Pay for Performance is Given a Poor Grade

Money on hand.

Money on hand.

Employers have long embraced the notion of paying for performance. But are these programs really making a difference? Are they really leading to better employee performance?

If we’re to believe the latest survey of 150 companies coming out of Willis Towers Watson, the impact these efforts are having on organizations leaves something to be desired.

According to the Arlington, Va.-based consultancy, the vast majority of North American employers say their pay-for-performance programs are falling short when it comes to driving individual performance.

Moreover, the survey finds that only one in five companies (20 percent) find merit pay to be effective at driving higher levels of individual performance at their organizations. Further, just under one-third (32 percent) report their merit-pay programs are effective at differentiating pay based on individual performance.

Nor are employers the only ones giving these programs low marks. Only about half of employees say these programs are effective at boosting individual performance levels; and even fewer (47 percent) believe annual incentives effectively differentiate pay based on how well employees perform.

Why the low marks?

Part of the reason is employers are either trapped in a business-as-usual approach or suffering from a me-too mentality when it comes to their programs, according to Laura Sejen, global practice leader for rewards at Willis Towers Watson.

Sejen elaborates …

“Pay-for-performance programs, when designed and implemented effectively, are great tools to drive performance, and recognize and reward employees. However, conventional thinking on pay for performance is no longer appropriate. Companies need to define what performance means for their organization[s] and how managers can ensure they are driving the right performance, and re-evaluate the objectives of their reward programs to ensure they are aligned with that definition.”

Nearly two-thirds (64 percent) of those surveyed say managers at their organization consider the knowledge and skills required in an employee’s current role when making merit-increase decisions, according to the study. That compares to fewer than half (46 percent) who say their programs are designed to take these performance indicators into consideration.

The Willis Towers Watson findings probably shouldn’t come as a huge surprise to those in HR, since they echo the findings of other studies we’ve reported on in the past.

Roughly a year ago, for instance, we reported on research by Organizational Capital Partners and the Investor Responsibility Research Center Institute that found 80 percent of S&P 1500 companies are not measuring the right metrics, over the right period of time, for performance-based executive compensation.

So what’s the key takeaway here? Well, if we’re to believe the research, it’s the fact that employers clearly have a lot more work to do when it comes to pay for performance—and no one knows this better than the companies themselves.

But, of course, knowing and doing something about it are two entirely different things.

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Bill Gates’ Ruthless Management Style of Yore

DAVOS/SWITZERLAND, 26JAN12 - William H. Gates III,  Co-Chair, Bill & Melinda Gates Foundation, USA captured during the session 'Global Economic Crisis: Role and Challenges of the G20' at the Annual Meeting 2012 of the World Economic Forum at the congress centre in Davos, Switzerland, January 26, 2012. Photo by Sebastian Derungs

Bill Gates at the Annual Meeting of the World Economic Forum in Davos, Switzerland, January 26, 2012. Photo by Sebastian Derungs

These days Bill Gates is known primarily as the benevolent overseer of the Bill and Melinda Gates Foundation, the philanthropic vehicle through which the world’s richest man (estimated net worth: $56 billion) tackles poverty and disease and seeks to improve education. But back in the early days of Microsoft, Gates was known as a fearsome manager.

“I worked weekends, I didn’t really believe in vacations,” Gates recently told an interviewer for the BBC’s Desert Island Discs program, in which celebrities disclose which music and books they’d take with them to a desert island. This work-all-the-time mindset was applied to his employees, too: “I knew everybody’s license plate so I could look out at the parking lot and see, you know, when people come in.”

Peter Holley, a writer for the Washington Post, recently compiled some anecdotes about Gates’ old management style from people who worked with him. The stories suggest a man for whom work/life balance wasn’t just an afterthought, but a  totally alien concept. This is in stark contrast, of course, to the professed mindset of so many of today’s New Economy companies that are offering unlimited paid family leave, for example.

He cites Microsoft co-founder Paul Allen, who wrote a piece for Vanity Fair a few years ago about how Gates would “prowl” the parking lots on weekends to see who had come in to work. One employee put in 81 hours in one week finishing a project, only to be asked by Gates “What are you working on tomorrow?” When the employee replied that he was planning on taking the day off, Gates asked “Why would you want to do that?”

