Rethinking compensation in the new performance management paradigm
As organizations increasingly break free from the perceived tyranny of annual reviews and performance ratings, one of the biggest challenges they face is figuring out how to pay people for their accomplishments.
Research and our own experience in working with customers has shown that in many cases, organizations are not actually eliminating performance ratings. What they are actually doing is replacing annual reviews and ratings with continuous feedback and coaching, “potential” scores, and in some cases, “shadow” or “comp” rankings that employees aren’t aware of but factor into important decisions.
It is clear that as organizations begin to rethink how to measure and motivate employee performance, they must also rethink and potentially redesign how and where they do pay-for-performance.
According to Steve Hunt, Senior Vice President of Human Capital Management Research at SAP SuccessFactors, one option is to move completely away from a single performance score to using performance and potential rankings, especially for equity and bonuses. In this case, pay becomes not only a reward for past performance, but also an investment in an employee’s future contribution.
Leslie Apony, Global Director of Customer Adoption and Engagement Programs at SAP SuccessFactors, advocates for a pay for performance strategy directly linked to the achievement of agreed-upon goals, something she said up to 60 percent of companies have been doing.
Regardless of your organization’s approach to performance management and compensation, SAP SuccessFactors HCM Suite can play a critical role in enabling and supporting the processes you create. With unique and innovative capabilities such as Continuous Performance Management and Spot Awards, SAP SuccessFactors HCM Suite provides organizations with the opportunity to align pay-for-performance processes with evolving performance management practices.
Compensation will be just fine without performance ratings
At SAP SuccessFactors, we are committed to providing our customers with modern and innovative tools to enable HR professionals to champion change in their organizations. That’s why for organizations that are moving away from annual reviews and performance ratings in favor of other approaches, we have enhanced the compensation worksheet to include additional sources beyond the traditional performance ratings to drive compensation decisions.
For those customers who want to leverage ratings from other sources for salary and equity planning, they can now select one of 6 ratings from the Live Profile and Calibration to drive compensation worksheet guidelines. The six rating types supported include: performance, potential, competency, objective and 2 custom ratings.
Image 1: Setting the rating source for the compensation worksheet from the compensation plan setup in admin tools
This enhancement gives compensation planners the flexibility to plan compensation types on various target populations. For example, planners can use potential ratings from succession to do equity planning for high potentials.
Image 2: Using multiple ratings sources for compensation planning
With the Q4 2016 release, planners can now access the employee achievements list (as captured in Continuous Performance Management) directly from the compensation planning worksheet to help make objective, fair and accurate compensation decisions based on employee performance.
Image 3: Access the employee Achievements list from the compensation planning worksheet
With every release, we continue to innovate in our Compensation solution to ensure that organizations are better enabled to use compensation in strategic ways to attract, motivate and retain top talent.
To learn more about leveraging additional sources as the basis for making compensation-related decisions and all the other great features in the Q4 2016 release, check out the Q4 2016 Release Highlights blog and watch the release highlights video.
For more detailed information, please visit the SAP SuccessFactors Customer Community. (Login required)