Building a Performance Management Culturea Black & Decker Case Study

October 27, 2009

Black & Decker Overview Five “Evergreen” HR Strategies HHI Case Study

Performance Appraisal Process Strong Organizational Culture - “Winning Culture

Values” Alignment of Systems & Processes Differentiating Performance & Rewards Talent Review Process Employee Communication Additional Performance Management Tactics

Lessons Learned

Inspire Great People

Black & Decker

Founded in 1910 and based in Towson, MD World’s largest producer of power tools & accessories,

security hardware, plumbing products & fastening systems 2009 revenues (est.) of $5B; 20,000 employees Manufacture in 12 countries and sell in over 100 countries Hardware & Home Improvement (HHI) division based in

Lake Forest, CA Revenues of $800M, 3,500 employees in U.S., Canada, Mexico

and China Brands include Price Pfister, Kwikset, Weiser, Baldwin and K2

Grow Through Innovation

Black & Decker

Strong Brand Names

Five “Evergreen” HR Strategies

Talent Acquisition

Employee/Organization Development

Winning Culture

Employee Communications

Performance Management

BDHHI Core Strategies

HHI Performance Management - 2006 Case Study

Annual Development Plan - ADP (Performance Appraisal) 10 Winning Culture Values worth 20/15/10% of overall score

depending on organizational level (Dir., Mgr., Indiv. Contrib.) Goals made up the balance of overall score - up to 25 goals! ADPs (ostensibly) completed in Q1 each year No periodic progress reviews during the year Low accountability for completing ADP process No linkage to other business processes or alignment with a

“performance management” calendar Excel spreadsheet based process

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HHI Performance Management - 2006 Case Study

“Merit” increases granted on a rolling 13 month basis Not a strong commitment to a “Pay for Performance” culture -

merits, annual bonuses and equity grants Low level of organizational alignment

No Vision Statement Strategic planning process was secret; no group level strategies Strategies poorly communicated and not well understood Up to 32 annual goals/metrics—results weren’t reviewed

regularly by Leadership Team and little accountability The Result: Siloed functional organizations - low

alignment among Vision, Strategies, Functional & Individual Goals, Performance and Accountability

Grow Through Innovation

“Change Creates Opportunity!”

Created a cross functional team in 1/06 Direct reports to Leadership Team members

Advantages of this approach: Greater diversity of backgrounds, ideas and participation

created improved results Performance appraisal process is enterprise-wide; required

participation by employees who are knowledgeable of the process from all functional disciplines

Empowered a team to make improvements to an important core business process

Involvement in revising the process increased acceptance and support for the changes

Accelerate Global Growth

Goals of a Performance Appraisal Process

Set goals and measure results Assess and improve performance Create development plans and enhance skills Career development Help evaluate potential for promotion Change/reward appropriate behaviors Align with company’s vision/values/strategies/goals Differentiate levels of performance and rewards Strengthen a “Pay for Performance” culture

Deliver Operational Excellence

Cross Functional Team - Focus Areas

Role of Winning Culture Values Competencies Rating scale & descriptors IDP/career pathing 360s Forced ranking calibration Design of the “form” and instructions Web enabling the process Communication Training

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The Solution

Nine month project from team formation to deployment of a web-based solution

Launched tool in 10/06 for 2006 performance appraisal and 2007 goal deployment

Reduced Winning Culture Values from 10 to 4 and rated them on a “pass/fail” basis

Competencies introduced—6 for individual contributors and a 7th for associates with direct reports

50% of overall rating Goals reduced to 5--8 maximum

50% of overall rating Five point rating scale initially introduced and later changed to

4 point to align across all of BDK

BDHHI Core Strategies

The Solution (cont’d.)