“He genuinely couldn’t understand it; he never seemed to need to recharge,” Allen writes.

Gates also had a harsh leadership style that included the frequent deployment of f-bombs, with one of his favorite sayings being “That’s the stupidest f—- thing I’ve ever heard!” writes Allen.

These days people with a management style like Gates’ are condemned as “toxic bosses.” But the sentiment is hardly universal. Holley notes that the authors of the book Primal Leadership described Gates’ style in a Harvard Business Review essay as “harsh” and yet, “Gates is the achievement-driven leader par excellence, in an organization that has cherry-picked highly talented and motivated people. His apparently harsh leadership style — baldly challenging employees to surpass their past performance — can be quite effective when employees are competent, motivated and need little direction — all characteristics of Microsoft’s engineers.”

Of course, Steve Jobs was another tech titan with a famously acerbic management style, one that reportedly left many people in tears (interestingly enough, Jobs himself also cried frequently, according to Walter Issacson’s biography Steve Jobs). Gates and Jobs are visionaries, the type who attract people willing to forgo things like having family time, or being treated with some semblance of respect, in the furtherance of building a company or product they believe will change the world (the promise of hefty stock options no doubt can make it a little more bearable, too). But visionaries don’t have to be nasty in order to get people to accomplish great things — and even Gates himself has acknowledged he’s changed and mellowed a lot in the intervening years. With the rise of social media, I would suspect it’s a bit harder to get away with a management style like that today and still be able to attract great candidates.

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The Ramifications of Stacked Rankings

It’s fair to say that employee-ranking systems are controversial and pretty unpopular. But illegal?

A former Yahoo! Inc. employee contends the Sunnyvale, Calif.-based technology company’s quarterly performance reviews violate state and federal laws, and claims as much in a lawsuit filed Monday in San Jose, Calif.

The reviews, which rate every Yahoo! employee on a scale of 1 to 5, have been one of Marissa Mayer’s “signature policies” since taking over as CEO in 2012, according to the New York Times.

Earlier this week, the Times summed up the suit filed by Gregory Anderson, in which he challenges Yahoo!’s performance review system as “discriminatory and a violation of federal and California laws governing mass layoffs,” according to the paper.

Anderson, an editor who supervised a handful of Yahoo! sites before his November 2014 firing, charges that the company’s senior managers “routinely manipulated the rating system to fire hundreds of people without just cause to achieve the company’s financial goals,” notes the Times.

Such cuts, Anderson claims, amounted to “illegal mass layoffs.”

As the paper points out, California law mandates that employers making layoffs that involve more than 50 employees, and take place within 30 days at a single location, must provide workers 60 days advance notice. On the federal level, the Worker Adjustment and Retraining Notification Act obliges employers to offer advance notice for a layoff of 500 or more employees.

According to the Times, Yahoo! never provided such notices when it let go of 1,100 employees between late 2014 and early 2015, “ostensibly for performance reasons.” The company is now faced with the prospect of paying each affected employee $500 a day in addition to back pay and benefits for each day of advance notice it failed to provide, the Times reports.

For its part, Yahoo! maintains that its rating system is sound. In a statement, the company says its performance review process “also allows for high performers to engage in increasingly larger opportunities at our company, as well as for low performers to be transitioned out.” In regard to Anderson’s legal complaint, the company says his specific allegations are groundless, and claims that Anderson unsuccessfully sought a $5 million settlement before filing the suit.

It could be a while before this case winds its way through the legal system. And we’ll certainly be following it here. (In fact, come back to HREOnline early next week for a more in-depth analysis of Anderson’s claims, including some expert insight into the nuances of the lawsuit and its chances of succeeding.)

In the meantime, the stacked rankings that have been a hallmark of Mayer’s tenure at Yahoo! will likely remain a polarizing concept. Although the stacked ranking system has never had a shortage of detractors, a claim that such rankings are actually illegal seems unique. It will be interesting to see how this one plays out.

