Employee Differentiation in Successful Rewards Management

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Marcus Evans Employee Loyalty & Engagement Conference, Jakarta * How to differentiate employees through compensation and benefits * Managing performance through compensation & benefits * Employee differentiation through relative performance and talent management * Maintaining consistency with corporate values

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EMPLOYEE DIFFERENTIATION IN SUCCESSFUL REWARDS MANAGEMENTCase Study, Concepts and Debatable Ideas

Kenny OngCNI Holdings Berhad

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Background & Philosophy

The anchor for all decisions

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About: CNI

1. 19 years old

2. Core Business: MLM

3. Others: Contract Manufacturing, Export/Trading, eCommerce, F&B Cafés

4. Malaysia, Singapore, Brunei, Indonesia, India, China, Hong Kong, Philippines, Italy, Taiwan, Oman, United States

5. Staff force: ± 500

6. Distributors: 200,000

7. Products: Consumer Goods and Services

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Intro: CNI

CNI’s Business Model background

Factory CNIE

DC

SPLeadersCustomers

R&D

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Background: The Four Desperates

1. Desperate Competition

2. Desperate Consumer

3. Desperate Achievers

4. Desperate Changes

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A. Background & Philosophy

Principles HR Philosophy

1.Equal / Fair

2.Happy / Productive

3.Hire Low, Train High

4.Performance vs Potential

5.Retention / Engagement

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Targeting: Identify and Attract

• Who are your Talents?

: A Talent for others does not mean a Talent for you

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CNI’s Talent Profile

• Unwanted by big MNCs• Small companies• Boring Environment• No Growth/Learning• No MBA• Passion, Values, IQ (streetsmart)• Appreciate Chaos• Multitask• Passion to Learn

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Targeting: Identify and Attract

Group I

(Talent Pool)

23

45

PE

RF

OR

MA

NC

E

2 3 4 5

POTENTIAL• Identify

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Targeting: Identify and Attract

Group I

(Talent Pool)

Group II

( Potential)

Group III

( Performance)

Group IV

(Counseling)

2 3 4 5

23

45

PE

RF

OR

MA

NC

E

POTENTIAL• Identify

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**Additional Categories

Definition of ‘Premium’ staff

1. Specially selected from the TP.

2. They have in addition, the following attributes:

a. High-profile in the field or industry

b. Loyalty proven

c. Proven high work-rate and great attitude

d. Undeniable contribution and efforts

e. Highly looked upon and respected by most staff

f. Ability to multi-task and assist in various areas

g. Key people in CNI’s Succession Plans

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**Additional Categories

Definition of ‘Specialist’ Staff

1. Has competencies (skills & knowledge) in a particular professional field of work.

2. A staff is deemed to be a Specialist when all the following occurs:

a. The particular Competency (Skills or Knowledge or both) is highly required by CNI

b. Supply for the competency in the market is low but demand is high

c. The competency is difficult to learn, transfer and/or duplicate

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Targeting: Identify and Attract

Retention

Experience Swing Ex

Oppose

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Retention 1: Experience

Loyalty = Experience vs. Expectations

Solution Strategy: Talent Management Plan

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Loyalty 1: Experience

• Talent Management Plan

PhilosophyOJT, Mentoring, Big-5, LP, PDP, SDP, Projects,

P/P Grid, SP Table, PDP, Premium,

Q12, C&B, ACDP, SCL, Transfers, Events, Recognition

P/P Grid, Q12, PA, SDP, SP

Development

Motivation

Selection

Evaluation

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Loyalty 2: Swing

Loyalty = Best alternative at the current moment until I find another alternative

Solution Strategy: Improve your Talent Management Plan, Try Your Best, or Live with It

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Loyalty 2: Swing

Swing Talents are “loyal” because:• Individual Relationships• Convenience (at that point in time)• Contractually tied-up• Direct Incentives*• No better alternative• Subordinates• No known alternative• CV friendly

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Dangers of Direct Incentives

1. lessen internal motivation, 2. switch to mercenary mode, 3. do something and do not do something else, 4. bribe and fraud culture, 5. easier for competitors to recruit, 6. lessen teamwork & helpful culture, 7. less and less impact for same value, 8. mockery of base salary and employment

contract, 9. rebellion from non-incentivised staff, 10.end up incentivising everyone for everything?,

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What drives Reward?

