankings should be familiar with the duties of all the jobs. While this method may provide reasonably good results because of its simplicity, it doesn’t compare differences between jobs, which may have received the same rank of importance.

Job Classification System

In a job classification system, every job is classified and grouped based on the knowledge and skills required for the job, years of experience, and amount of authority for that job.  Tied to each job are the basic function, characteristics, and typical work of that job classification, along with pay range data.

Point Factor System

Another type of job evaluation system is the point-factor system, which determines the value of a job by calculating the total points assigned to it. The points given to a specific job are called compensable factors. These can range from leadership ability to specific responsibilities and skills required for the job. Once the compensable factors are determined, each is given a weight compared to the importance of this skill or ability to the organization. When this system is applied to every job in the organization, expected compensable factors for each job are listed, along with corresponding points to determine which jobs have the most relative importance. Some organizations use a point-factor system. Examples of some compensable factors include the following:

• Supervision
• Psychological demands
• Interpersonal skills
• Internal and external contacts

Each of the compensable factors has a narrative that explains how points should be distributed for each factor. The points are then multiplied by the weight to give a final score on that compensable factor. After a score is developed for each, the employee is placed on the appropriate pay level for his or her score.

Another option for job evaluation is called the Hay profile method. This proprietary job evaluation method focuses on three factors called know-how, problem solving, and accountability. Within these factors are specific statements such as “procedural proficiency.” Each of these statements is given a point value in each category of know-how, problem solving, and accountability. Then job descriptions are reviewed and assigned a set of statements that most accurately reflect the job. The point values for each of the statements are added for each job description, providing a quantitative basis for job evaluation and eventually, compensation. An advantage of this method is its quantitative nature, but a disadvantage is the expense of performing an elaborate job evaluation.

Pay Systems

Once you have performed a job evaluation, you can move to the third step, which we call pay grading. This is the process of setting the pay scale for specific jobs or types of jobs.

The first method to pay grade is to develop a variety of pay grade levels .  Then once the levels are developed, each job is assigned a pay grade. When employees receive raises, their raises stay within the range of their individual pay grade, until they receive a promotion that may result in a higher pay grade. The advantage of this type of system is fairness. Everyone performing the same job is within a given range and there is little room for pay discrimination to occur. However, since the system is rigid, it may not be appropriate for some organizations in hiring the best people. Organizations that operate in several cities might use a pay grade scale, but they may add percentages based on where someone lives. For example, the cost of living in rural Ontario is much lower than in Toronto. If an organization has offices in both places, it may choose to add a percentage pay adjustment for people living within a geographic area—for example, 10 percent higher in Toronto.

One of the downsides to pay grading is the possible lack of motivation for employees to work harder. They know even if they perform tasks outside their job description, their pay level or pay grade will be the same. This can incubate a stagnant environment. Sometimes this system can also create too many levels of hierarchy. For large companies, this may work fine, but smaller, more agile organizations may use other methods to determine pay structure.

For example, some organizations have moved to a delayering and banding process, which cuts down the number of pay levels within the organization. General Electric delayered pay grades in the mid-1990s because it found that employees were less likely to take a reassignment that was at a lower pay grade, even though the assignment might have been a good development opportunity. [1] So, delayering enables a broader range of pay and more flexibility within each level. Sometimes this type of process also occurs when a company downsizes. Let’s assume a company with five hundred employees has traditionally used a pay grade model but decided to move to a more flexible model. Rather than have, thirty pay levels, it may reduce this to five or six levels, with greater salary differentials within the grades themselves. This allows organizations to better reward performance, while still having a basic model for hiring managers to follow.

Rather than use a pay grade scale, some organizations use a going rate model. In this model, analysis of the going rate for a particular job at a particular time is considered when creating the compensation package. This model can work well if market pressures or labour supply-and-demand pressures greatly impact your particular business. For example, if you need to attract the best project managers, but more are already employed (lack of supply)—and most companies are paying $75,000 for this position—you will likely need to pay the same or more, because of labour supply and demand.

Compensation Strategies

In addition to the pay level models we just looked at, other considerations might include the following:

• Skill-based pay.  With a skill-based pay system, salary levels are based on an employee’s skills, as opposed to job title. This method is implemented similarly to the pay grade model, but rather than job title, a set of skills is assigned a particular pay grade.
• Competency-based pay.  Rather than looking at specific skills, the competency-based approach looks at the employee’s traits or characteristics as opposed to a specific skill set. This model focuses more on what the employee can become as opposed to the skills he or she already has.
• Broadbanding. Broadbanding is similar to a pay grade system, except all jobs in a particular category are assigned a specific pay category. For example, everyone working in customer service, or all administrative assistants (regardless of department), are paid within the same general band. McDonald’s uses this compensation philosophy in their corporate offices, stating that it allows for flexibility in terms of pay, movement, and growth of employees. [2]
• Variable pay system.  This type of system provides employees with a pay basis but then links the attainment of certain goals or achievements directly to their pay. For example, a salesperson may receive a certain base pay but earn more if he or she meets the sales quota.