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Getting Agile in an On-Demand World

It’s not often you read a Harvard Business Review article and stumble across a quote from a famous Hollywood actor within the text, but this is the Internet, after all…

Perhaps some context is in order:

The aforementioned article — “Managing On-Demand Talent” — was written by John Younger and Norm Smallwood and focuses on companies that are experimenting with new ways of filling critical skill gaps while staying lean. It’s a phenomenon they call “agile talent.” (Coincidentally, it’s also the name of their new book.)

In researching their book, they found that over half executives report increasing their use of outside expertise and sourcing talent from the cloud:

While cost is clearly a consideration, managers describe the primary benefits of agile talent as increasing flexibility, speed, and innovation. In short: it’s better, not cheaper.

It is the job of middle managers to roll out effective implementation of any agile talent program, the authors say, and to that end, they have uncovered seven things managers do that set up their external experts for success.

The first thing, “building a talent network,” is where we have our in-print celebrity encounter:

The actor Rob Lowe once said it straight: “Ninety percent of moviemaking is casting.” Mid-level managers depending on Procurement or Human Resources to find agile talent are behind the curve; smart middle managers tend to their network as a means of ensuring the right agile talent — with the right technical skill and way of working — is hired.

The other six “things” are well worth the time to read for yourself. But read quickly, because, as the authors note:

While the transformation of today’s workforce to a mostly agile one will take time, many more organizations are ramping up their use of “expertise on tap” in order to acquire and master the capabilities they need to perform and grow.

 

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Xerox’s Move to Split Into Two

The spin-offs keep spinning.

Friday’s announcement by Xerox that it will separate into two entities caps a lot of spin-off activity of late. This latest, as announced here on USA Today‘s website, will 504855042--splitseparate the office-equipment giant into two companies, an $11-billion document-technology company and a $7 billion business-services company.

The company says the transaction into two independent publicly-traded companies is expected to be completed by the end of the year.

These “significant actions … define the next chapter of our company,” Chairman and CEO Ursula Burns told the paper in a conference call Friday morning.

This certainly underscores the spin-off mania that Will Bunch’s September cover story in HRE, “Split Decision,” alluded to. His focus, of course, was on the impact these mega-transactions are having on human resource departments and their leaders. As his piece puts it:

“Most of the headlines over the big, high-profile spin-offs — the Hewlett-Packard split, eBay and PayPal, General Electric and its credit-card unit Synchrony Financial, Time-Warner and its publishing unit Time, Sears and Land’s End — have focused on what the moves could mean for investors. But when they say — as in the words of the old Neil Sedaka song — that “breaking up is hard to do,” in the business world they’re probably talking about the HR department.

“Indeed, much of the heavy lifting for these spin-offs — deciding who stays with the old company and who goes, filling vacancies and new positions, making critical decisions about pay and benefits, and fostering employee enthusiasm and answering anxious questions while developing a new, unique culture at the spin-off — falls upon HR executives.”

Although early reports don’t include specifics about the impact this division will have on Xerox’s HR function — now functions, no doubt — Burns did tell the paper that the two post-split companies will be “more flexible, more responsive and essentially more fit and focused for the market that we are attacking.”

The report also notes Xerox’s 140,000 employees worldwide will be divided up thusly: About 104,000 will be part of the business-services outsourcing company and the other 40,000 will make up the document-technology company.

It will be interesting to see how this latest in the spin-off string plays out, especially as it relates to HR. As Bunch notes in his story:

“HR executives who’ve worked through the spin-off process say the biggest personnel changes don’t usually affect the operating infrastructure of two companies — manufacturing and sales, for example — because those functions tend to stay largely intact. It’s a different story, they say, with shared services and in the corporate offices.”

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EEOC Wants Pay Data From Employers

Under a new proposal from the Equal Employment Opportunity Commission, all employers with more than 100 workers will be required to furnish pay data to the federal government as part of their Employer Information Report (EEO-1), beginning with the September 2017 report. The objective, says the EEOC, is to make it easier for the government to spot potential cases of pay discrimination and to assist employers in promoting equal pay in their workplaces.

The proposal will be announced today in conjunction with a White House ceremony commemorating the seventh anniversary of the Lily Ledbetter Fair Pay Act.

“More than 50 years after pay discrimination became illegal it remains a persistent problem for too many Americans,” said EEOC Chair Jenny R. Yang in a statement. “Collecting pay data is a significant step forward in addressing discriminatory pay practices.”