The driving force behind compensation and benefits strategies

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What drives our Reward?

Compensation & Benefits

ValuesStrategy

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Alignment & Consistency

• Mamak stall

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Alignment & Consistency

"They are the most innovative"

"Constantly renewing and creative"

"Always on the leading edge"

"A great deal!"

Excellent/attractive price

Minimal acquisition cost and hassle

Lowest overall cost of ownership

"A no-hassles firm"

Convenience and speed

Reliable product and service

"Exactly what I need"

Customized products

Personalized communications

"They're very responsive"

Preferential service and flexibility

Recommends what I need

"I'm very loyal to them"

Helps us to be a success

Product Leadership

OperationalExcellence

CustomerIntimacy

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Operational Excellence(low cost producer)

Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995

Product Leadership(best product)

Customer Intimacy(best total solution)

Alignment & Consistency: Market Disciplines

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The McPlaybook*

Make it easy to eat• 50% drive-thru• Meals held in one

hand

Make it easy to prepare• High Turnover• Tasks simple to learn

& repeat

Make it quick• “Fast Food”• Tests new products

for Cooking Times

Make what customers want• Prowls market for new

products• Monitored field tests

*Adapted from: Businessweek , Februrary 5th 2007

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Operational Excellence

• Competitive price

• Error free, reliable

• Fast (on demand)

• Simple

• Responsive

• Consistent information for all

• Transactional

• 'Once and Done'

Operational Excellence

• Competitive price

• Error free, reliable

• Fast (on demand)

• Simple

• Responsive

• Consistent information for all

• Transactional

• 'Once and Done'

Customer Intimacy

• Management by Fact

• Easy to do business with

• Have it your way (customization)

• Market segments of one

• Proactive, flexible

• Relationship and consultative selling

• Cross selling

Customer Intimacy

• Management by Fact

• Easy to do business with

• Have it your way (customization)

• Market segments of one

• Proactive, flexible

• Relationship and consultative selling

• Cross selling

Product Leadership

• New, state of the art products or services

• Risk takers

• Meet volatile customer needs

• Fast concept-to- counter

• Never satisfied - obsolete own and competitors' products

• Learning organization

Product Leadership

• New, state of the art products or services

• Risk takers

• Meet volatile customer needs

• Fast concept-to- counter

• Never satisfied - obsolete own and competitors' products

• Learning organization

Alignment & Consistency: Disciplines, Priorities, and KPIs

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• Operational Excellence• Move know-how from top performing

units to others• Benchmark against best in class• Ensure operations training for all

employees• Use disciplines like TQM for continuous

learning to reduce costs and improve quality

Alignment & Consistency: Market Disciplines

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Alignment & Consistency: Market Disciplines

• Customer Intimacy• Capture knowledge about customers• Understand customer needs• Empower front line employees• Ensure that everyone knows the

customer• Make company knowledge available to

customers

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• Product Leadership• Reduce time to market• Commercialize new products fast• Ensure that ideas flow• Reuse what other parts of the company

have already learned• Ensure there are multiple sources of

funding

Alignment & Consistency: Market Disciplines

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Operational Excellence(low cost producer)

Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995

Product Leadership(best product)

Customer Intimacy(best total solution)

Alignment & Consistency: Market Disciplines

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Operational Excellence(low cost producer)

Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995

Product Leadership(best product)

Customer Intimacy(best total solution)

Alignment & Consistency: Market Disciplines

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Values Driven C&B

1. Performance

2. Differentiation

3. Teamwork

4. Caring

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Managing Performance through C&B

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Values Driven C&B

1. Performance

2. Differentiation

3. Teamwork

4. Caring

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What is Performance Measurement used for?

Reward?

Discipline?

Development?

Motivation?

Promotion?

Monitor?

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Behavior-based

Knowledge/Skill based

Results-based

Trait-based

Which system should we use?

Managing Performance = Managing Expectations

What’s YOUR expectation?

Activity based

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Dangers of Best Practice and Benchmarking…

“Abraham Wald’s Work on Aircraft Survivability”, M. Mangel and F.J. Samaniego

Where would you focus reinforcement?

