THE 1987 WYATT PERFORMANCE MANAGEMENT SURVEY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90-00530R000501210003-5
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 8
• Document Creation Date: December 22, 2016
• Document Release Date: September 26, 2012
• Sequence Number: 3
• Content Type: MISC

Declassified and Approved For Release 2012/09/26: CIA-RDP90-00530R000501210003-5
Int Ivo/ VIITAI I
PERFORMANCE MANAGEMENT 1 ?
SURVEY
E
The Wyatt Company
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Declassified and Approved For Release 2012/09/26: CIA-RDP90-00530R000501210003-5 L4111
INTRODUCTION AND RESPONDENT PROFILE
One of the most difficult issues facing
Human Resource managers is iden-
tifying, measuring, and rewarding
individual performance. Performance
evaluation is consistently identified by
managers as one of the most anxiety
provoking and difficult aspects of
their jobs. Rank and file employees
also see problems with the pay for
performance systems in their com-
panies. In the recently completed
Wyatt WorkAmerica" study?the first
comprehensive study of worker atti-
tudes since corporate restructuring?
performance management and its
relationship to pay emerged as an
area that employees and managers
alike say is problematic. For example,
only 28% of Wyatt WorIcAmerica"
respondents think that there is a clear
link between performance and pay
increases. While performance reviews
are conducted on a regular basis, a
significant proportion of employees
do not feel that reviews help improve
job performance.
Realizing that performance man-
agement is a major issue in most
American companies, Wyatt?in
the summer of 1987?conducted a
special survey on pay for performance
compensation systems. The goal of
the survey was to gather input from
another constituency: the people
who actually design, administer and
communicate your company's pay for
performance salary administration
system. The survey asked a variety of
questions about pay for performance
?how well supported it is by manage-
ment, how well does the system reward
performance, how is performance
measured, and what are the major
problems in implementing pay for
performance.
Human resource professionals
from over 800 companies participated
in the survey. About 47% of the
respondents were from companies
that employed 1,000 or less employees,
33% from companies with between
1,000-5,000 employees and 20%
from companies employing over 5,000
employees. Point of Interest: Reflect-
ing an era of un- precedented merger
and acquisition activity, 32% of respon-
dents indicated that their company had
gone through a merger or acquisition
in the last five years.
Respondent Profile: 805 Companies
Company Size
47%
100-1,000
Employees
33%
1,000-5,000
Employees
20%
Over 5,000
Employees
Respondent Profile: Industry Group
Durable Goods
Manufacturing
Financial Services
Health Care
Nondurable Goods
Manufacturing
Services
Other
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THE SURVEY FINDINGS:
AN EXECUTIVE SUMMARY
The following report summarizes
the findings of Wyatt's Performance
Management Survey. The first
section presents an executive
overview of the key findings; and
this is followed by detailed findings
of each area of the survey. The second
section of the report offers expert
observations on the survey results by
Pete Smith, Chairman of Wyatt's
Compensation Practice Committee and
head of Wyatt's San Francisco office.
Our thanks to everyone who partici-
pated in the survey.
The following is a brief overview
of the major findings of the Wyatt
Performance Management Survey:
Companies are generally dissatisfied with their performance
management programs. Only 30% of
the responding companies rate their
present salary administration pro-
grams as "successful" in relating
pay to performance.
The pay for performance concept is a high priority in most
companies. All management/super-
visory groups showed strong interest
in the concept?with 54% of top
management and 62% of human
resource managers rating it a "very
high priority?'
The major impediments to overall success in pay for perfor?
mance systems are:
1 Inadequate training of managers
2 Lack of objective measurement
3 Not enough money
4 Poor administration and design.
It should be noted that "inadequate
training of managers" was ranked as
the first, second or third major impedi-
ment by 55% of the respondents.
The major impediments to successful performance ratings
are ranked in order:
1 Inconsistent ratings
2 Too much subjectivity in rating
procedure
3 Supervisors are not adequately trained
4 There are too many high ratings.
It should be noted that all of the four
impediments were identified by nearly
50% of the respondents. The next
nearest rating was 35% for "supervi-
sors manipulating ratings."
Nearly two thirds of the responding companies are considering
changes in their programs to improve
pay for performance. 43% plan to
redesign their appraisal system.
39% plan to increase management/
supervisory training; 30% plan to
redesign policies and procedures;
28% plan to improve communications;
23% plan to implement tighter con-
trols; and 18% plan to implement
individual/group incentives.
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DETAILED SURVEY FINDINGS
How Pay Increases Are Determined
We wanted to determine how pay
increases are managed in the current
salary administration programs of our
respondent audience. Respondents
told us that nearly three quarters of
the salary administration programs in
place are based on periodic "merit"
increases only, and do not include
any form of general pay increases.
Primary Method of Pay Increase
72%
Merit
?
20%
General
Increases
8%
Other
About half of our respondents say
that there are no restrictions on the
employee's progress through the
salary range, but nearly one-quarter
say that part of the salary range is not
available to all employees (e.g., top
quartile is for high performers only).