IDP requirement added and linked to BDHHIU courses Online 360s - employees rated on Winning Culture

values and competencies Forced ranking/guided distribution done initially but later

moved to Talent Review process All training and communication done during Q406 Strong support from top management was key - process

accountability now delivers 99% plus completion rate Tool has been adopted across BDK

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“Strong Organizational Culture - Winning Culture” Values

Before (10) Achieving Commitments Great People Raise the Bar Focus Boundarylessness Attitude High Energy Urgency Risk Taking Impact vs. Activity

After (4) Demonstrate

Unyielding Integrity Inspire Excellence Deliver on

Commitments Win Through

Teamwork

Grow Through Innovation

…Yet Another Cross Functional Team Opportunity

Great People

Alignment of Systems and Processes

Deliver Operational Excellence

HHI Core Strategies

Metrics & Accountability--Our Balanced Scorecard

Differentiating Performance and Rewards

Merit increases - use a matrix of recommended increase %s based on performance appraisal scores

Annual Incentive Plan (AIP) - metric is operating income factored by working capital charge

Brands tied to their own results GMs have 75/25 split to drive line of sight alignment Support staff tied to division results Personal Performance Factor (PPF) as a second level

calculation to leverage bonus from 0 - 150% of actual; range of differentiation is typically 75 - 125%

Equity—annual grant is tied to PPF with wide differentiation All Rewards recommendations reviewed by President & VPHR

We “rack and stack” and give feedback to Leadership Team

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Organization Assessment Process (OAS) Online employee survey conducted every 2-3 years

Up to 95% response rate HR is process gatekeeper Focus groups make recommendations to management—

accept/modify/reject Follow up action items owned by functional executives Quarterly report out to President and VPHR to ensure

process accountability and continuous improvement Quarterly “pulse” surveys (6 questions) done in the interim—

started in Q1, 2008 50 - 75% response rate Corrective action taken here as well Results are published to employees via HHIOne (intranet)

Grow Through Innovation

LF

Q1

LF

Q2

LFQ3

LF

Q4

HHI

Q1

HHI

Q2

HHI

Q3

HHI

Q4

HHI

FY Goal

I feel safe in expressing my opinions openly without fear of retribution

7.23 7.52 6.86 7.09 6.55

Managers are genuinely involved in helping people develop their potential

7.16 7.25 7.11 7.15 6.60

I have a good relationship with my manager

8.01 8.12 7.60 7.63 7.24

BDHHI generally lives up to the values of the organization, even when times are tough

7.51 7.73 7.51 7.56 6.95

BDHHI does a good job of keeping employees informed about matters that affect them

8.01 7.98 8.10 8.03 7.33

How likely would you be to recommend BDHHI to a friend or colleague as a place to work

7.43 7.76 7.23 7.31 6.91

Q209 Lake Forest

Talent Review Process (Succession Planning) Prior process was a “forms intensive, largely HR oriented” exercise

Low linkage to talent management processes Little accountability for action and follow up

Process was reengineered Number of templates reduced, fewer metrics and rich dialogue

ensued Discussion is now focused around “A” positions, organizational

gaps, hipos/retention and employee development Action items are followed up on

Core business process involving a 4 step, upwardly cascading process: Functional Talent Review Cross Functional Talent Review Commercial Talent Review (Sales & Marketing) Talent Review with Chairman and SVPHR

“Four panel” feedback is shared with all participants

Deliver Operational Excellence

Employee Communication

Strategy driven by Director of Employee Communication Communication philosophy is completely open and transparent

“Frequently, redundantly and using a wide variety of media” Intranet (“HHIOne”) as employee portal President visits all locations for Town Hall meetings annually HHI-wide communications meeting every 2 months Anonymous “OneTeam” questions President conducts skip level meetings with direct reports to

functional leaders 1-800 Ethics Hotline (SOX requirement) Pulse surveys and focus groups Quarterly site newsletters Launching digital signage

Accelerate Global Growth

Additional Performance Management Tactics

Outside psychologist worked with LT and several functional leaders to build high performing teams

Built strong organizational culture Quarterly biz reviews with LT of the 4 brands Quarterly biz reviews with Chairman and CFO Ops reviews in every functional support area Use of self-assessments (Insights Discovery) as

foundation for development plans Extensive use of cross functional teams Associates now “live” our Winning Culture Values…the

foundation for everything we do

BDHHI Core Strategies

Inspire Great People

Recognized in 2008/2009 as one of Orange County’s best places to work . . . .

2008 & 2009 2009

“Lessons Learned”

As always, top management support is critical Must take an integrated, systems approach to effective

employee management processes Initiatives must be aligned with the business’ “operating

rhythm” Business is dynamic and your processes need to evolve Solicit regular feedback from your customers “Cultural change is a “team sport”

“The smart person uses all the help s(he) can get Involve others cross functionally

Remember: The only sustainable competitive advantage is your talent…it must be well led, valued and empowered to make a difference