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Performance Based Compensation Study

Performance Based Compensation Study. p resented by Santa Clara County Leadership Academy 2013 Mainini Cabuto Frank Comin Katie DuPraw Michael Jurich Marie Notari Maria Oberg. Performance Based Compensation – Project Background. Team Project Sponsored by:

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Performance Based Compensation Study

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  1. Performance Based Compensation Study presented by Santa Clara County Leadership Academy 2013 Mainini Cabuto Frank Comin Katie DuPraw Michael Jurich Marie Notari Maria Oberg

  2. Performance Based Compensation – Project Background Team Project Sponsored by: • Ed Shikada, San Jose Assistant City Manager • Beau Goldie, SCVWD Chief Executive Officer Project Description: • Evaluate opportunities for performance-based compensation programs among public agencies in Santa Clara County. • Begin with an assessment of current practices within the County and beyond and evaluate notable program elements and opportunities for sharing among agencies.

  3. Performance Based Compensation • Pay-for-performance: • emphasize performance as the deciding factor in defining pay increases • no guarantee that employees will receive a pay raise • permit companies to compensate top performers well above average and to provide cost-of-living adjustments or no increase at all for below average performers.

  4. Performance Based Compensation – Methodologies • Literature Review • Pros • Statistically - most effective method for motivation • Promotes healthy competition • Compensates high achievers and aides in retention • Cons • May cause conflict among employees • May lead to team disintegration • May be challenging to adequately distribute merit pools

  5. Performance Based Compensation – Literature Review • Elements of Success • Culture • Rigorous evaluation system • Effective and fair supervisors • Training • Funding • System of checks and balances • Ongoing system evaluation

  6. Performance Based Compensation – Literature Review • PayScale 2013 Compensation Best Practices Survey • Performance was the #1 reason for pay increases • 56% of respondents reported performance based pay increases as the sole reason for pay increase • 60% said employee retention was a top concern

  7. Performance Compensation – Literature Review • Kelly Global Workforce Index • 51% of respondents say that performance based pay would motivate them • Largest concentration of workers receiving performance based pay • Northern New Jersey and Memphis, TN – 33% • Portland, OR – 32% • Tampa, New York City, and Raleigh Durham NC – 31% • Industries with highest rate of performance based pay • Financial services • Travel and leisure • Retail • Business services

  8. Performance Compensation – Literature Review Survey • 17 local public agencies. • 4 private local companies. • Received a total of 13 surveys, 12 of which were from public agencies. • The survey from the private firm was incomplete.

  9. Local Perspectives San Jose • Performance based pay is currently utilized with the City of San Jose’s Management Performance Program staff. Involving line staff has not gained any traction but the City is continuing to explore the opportunities. Sunnyvale • Limited to merit raises based on scheduled performance reviews and raises only provided to employees who have yet to reach their highest salary allowed for their position. Merit raises cease once the highest salary is reached. • Once had a robust "pay for performance" plan that applied to managers only, allowing exemplary performers to earn up to 20% over their "control point". The Program was eliminated for many reasons, including disenchantment on the part of managers.

  10. Expert perspectives Jeffrey Pfeffer • “If the senior managers at a company really want to improve performance, tinkering with the pay system isn’t the way to go about it… Addressing the underlying culture and quality of management is.” Daniel Pink • “It’s not all about the money. Scientific research shows that people are motivated by autonomy, mastery and purpose.” Tom McMullen • “When an employee’s extra efforts are not reflected in rewards and recognition, it erodes performance and commitment to the organization.”

  11. Conclusions Survey indicates that very few local agencies currently use performance-based compensation. Literature review suggests that, to be successful, performance-based compensation requires • Clearly defined and job-specific appraisal measures • Well-conducted performance appraisal interview process • Equitable decisions regarding merit increases for different levels of performance Each organization must determine for itself, given its unique circumstances, whether performance based-compensation is appropriate.

  12. Questions?

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