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Dangers of Best Practice and Benchmarking…

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Company Performance

high

low

‘Best Practice’ theories

low high

zero Performance

Trend line

“Selection Bias and the Perils of Benchmarking”, Jerker Denrell, Harvard Business Review 2005

Dangers of Best Practice and Benchmarking…

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Company Performance

high

low

‘Best Practice’ theories

low high

zero Performance

Trend line

“Selection Bias and the Perils of Benchmarking”, Jerker Denrell, Harvard Business Review 2005

How about Competencies?

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Success

high

low

‘Superior’ Competencies

low high

zero Performance

Trend line

“Selection Bias and the Perils of Benchmarking”, Jerker Denrell, Harvard Business Review 2005

Dangers of Best Practice and Benchmarking…

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Success

high

low

‘Superior’ Competencies

low high

zero Performance

Trend line

“Selection Bias and the Perils of Benchmarking”, Jerker Denrell, Harvard Business Review 2005

Dangers of Best Practice and Benchmarking…

Selection Bias:

1. Success Traits = Failure Traits

2. Successful Cases + Failure Cases

3. Worst effects in ‘Old’ industries

4. Overvalue ‘best practice’ theories

5. Current accomplishments unfairly magnified by past achievements

6. Reverse Causal

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Dangers of Best Practice and Benchmarking…

Also known as ‘Beware of Consultants’:

1. Selection Bias

2. Big vs. Small company

3. Selective success stories

4. Correlation vs. Causal

5. Survey problems

6. Practical vs. Glamour-to-have

7. Leaders who benchmark

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Survey Problems…

“In business after business, 60% to 80% of lost customers reported on a survey just prior to defecting that they were satisfied or very satisfied.”

HBR March/April 1996

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Incentive Problems

Problem with C&B in managing performance:• Most people are confused or unsure about

compensation tools• Some people misuse compensation tools

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What to Pay?

“Performance” is a very subjective word:

• Pay for Service

• Pay for Job

• Pay for Competency

• Pay for Performance

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•Competency- Knowledge

- Skills - Experience

•Problem solving - Complex

- Type of problems - Special Problems

•Responsibility - Authority

- Success/Failure - Freedom to act

Pay for Job

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Performance and Incentives

1. Internal Equity1. Internal Job Rates

2. Performance differentials

2. External Competitiveness1. External Job Rates - Benchmarking

2. Demand & Supply

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What’s the Difference?

• Increment

• Bonus

• Promotion

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Compa Ratio Table

Use this if your company: • Pays for Performance, and • Pays for Job rates

Def:

Mid-Point = Mid Point of Pay Grade

Grade E2

Min RM2,000

MID RM2,500

Max RM3,000

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Compa Ratio Table

< 0.7 ≥0.7 - ≤0.9

>0.9 - <1.1

≥1.1 - ≤1.3

> 1.3

5

4

3

2

1

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Compa Ratio Table

< 0.7 ≥0.7 - ≤0.9

>0.9 - <1.1

≥1.1 - ≤1.3

> 1.3

5

4

3 5%

2

1

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Compa Ratio Table

< 0.7 ≥0.7 - ≤0.9

>0.9 - <1.1

≥1.1 - ≤1.3

> 1.3

5 9

4 7

3 9 7 5% 4 3

2 2

1 0

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Compa Ratio Table

< 0.7 ≥0.7 - ≤0.9

>0.9 - <1.1

≥1.1 - ≤1.3

> 1.3

5 15 12 9 8 7

4 12 9 7 5 3

3 9 7 5% 4 3

2 6 4 2 1 0

1 4 2 0 0 0

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Employee Differentiation through Relative Performance and Talent Management

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Values Driven C&B

1. Performance

2. Differentiation

3. Teamwork

4. Caring

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The 51.28% Theory

• Resign = Push + Pull > 51.28%

• If staff is Happy:=> 0 + Pull > 51.28%

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Employee Distinction?

< 0.7 ≥0.7 - ≤0.9

>0.9 - <1.1

≥1.1 - ≤1.3

> 1.3

5 9 8 7 6 5

4 8 7 6 5 4

3 7 6 5% 4 3

2 6 5 4 3 2

1 5 4 3 2 1

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Employee Distinction?