Merit Salary Increases with/without Cap
Without Cap
With Cap
50%
22%
How Performance Is Measured
We then asked respondents about
the principal methods used to assess
performance in administering the
"merit" portion of salary increases.
About one quarter (27%) report that
the principal method used to assess
job performance is rating against
defined standards of performance
for the job. An additional quarter
(22%) say that they primarily compare
performance results to previously
established objectives, while 16% use
a more qualitative approach based
on essay or narrative descriptions
of performance.
Principal Methods Used to Assess Performance
Compared to
Performance Standards
Compare to MBO's
Essay/Narrative
Descriptions
Other
22%
16%
35%
Recognizing the key role of
performance ratings in pay for perfor-
mance systems, what do respondents
consider to be the major problems in
their company's performance rating
method? Quite simply, their answer
can be summarized as "people"?the
difficulty of managing the managers
who have to produce performance
ratings for their direct reports.
Specifically, respondents identified:
1) inconsistencies in ratings, 2) too
much subjectivity in the rating proce-
dure, 3) poorly trained supervisors,
and 4) rating inflation as the most
significant problem.
Major Problems with Current Performance Appraisal System
Inconsistencies in Ratings
Too Much Subjectivity
Poorly Trained Supervisor
Rating Inflation
Supervisors Manipulate
Ratings
Too Many Rated in Middle
Obsolete Rating
Procedures
Complicated/Not
Accepted
Forced Curve
Other
59%
54%
52%
14%
12%
8%
8%
48%
35%
25%
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Success of Current Programs
Overall, how do our respondents
evaluate the success of their present
salary administration program in
recognizing pay for performance
among exempt salaried employees?
Nearly a third evaluate their current
programs as "successful" or "very
successful?' However, the majority
(over 50%) describe their current pro-
grams as only "somewhat successful?'
Indeed, 65% of respondents indicated
that their company has made, or
intends to make, some changes in their
current pay for performance system.
Success of Present
in Recognizing Pay
Salary Administration Program
For Performance
111
56%
Somewhat
Successful
111
31%
Successful
or Very
Successful
13%
Unsuccessful
We asked respondents who identified
their present salary administration
program as "very successful" or
"successful" in recognizing pay for
performance, how satisfied they feel
various groups in their companies
were with the operation of their
salary administration programs. The
majority?over 80% ?state that top
management, middle management,
and human resources staff are satis-
fied with the operation of their com-
pany's salary administration program.
Other groups are positive, but less so:
e.g., 60% of exempt employees and
71% of supervisors are described
as "satisfied?'
Levels of Satisfaction with "Successful"
Salary Administration Programs (Percent Satisfied)
Top Management
Middle Management
Human Relations Staff
Immediate Supervisors
Exempt Employees
1 87%
84%
80%
71%
60%
Among those respondents who
identified their present salary admin-
istration program as "very success-
ful" or "successful' almost half say?
they would not have given the same
evaluation 5 or 10 years ago.
Employees Who Would Have Rated Their Present
Salary Administration Program the Same in
Recognizing Pay For Performance
Last Year
5 Years Ago
10 Years Ago
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86%
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Respondents are very consistent
in what they see as the major impedi-
ments to a more successful manage-
ment of the pay for performance
system. "Not enough money,"
"inadequate training of managers,"
"no objective management," and
"poor design and administration"
are the most frequently raised factors
detracting from successful pay for
performance systems.
Main Impediments to Successful Management
of Pay For Performance
Inadequate Training
of Mdnagers
Lack of
Objective Measurement
40%
Not Enough Money 39%
Poor System
Design of Administration
27%
55%.
?% ranking 1st, 2nd or 3rd greatest impediment
Those companies that are consi-
dering changes in their program will
focus on redesign of the performance
rating system, increased management
training, and redesign of the policies
and procedures of the basic salary
administration program.
Improvements Considered or Made to
Pay For Performance Programs
Redesign of
Appraisal System
Increased Management
Training
Redesign of
Policies/Procedures
II 43%
39%
30%
Improved Communications 28%
23%
19%
Tighter Controls
Individual /Group
Incentives
Other
Top Management
Support
One-Time Special Awards
Other
Looser Purse Strings
16%
16%
Management Support For Pay For Performance
What is the attitude or interest in
the pay for performance concept?
How much of a priority is pay for
performance among various groups
in the company? It is interesting
that the groups considered to be the
most interested in pay for performance
are top management and human
resources staff. Supervisors and
exempt employees are "interested"
but do not assign the same priority
as do senior managers and human
resources. It seems, therefore, that
a high level of interest in pay for
performance exists, especially at the
most senior levels of management and
among human resource professionals
?but the interest level is significantly
lower among the employee groups
where a successful pay for perfor-
mance program is most likely to
produce the greatest bottom line
value for the organization.