“We can’t know what we don’t know,” said Secretary of Labor Thomas E. Perez. “We can’t deliver on the promise of equal pay unless we have the best, most comprehensive information about what people earn.”

The collected pay data will help employers evaluate their own pay practices to prevent pay discrimination in their workplaces while giving the Labor Dept. “a more powerful tool” to do its enforcement work, said Perez.

The EEOC proposal is in response to a task force set up by President Obama, which recommended new data-collection requirements to combat pay discrimination in the workplace.

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A Word of Caution This Election Year

In case you didn’t notice, the 2016 presidential election season officially kicks off next Tuesday, when Iowa caucus-goers cast their votes for their favorite Democrat or Republican.

ThinkstockPhotos-476244660At this point, it’s anyone’s guess who will eventually win their party’s nominations. But this much is for sure: Contentious debate about the upcoming election around the workplace watercooler (and a host of issues associated with it) is only going to intensify in the coming months.

If the back-and-forth on social media today is any indication, HR leaders will want to brace for the worse. (In today’s environment, that means civil political discussions among employees escalating into heated discussions about issues involving race and religion.) But as Cozen O’Connor attorney Michael C. Schmidt recently reminded me, employers need to be careful not to overreact when things seem to be getting out of hand.

Just as employers have the right to ensure that the workplace is safe and productive, Schmidt said, employees similarly have certain rights that need to be appropriately balanced.

Schmidt, vice chair of Cozen O’Connor’s Labor and Employment Department, points out that “many states have some form of a ‘legal activities law,’ which prohibits employers from taking adverse action against an employee because he or she engages in certain types of political-related activities off premises and outside of working time.”

At the same time, he said, employers need to be “mindful of not imposing the company’s particular political views (and, especially, those of the company’s principals) on employees, and suggesting any link—positive or negative—between an employee’s expressed political views and compensation.”

Schmidt added that HR professionals need to “communicate to all employees that company policies prohibiting discrimination, harassment and violence in the workplace also extend to political discussion in the workplace.”

The bottom line: Employers would be well advised to tread carefully as they navigate what’s increasingly looking like one of the more volatile election seasons in recent memories.

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What’s Digital Media Doing For Your Workforce?

I’m going to go far out on a limb and say that digital media has drastically changed the way we work.

The ways in which technology has transformed and benefitted the workforce are too many to mention here, and are fairly self-evident anyway.

Participants in a recent Willis Towers Watson and World Economic Forum study acknowledge as much.

In Shaping the Future Implications of Digital Media for Society, the organizations polled more than 5,000 employers and individuals between the ages of 18 and 69. Overall, 56 percent of these respondents said that digital media has indeed altered the way they work.

At least to me, the only somewhat surprising thing about that figure is that it’s not higher. Really, whose job hasn’t been affected in some way by digital media?

In my mind, the more interesting finding from this study was how individuals’ view of digital media’s impact on their jobs varied greatly based on where they live.

For example, roughly two-thirds of respondents in Brazil and China said they think digital media has improved the quality of their professional lives. Just over half of the participants from South Africa (52 percent) felt the same way, while just 24 percent of those from Germany and 23 percent of respondents from the United States reported feeling that digital media has enriched them in a professional sense.

(About 1,000 digital media users from each of these five markets were polled, according to the report.)

A Willis Towers Watson summary of the findings doesn’t delve into why these U.S. and German respondents may feel this way. But Ravin Jesuthasan, a managing director of the organization’s talent management practice and co-author of the study, offers some insight into how technology may actually be limiting some workers’ opportunities, particularly those in low-skill positions.

“Despite the productivity gains and opportunities of digital media to actually bridge economic gaps and reduce inequality, potential downsides still exist,” says Jesuthasan.

For example, he says, digital media and related technology may drive near-term inequality as innovations such as talent platforms “increase the productivity and rewards of highly skilled workers while simultaneously cutting the cost of low-skilled work.”

In addition, digital media “has the potential to diminish work effectiveness and productivity,” continues Jesuthasan.

The multiple platforms and vast qualities of information and content at employees’ disposal “may distract workers and disrupt work,” he says. “In addition, as more people work remotely, valuable face-to-face time is reduced, which can weaken understanding and collaboration, and potentially hinder innovation.”