< 0.7 ≥0.7 - ≤0.9

>0.9 - <1.1

≥1.1 - ≤1.3

> 1.3

5 20 15 12 8 5

4 18 12 9 5 3

3 9 7 5% 4 3

2 1 1 1 0 0

1 0 0 0 0 0

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Employee Distinction

Average Rating

Rating Multiply Factor

Example Rating

Example Increme

nt

> 4.1 5 2 4.2 8.4%

> 3.3 – 4.1 4 1.2 3.5 4.2%

> 2.3 – 3.3 3 0.75 2.8 2.1%

> 1.3 – 2.3 2 0.5 1.8 0.9%

≤ 1.3 1 0 1.0 0%

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Employee Distinction

Group I

(Talent Pool)

Group II

( Potential)

Group III

( Performance)

Group IV

(Counseling)

2 3 4 5

23

45

PE

RF

OR

MA

NC

E

POTENTIAL• Identify

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Talent Strategy: C&B

1. Eliminate Staff Awards

2. Eliminate Staff Trips

3. Eliminate HOD trips

4. Remove Salary structure limitations for TP

5. Premium Group Pay

6. Year-round promotions/increment

7. Spot Bonus Pool

8. Additional Profit Sharing points for TP

9. ↑ Pay for Performers, ↓ pay for Non-Performers

10.Additional % during annual increments

11.Special Allowances

12.SCL Allowances

13.Flexitime

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SCL: Specialist Career Ladder

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Associate Specialist (2)

Specialist (4)

Consultant (4)

Principal Consultant (1)

SCL: Specialist Career Ladder

General incentives & privileges:

a. Extra monetary incentive

b. Official Specialist / Consultant job title.

c. Higher external training subsidy limit by company.

d. Tie-pin or pin

e. Certificate

f. Additional benefits

General qualifying/re-qualifying criteria:a. Meet the competency criteriab. Performance min B, PEDc. Min. 40 training hr/yeard. Physical contribution: i Mentoring ii Write-up iii Speaking iv Multimedia recording v R&D publication / Thesis

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Curse of the Bell Curve

‘A’ Staff

‘B’ Staff

‘D’ Staff

‘E’ Staff

‘C’ Staff

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Swing Loyalty: Try Your Best…

1. Over Promote

2. Loans

3. Spot Bonuses

4. Block recruiters

5. The Spouse

6. Toys

7. Glorified Titles

8. Forced Ambassador

9. “Position” the competition

10.Sell the Dream

11.Give them a Best Friend

12.Internal Trainer

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Start Up & End Notes

The end of the Beginning

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Issues and Challenges (1/2)

1. HODs unclear

2. HODs disagree/unsupportive of TM

3. HODs not willing to openly differentiate staff

4. Incompetent superiors/HODs to TP staff

5. Difficult to evaluate Performance

6. Difficult to evaluate Potential

Issues and Challenges (2/2)

7. Aligning TM and SP with Business Goals

8. “Once in, always in” predicament

9. Criticism of TP selection

10.Limited Funds

11.‘Competitor recruitment target!

For Starting Up…

1. Get the Business Strategy right

2. Link C&B to Strategy (e.g. BSC)

3. Clarify the C&B Philosophy

4. Strengthen Performance Management System

5. Redirect Funds ($$)

6. Design simple processes

7. Develop and Reward focused on Talent groups

8. Communicate throughout

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Problem with C&B…

“Good news for stockholders can be bad news for other

stakeholders.” Gregory Miller, Assoc. Prof., Harvard Business School.

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In the end…

• Great Wall of China– humans are the weakest link– bad treatment of staff will lead to weak link i.e.

easier to bribe, easier to con, etc; – bad treatment examples: insulting, lose face,

broken promises, no dignity, public criticism, restructure without communication

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Other thoughts…

1. Big matters/Small Matters

2. Differentiate of Die

3. Define “Talent”

4. No “Jerk” rule

5. Flat Structure?

6. The Jerk Boss

7. All aspects

8. Hire Strict

Summary

Segmented & Targeted

Attraction, Retention and Succession

STARS™

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Thank You.

soft copy of slides: http://totallyunrelatedrandomanddebatable.

blogspot.com/