Perceptions of Commitment to Pay For Performance Concept
(Rated "Very High Priority" by Respondents)
Human Relations
Staff
Top Management
Middle Management
Immediate Supervisors
Exempt Employees
35%
24%
21%
56%
66%
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Pete Smith is Chairman of Wyatt's Compensation
Practice Committee; head of Wyatt's Son Francisco
office; and a member of the Board of Directors of
The Wyatt Company.
WHY PERFORMANCE APPRAISAL IS FAILING by Pete Smith
A successful pay for performance salary appraisal program
involves a variety of disciplines. However, few companies
seem to recognize this. The absence of an inter-disciplinary
approach may be the chief reason why most of these pro-
grams are not performing well for American businesses.
Consider the variety of skills needed for a successful
pay for performance program: training, management
development, communications, salary planning, and
compensation. Yet too often the responsibility for making
the pay for performance concept work is assigned organiza-
tionally to just one of these disciplines. For example, a large
majority of responses to our survey questionnaire came
from Compensation Managers, who have traditionally been
responsible for performance appraisal programs.
To understand the importance of inter-disciplinary per-
spective on performance management, consider three major
reasons why managers find performance appraisals difficult.
first, the focus in many appraisal systems is too narrow.
There is too much emphasis on issues such as form design,
merit increase scales, and whether to use forced distribu-
tions. There is usually not enough emphasis on getting to
the root of the performance appraisal process: the dialogue
between managers and the employees working for them.
Second, managers find performance appraisal difficult because
the process often puts them very close to the awkward situa-
tion of being asked to judge the persona/ value (rather than the
job performance) of the people working with them.
Why is this so? One reason is that much of the para-
phernalia surrounding performance appraisal programs
uses terms more related to qualities of personality than
to performance criteria. Managers should be judging job
performance, but when the review ends up with classifying
employees as "average" or "commendable:' the line between
evaluating performance on the job and evaluating a person's
worth as a human being is blurred.
These psychological implications are important,
but they are not fully understood by many performance
appraisal planners. Performance appraisals should be a
tool of reinforcement, rather than an ordeal that leaves the
manager uncomfortable and the employee frustrated.
Third, not enough attention is given to defining standards
against which performance will be measured. Clear perform-
ance standards, related to key aspects of the position, make
appraisals much easier for managers. Well-defined standards
enable managers to focus directly on job performance,
rather than personality. In effect, managers can say "You're
an outstanding person and I like working with you, but your
performance has to improve substantially if you want a raiser
While developing effective performance standards
is never easy, there is considerable room for improvement
in most companies today. This is recognized by the survey
respondents, 40% of whom cited "no objective measurement
criteria" as one of the three key impediments to the success
of their existing appraisal programs. '
Significantly, the highest rated impediment to success-
ful management of pay for performance was "inadequate
trainine cited by 55% of respondents. In my view, this is
an accurate reflection of the missing key element in the
entire process: the effective training of managers and super-
visors in the dynamics of performance management.
Most companies put far too little emphasis on
performance management and performance appraisal
training. In many companies, the training that does take
place concentrates on procedures and forms, rather than
helping supervisors hone their communications skills, deal
with difficult appraisal situations, and develop precise
performance standards. In terms of return on investment,
there is great potential for achieving higher levels of
performance (and higher productivity) through improved
management training in this area.
Nevertheless, these gains cannot be achieved without
an inter-disciplinary effort. Designing and conducting
training programs that get to the heart of performance
management requires the collaboration of specialists in the
compensation, communications, and management
development functions, as well as trainers. The creation
of effective performance standards should involve not only
representatives of the human resources area, but also
employees from the finance and corporate planning areas,
not to mention the managers and supervisors themselves.
An effective pay for performance system must address
the difference between the high interest level of the most
senior levels of management and human resources profes-
sionals and the more limited interest level of supervisory
staff. Clearly, programs will only be successful if the first
line through middle management staff (who conduct the
overwhelming majority of appraisals) perceive pay for
performance as a priority.
Why are middle managers and supervisors less
enthusiastic about pay for performance programs? It is
this group who must make the tough decisions regarding
who is rewarded and who is not; between who exceeds
expectations and who fails to meet them. There is seldom
a reward for such efforts. The penalties are many in time
and employee resentment.
If supervisors are to be supportive, the system must
offer some rewards to them as well. Supervisory perform-
ance appraisals must be predicated?in part?upon the
abilities of individual supervisors to manage the program.
Supervisors must have financial recognition for their work
in performance appraisal if they are to hold the process in
high esteem.
In addition to recognition and financial reward,
supervisors require support: training in the art of effective
performance discussions, time to do the job properly, and
involvement in system development. A sense of ownership in
the system does wonders to enhance the priority placed
upon it.
The survey results presented here show a combina-
tion of dissatisfaction and hope: Few are satisfied with their
current program, but most plan to make improvements.
These plans seem to be focusing on the right things (train-
ing and communication, for example). But they may result
in continuing frustration if they are not designed and
implemented by task forces representing the necessary
spectrum of functional areas.
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E W Y A
T T C 0 M P
ANY
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