Considering that digital media’s role in the workplace is only going to expand—seven out of 10 respondents agree on this point—Jesuthasan urges employers to consider initiatives using technology to “more accurately match an individual’s skills to a specific business need.”

Rather than thinking solely in terms of “traditional jobs,” he says, companies should take a “more nuanced approach to how work should be conducted; using social media tools to build communication and engagement within the organization; sourcing and building digital skills; and developing digital leadership.”

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Change Brings Unclear Expectations

When it comes to change in the workplace, employees aren’t as worried about workload as one might think, according to a new  poll from ComPsych Corp.

It finds 31 percent of more than 2,000 surveyed employees are most troubled by unclear expectations from supervisors, while 20 percent are most worried about people issues around change.

“Change has become a constant for many workplaces, whether in the U.S. or globally,” said Dr. Richard A. Chaifetz, Founder, Chairman and CEO of ComPsych. ”Employees are telling us that much of the disequilibrium around change is coming from managers. These challenges have resulted in our training topics of ‘resiliency’ and ‘coping with change’ being by far the most popular,” he added.

When you experience change at work, what is most stressful for you?

31 percent said “unclear expectations from supervisors”

20 percent said “confusion / conflict between coworkers / departments”

18 percent said “belief that workload will increase or become more difficult”

15 percent said “uncertainty about future / questions about stability of company”

13 percent said “new processes / operating rules / skills needed”

3 percent said “other”

It’s interesting to note that employees cite their managers as the primary source of disequilibrium, which makes me think there is an opportunity for HR here to better train managers to be clear with their expectations of their workers.

As for the 20 percent who are most concerned about the
“people issues around change,” it seems that communication efforts could be well-utilized to allay such workers’ concerns about their roles in a changing workplace landscape.

And, while wonky words such as disequilibrium and resiliency may not have been in the workplace lexicon for very long, as the pace of business continues to accelerate, it seems certain that we will be seeing much more of them in the future. I suggest you start building up your resiliency to them now.

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CEO Turnover vs. CEO Tenure: Two Takes

Interesting, somewhat divergent reports on CEO longevity appeared recently from some big-name research consultancies. 178083845--CEOsuccessionOne, a study from Equilar compiled for CNNMoney, shows tenure for S&P 500 CEOs has increased nearly a full year since 2005. As the CNN report states,

A decade ago, CEOs typically spent five years at the helm of one of America’s top 500 publicly traded companies. It might seem like a small increase, but it’s a notable shift from the Great Recession and financial crisis when a lot of executives got fired. Those who survived — or came on board in the new wave — are keeping their posts.

In fact, more specifically, according to Equilar’s report on the study it performed, “in 2014, the average S&P 500 CEO had served an average of 7.4 years, and 6.0 at the median. Ten years ago, those figures were 6.6 and 5.2, respectively.”

Equilar claims there’s “one simple explanation” for the rising average: a collection of long-standing CEOs at the top of the list, people like Berkshire Hathaway’s Warren Buffett, who’s held his post for 45 years, and L Brands’ Leslie Wexner, who sits at the top of the list with 52 years at his company. As soon as these top guns start to retire, you’ll see the average tenures start to fall, says Equilar.

But for now, they’re a full year higher than they were a decade ago.

Juxtapose that with the latest report from Challenger Gray & Christmas, as reported in the Center Valley Business Times — showing a jump in CEO departures toward the end of 2015. Specifically, December CEO exits were 33 percent higher than the 86 changes in November and 7 percent higher than the 107 CEO departures in December 2014.

(Despite the December surge, though, the yearly total of 1,221 CEO departures in 2015 was 9 percent lower than the 1,341 departures in 2014, according to the Challenger report.)

So are CEOs staying or going? Hard to say.

But whatever the numbers tell us, this post can also serve as a reminder that it’s never too early to put your best foot forward in devising the best CEO-succession plan for your organization. This post by me almost two years ago suggested then there was still much improvement needed in this area. (That March 2014 post also shows a decline in CEO turnover at the start of that year.)

At least we can say, with CEO turnover holding fairly steady and tenure on the rise, there’s some time, at least, to get succession at the top post right.

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