Page 221 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 5. Salary 207

In addition to the vertical link, some goals and objectives will be shared horizontally
between two or more individuals reporting directly to the CEO or lower in the organization.
An example of a horizontally shared goal (or objective, depending on definition) would be
“design and implement new pay-for-performance plan by first of next year. Include signifi-
cant upside potential and downside risk for CEO and direct reports, based on performance
vs. industry peer group.” It is fairly clear that the CFO, chief legal officer, and chief human
resources officer could share this goal. Another example would be “launch product A in sec-
ond quarter in markets X and Y, capturing at least 10 percent market share before year-end.”
Development, production, marketing, and sales executives would each have specific respon-
sibilities and timelines to meet this target. If it were major enough, it might be included in
the write-ups of the CEO and the reporting business head.

How Much Detail? Sufficiently detailed performance appraisals minimize disagreement
between supervisee and supervisor on the level of performance. When appraising, be specif-
ic. Such information could be several well-chosen paragraphs describing the performance, or
it could list objectives for the year and the extent to which they have been accomplished and
are on time. Many programs fail because they require either too little or too much detail. The
optimum program would balance simplicity with validity to attain an acceptable compromise
position.
When Shall Appraisals Be Conducted? Performance appraisals that are conducted short-
ly prior to an anniversary merit review are subject to great pressure to be positive enough to
justify an appropriate compensation action. When using anniversary review dates, it may be
appropriate to have two reviews: one on a common date for all employees and the second
prior to an adjustment. The first is needed to minimize heavy skewing to the top perform-
ance levels, and the second is required to justify the compensation action. The two should be
reasonably close in outcome. If they are not, it would be appropriate to have a discussion with
the supervisor. A common merit review date, and thus only one performance review, may be
more logical, especially if it comes at the end of the calendar or fiscal year. It has the advan-
tage of placing the compensation actions directly within a prescribed merit budget. Within
these two approaches, there will likely be project performance review schedules focused on
key milestone dates as well as project completion dates.

Who Is Involved? The extent of interaction and participation is a function of how closely
the subordinate and manager see eye-to-eye on the performance level. Where there is an
appreciable difference (invariably the manager having the lower opinion), frequent discus-
sions during the year on specific project performance are necessary. When the year-end
wrap-up session is held, there is little opportunity for the individual to be “surprised” by the
supervisor’s rating. Another technique that is useful is requesting the ratee to prepare and
give to the rater a self-appraisal before the review session. Regardless of the rating defini-
tions, there is a built-in bias to go above an average rating. Everyone believes they are “above
average.” One way to sidetrack this is to state up front that “average” company standards are
above-average community standards. In fact, “meets company standards” could substitute for
“good.” Qualify with appropriate modifiers such as “exceeds” or “does not meet.”
At the minimum, the manager’s manager should see the performance write-up (along
with the individual’s self-assessment if one is prepared), preferably before and after the review
with the individual. By showing the write-up to the manager’s manager before the meeting,
the manager has an opportunity to obtain the boss’s agreement: nothing is worse than to have