Pay Theories

Know your worth, and then ask for it by Casey Brown [8:12]

Now that we have discussed pay systems, it is important to look at some theories on pay that can be helpful to know when choosing the type of pay system your organization will use.

Employee Motivation: Equity Theory by Ben Baran [8:17]

The equity theory is concerned with the relational satisfaction employees get from pay and inputs they provide to the organization. It says that people will evaluate their own compensation by comparing their compensation to others’ compensation and their inputs to others’ inputs. In other words, people will look at their own compensation packages and at their own inputs (the work performed) and compare that with others. If they perceive this to be unfair, in that another person is paid more, but they believe that person is doing less work, motivational issues can occur. For example, people may reduce their own inputs and not work as hard. Employees may also decide to leave the organization as a result of the perceived inequity. In HR, this is an important theory to understand because even if someone is being paid fairly, they will always compare their own pay to that of others in the organization. The key here is perception, in that fairness is based entirely on what the employee sees, not what may be the actual reality. Even though HR or management may feel employees are being paid fairly, this may not be the employee’s belief. In HR, we need to look at two factors related to pay equity: external pay equity and internal pay equity. External pay equity refers to what other people in similar organizations are being paid for a similar job. Internal pay equity focuses on employees within the same organization. Within the same organization, employees may look at higher level jobs, lower level jobs, and years with the organization to make their decision on pay equity. Consider Walmart, for example. In 2010, Michael Duke, CEO of Walmart, earned roughly $35 million in salary and other compensation, [3] while employees earned the minimum wage or slightly higher in their respective states. While Walmart contends that its wages are competitive in local markets, the retail giant makes no apologies for the pay difference, citing the need for a specialized skill set to be able to be the CEO of a  Fortune  500 company. There are hundreds of articles addressing the issue of pay equity between upper level managers and employees of an organization. To make a compensation strategy work, the perceived inputs (the work) and outputs (the pay) need to match fairly.

The expectancy theory is another key theory in relation to pay. The expectancy theory says that employees will put in as much work as what they expect to receive in return for it. In other words, if the employee perceives they are going to be paid favourably, they will work to achieve the outcomes. If they believe the rewards do not equal the amount of effort, they may not work as hard.

The reinforcement theory, developed by Edward L. Thorndike, [4] says that if high performance is followed by some reward, that desired behaviour will likely occur in the future. Likewise, if high performance isn’t followed by a reward, it is less likely the high performance will occur in the future. Consider an extreme example of the reinforcement theory in the world of finance. On Wall Street, bonuses for traders and bankers are a major part of their salary. The average bonus in 2010 was $128,530, [5] which does not take into account specific commissions on trades, which can greatly increase total compensation. One interesting consideration is the ethical implications of certain pay structures, particularly commission and bonus plans. Traditionally, a bonus structure is designed to reward performance, rather than be a guaranteed part of the compensation plan. Bonus and commission plans should be utilized to drive the desired behaviour and act as a reward for the desired behaviour, as the reinforcement theory states.

All these theories provide us with information to make better decisions when developing our own pay systems. Other considerations are discussed next.

Pay Decision Considerations

Besides the motivational aspect of creating a pay structure, there are some other considerations. First, the size of the organization and the expected expansion of the organization will be a factor. For example, if you are the HR manager for a ten-person company, you likely use a going rate or management fit model. While this is appropriate for your company today, as your organization grows, it may be prudent to develop a more formal pay structure.

If your organization also operates overseas, a consideration is how domestic workers will be paid in comparison to the global market. One strategy is to develop a centralized compensation system, which would be one pay system for all employees, regardless of where they live. The downside to this is that the cost of living may be much less in some countries, making the centralized system possibly unfair to employees who live and work in more expensive countries. Another consideration is in what currency employees will be paid. Most US companies pay even their overseas workers in dollars, not in the local currency where the employee is working. Currency valuation fluctuations could cause challenges in this regard. [6]

How you communicate your pay system is extremely important to enhance the motivation that can be created by fair and equitable wages. In addition, where possible, asking for participation from your employees through the use of pay attitude surveys, for example, can create a transparent compensation process, resulting in higher performing employees.

Organizations should develop market pay surveys and review their wages constantly to ensure the organization is within expected ranges for the industry.

Why you should know how much your coworkers get paid by David Burkus [7:20]

Table 6.2 Types of Pay

Types of Pay

After a pay system has been developed, we can begin to look at specific methods of paying our employees. Remember that when we talk about compensation, we are referring to not only an actual paycheck but additional types of compensation, such as incentive plans that include bonuses and profit sharing. We can divide our total pay system into three categories: pay, incentives, and other types of compensation. Pay is the hourly, weekly, or monthly salary an employee earns. An incentive, often called a pay-for-performance incentive, is given for meeting certain performance standards, such as meeting sales targets. The advantage to incentive pay is that company goals can be linked directly to employee goals, resulting in higher pay for the employee and goal achievement by the organization. The following are desirable traits of incentive plans:

• Clearly communicated
• Attainable but challenging
• Easily understandable
• Tied to company goals

Laws Relating to Pay

As you have already guessed from our earlier chapter discussions, people cannot be discriminated against when it comes to the development of pay systems. One issue hotly debated is the issue of comparable worth. Comparable worth states that people should be given similar pay if they are performing the same type of job. Evidence over the years shows this isn’t the case, with women earning less than men in many industries. On average, a woman earns 79 cents for every $1.00 a man earns.

