The Road to Merit Pay
Merit Pay Workshop
August 2013
Office of Human Resources
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Agenda
• Introductions
• Housekeeping
• Training Outcomes
• Compensation and Merit Principles
• Timeline
• Preparing Your College/Department to Deliver
Merit Pay
• Designing Your Merit Pay Plan
• Implementing Your Merit Pay Plan
• Learning from Your Peers
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Introductions
• Housekeeping
• What do you hope to learn today?
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Merit Pay Definitions
• Merit Pay—Pay that is wholly or partially
dependent on performance.
• Merit Pay Increases—Pay increases or lump
sum payments in lieu of pay increases
that are wholly or partially dependent
on performance.
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Compensation and Merit Principles
• Aligned with Operational Excellence and Board of Regents
compensation philosophy
• Aligned with OHR Strategic Imperatives
• Relevant to contemporary University workplace
and consistent
• Practical and timely
• Credible and transparent
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Prepare
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Review Environmental Elements
Assess Unit Readiness
Consider Calibration Process
Enlist a Design Team
Determine Work Plan and Timeline
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Prepare: Review Environment Elements
Environmental supports and detractors
Support
Detract
• Strong performance
management
• Emphasis on achievement
• Well-defined individual
performance outcomes
• High trust in management
• Top management support
• Cultural support for
differential rewards
• Weak performance
management program
• Emphasis on longevity
• Highly task-interdependent
• Low trust in management
• Lack of management support
• Egalitarian climate
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Prepare: Assess Unit Readiness
• Merit Pay Readiness Assessment
• Which questions did you think about the
most and why?
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Prepare: Consider Calibration Process
• Purpose of Calibration
• Ensures performance is differentiated
among employees
• Helps to enhance the “pay for performance” model
• Ensures inter-rater reliability across
assessments
• Demonstrates transparency in the salary
setting process
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Prepare: Consider Calibration Process
• Who calibrates?
• Leadership
• Cascading process
• Interactive
• Incorporate a model that works best
for the teams and departments in your
college/unit
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Prepare: Enlist a Design Team
• Dean/Department Head – Strategy, promotion,
communications
• Finance Manager – Model plans, resolve budget
implications
• Communications Manager– Develop communications
strategy and materials
• HR Director – Lead Design Team, deliver training,
implement, monitor
Support when needed
• Office of Human Resources– Collaborate on design,
assist with training, provide approvals, auditing
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Prepare: Available Tools
• Merit Pay Readiness Assessment
• Performance Appraisal Tool
• Sample Work Plan and Timeline
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Design: Rationale
Determine what you want to accomplish with merit pay
• Increase the pay of those who perform well more than
those who do not perform well
• Increase internal and external pay equity
• Recognize stellar performers
• Attract and retain talent
• Address poor performers
• Motivate individuals to perform better
• Focus employee and manager attention on goal and/or
competency achievement
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Design: Merit Pay Best Practices
• Finalize performance ratings prior to merit
increase determination
• Use performance and market to identify
target salary
• Consider pay gaps when determining business
unit merit pools
• Provide tools to management such as a merit pay
matrix to guide the decision-making process
• Train and guide managers so that they have the
ability and ensure merit adjustments are well
coordinated with all elements of the unit’s total
compensation strategy.
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Design: Additional Considerations
• Size and Form
• Spread of increases (0-7%)
• $ amount vs. % increase; lump sum components
• Budget determination
• Timing and alignment with compensation strategy
• Review cycle
• Alignment with equity increases and promotions
• Eligibility: new hires, leave of absence, transfers
• Delivery
• Merit pool distributions (divide by college, department, etc.)
• Delayed increases …performance improvement
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Design: Model Options
• Model 1: Performance Only
• Model 2: Performance and Market and/or
Equity Considerations
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Design: Model 1—Performance Only
• Increase determined by performance rating
• This method used when:
• Well-defined grade structures/targets don’t exist
• Desire to reward annual performance without concern
for ongoing pay differences
• Pros/Cons
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Ignores internal & external pay comparisons
Strong performance message
Simple to budget
Easy to administer
Straightforward to communicate
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Design: Model 2—
Performance and Market/Equity
• Increase determined by current pay compared to desired pay
given market and performance
• This method used when:
• Well-defined salary grade structures/pay targets exist
• Desire to manage internal and external equity through
merit increase
• Pros/Cons
• Addresses pay inequities
• May seem unfair to some employees – different % increases
• More complex to budget
• More difficult to administer and communicate
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HumanResources
Office of
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Design: Exercise
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Review the Design Implementation
Checklist
In groups, discuss considerations your
college/administrative unit will have
regarding determining the appropriate
budget (i.e. Include vacancy dollars, lump
sum amounts, department pools). Also
discuss your thoughts regarding the
appropriate percentage increase for
proficient employees.
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Design: Available Tools
• Design Element Checklist
• Sample Budget Sheet
• Modeling Spreadsheets
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Implementation: Roles
• Dean/Department Head – Provide strategic
communications; ensure overall legal and
policy compliance
• Supervisors/Managers – Provide detailed
communications and coaching; ensure unit
legal and policy compliance
• HR Professional – Deliver training; provide process
communications, review overall results, and ensure
overall legal and policy compliance
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Implementation: Actions
Develop Implementation Process and Documents
• Document processes and procedures
• Create forms and supporting documents
• Determine administrative responsibilities and
work flow
• Determine deadlines for the process
• Look for ways to seek out feedback and incorporate
for the future
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Implementation: Actions
Develop Communications and Training Plan
• What should be communicated?
• Who needs to be trained?
• What concerns need to be addressed?
• What is the best vehicle to deliver message?
• What is the best timing to deliver message?
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Implementation: Exercise
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Review the Merit Implementation Checklist
In groups, discuss responsibilities, concerns,
and communications coming from your
constituent group?
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Implementation: Available Tools
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Implementation Checklist
Merit Approval Form
OHR Resource Library for Training
Sample Project Plan and Timeline
Audit/Review Spreadsheets and Forms
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Learning From Your Peers
Panel Discussion
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Questions?
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