Remember that gender is one of the protected categories in the Canadian Human Rights Act and thus gender should not be a factor in pay determination.

Other Types of Compensation

As you already know, there is more to a compensation package than just pay. There are many other aspects to the creation of a good compensation package, including not only pay but incentive pay and other types of compensation.

Some of the benefits are mandatory , and they are provided by the employer due to the laws and the provincial regulations. These include Canada and Quebec pension plans, Employment Insurance, leaves without pay (Compassion leave or other) as well as those that are governed by the Employment Standards (ex. holidays). These can be seen by direct deductions on your paycheck. Every pay has a deduction that is taken for the pension plans and for employment insurance. These deductions are there to protect the employee in the future during retirement or any lost income due to  lose of job. By contributing to Employment Insurance if the employee would unfortunately lose their job, they would be entitled to unemployment benefits.

Other benefits are voluntary and are at the discretion of the employer. Many different benefits can be offered by the employer. The most common ones will be highlighted here. Most employers will offer health benefits, such as extended medical plans and dental coverage, with different providers such as SunLife or others. These can include private medical consultations, eye doctor examinations, private professional consultations, dental consultations and procedures etc.

In addition to the standard Quebec and Canada Pension Plans, some companies allow employees to contribute even further to their retirement plans. This can be done with a defined benefit or defined contribution plans, or Registered Retirement Savings Plans (RRSPs).  ( Employer-sponsored pension plans – Canada.ca ).

Depending on the company/industry, some paid time off provisions are legislated (e.g., ESA), while some employers may offer additional paid time off (e.g., personal days). This will vary from organization to organization, and the details will be highlighted in the company policy and procedures.

More and more employers are also offering employees wellness programs that include access to mental wellness and alternate programs such as gym memberships, yoga, Employee Assistance programs and so forth.

Furthermore, some also allow educational assistance programs where they will reimburse for courses taken.

Another key benefit that some employees look for and that may be supplied by the employer includes childcare services and elderly care.

The range of offers depends on the employer, their size, and their capability to offer the benefits.

One aspect to note is that once these benefits are offered, the employer should not remove them as this will cause employees to feel unmotivated.

A Final Note on Compensation and Benefits Strategy

When creating your compensation plan, of course the ability to recruit and retain should be an important factor. But also, consideration of your workforce needs is crucial to any successful compensation plan. The first step in development of a plan is to ask the employees what they care about. Some employees would rather receive more pay with fewer benefits or better benefits with fewer days off. Surveying the employees allows you, as a company, to better understand the needs of your specific workforce. Once you have developed your plan, understand that it may change to best meet the needs of your business as it changes over time.

Once the plan is developed, communicating the plan with your employees is also essential. Inform your employees via an HR blog, e-mails, and traditional methods such as face to face. Your employees might not always be aware of the cost of the benefits to the company, so making sure they know is your responsibility. For example, if you pay for 80 percent of the medical insurance premiums, let your employees know this. This type of communication can go a long way to allowing the employees to see their value within the organization.

“ Compensation ” in Human Resources Management – 2nd Ontario Edition by Elizabeth Cameron is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

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Human Resources for Operations Managers Copyright © 2022 by Connie Palmer is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

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Stakeholder management and its role on value creation in construction projects: A cross-case analysis

• Published: 12 March 2024

Cite this article

• Sulakshya Gaur 1 &
• Abhay Tawalare 1  

Efficient management of project stakeholders is important to improve the performance of construction project. This study, therefore, intends to map the role of the stakeholder management process on the value creation in the projects. Initially, a detailed literature review was undertaken that put forth certain performance attributes under seven value parameters in construction projects, i.e., cost optimization, time saving, quality improvement, performance improvement, operational efficiency, environmental benefits, and social incentives to cover both short-term and long-term performance attributes. Next, through a semi-structured interview on two metro-rail projects, 26 indicators were identified to evaluate the stakeholder management process. The cross-case analysis of the two case projects revealed the role of stakeholder management quantitative indicators (QIs) in fulfilling the project performance attribute, which aids the value of the project. The findings of this study serve two purposes. First, it provides a set of indicators to the planning managers which can be used to optimize and improve stakeholder management process. Second, the developed conceptual model shows the relation of specific QIs with the value parameters, allowing the managers to look into possible avenues to improve the overall project performance.

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The data that support the findings of this study are available on request from the corresponding author. The data are not publicly available as it contains information that could compromise the privacy of research participants.

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Sulakshya Gaur & Abhay Tawalare

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Gaur, S., Tawalare, A. Stakeholder management and its role on value creation in construction projects: A cross-case analysis. Asian J Civ Eng (2024). https://doi.org/10.1007/s42107-024-01009-9

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