Incentive Pay KPIs

1
Incentive Pay
Compensation fluctuates according to
A pre-established formula Individual or group goals Company earnings
Adds to base pay Motivates employees
Pay influences employees through

Reinforcement theory Behavior that is rewarded will be repeated. Expectancy theory A theory of motivation that holds that employees should exert greater work effort if they have reason to expect that it will result in a reward that they value. Employees also must believe that good performance is valued by their employer and will result in their receiving the expected reward.
Expectancy Theory
Expectancy
If I attempt this level of performance, am I likely to succeed?
Motivational Force = E*I*V
Instrumentality
If I achieve this level of performance, am I likely to be rewarded?
Valence
What value do I place on the rewards available to me?
Performance Measures
Individual incentive plans
Quantity of work output
Quality of work output Monthly sales/targets Work safety record Work attendance
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What are Key Performance Indicators?

Key Performance Indicator (KPI) is a quantifiable metric that reflects how well an organization or division or department or individual employee is achieving its stated goals and objectives.
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What are Key Performance Indicators?

A KPI is not a single Objectives: what are we
component, but an integrated collection of components. Like

Indicator Measure Target Result
trying to achieve? Indicators: what are you going to measure? Measures: how are you going to measure it? Targets: what is the desired result? Results: what have you actually achieved?
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Definition
Key Performance Indicators (KPIs) can be defined as measures that provide managers with the most important performance information to enable them or their stakeholders to understand the performance level of the organization. KPIs should clearly link to the strategic objectives of the organization and therefore help monitor the execution of the business strategy.
Mission
Goal
Objective Strategy Indicator Measure
A one-to-many relationship (e.g. one goal may have many strategies)
A one-to-one relationship (e.g. one measure has one target)
Target
Result
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KPIs vs. Objectives

KPIs are quantifiable performance measurements
used to define success factors and measure progress toward the achievement of business goals . Whereas, Objective is a concise statement describing the specific things an organization must do well in order to execute its strategy.
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Measuring what matters the most

KPIs
serve to reduce the complex nature of organizational performance to a small number of key indicators in order to make performance more understandable and digestible for us.
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Why Measure Performance?

The three main reasons for measuring performance are To learn and improve To report externally and demonstrate compliance To control and monitor people and designing their individual compensation & incentives
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Types of KPIs
Leading KPI - A leading indicator is a metric that mainly refers to future developments and drivers/causes . e.g. % of employees involved in the innovation process Lagging KPI - A lagging indicator is a metric that mainly refers to past developments and effects/results, e.g. reflects history and outcomes of certain actions and processes.
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Performance Objective of HR Manager

Increase overall department efficiency by 20% by the end of Q4
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KPIs for HR Manager & Measuring Methods
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No. Key Result areas Key performance indicators Weight of KPI Target Actual Score Final Score
Recruitment
Average lead time to recruit employees. Performance score of new employees within 6 months. Training hours per employee per year % difference in the rate of productivity before & after training.
Training & Development
Performance & % of employees that fully execute their individual development plan. Career Management % of employees that participate
in career coaching program.
Employee Retention & Productivity
Percentage of employee that leave the organization in a given period of time. Profit per employee
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Recruitment
Key result areas are the main goals that HR manager needs to accomplish. In this sample, we have four key result areas.

Recruitment
Key performance indicators are measurable indicators used to evaluate your performance level Every Key Result Areas must have at least one KPI. Total number of KPIs shoud be 8 10 items.
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Recruitment
Average lead time to recruit employees. Performance score of new employees within 6 months.
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15 Weight of each KPI should be defined. Weight of KPI is determined based on the scale of priority. Total weight should be 100.
Training hours per employee per 10 year % difference in the rate of 10 productivity before & after training.
Performance & % of employees that fully execute 10 their individual development plan. Career Management % of employees that participate 15
15
10
20
KPI for HR Manager & Measuring Methods

Recruitment
15
60 Days 80 40 hrs/yr 50%
15
Training hours per employee per 10 year % difference in the rate of productivity before & after training. 10
Performance & % of employees that fully execute 10 their individual development plan. Career Management % of employees that participate
in career coaching program. 15 15
90%
90% 2% USD 2 MIO
Targets are defined based on historical data and future expectations. Targets can be percentage, number, or score depending on the type of KPIs.
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Recruitment
Average lead time to recruit employees. Actual actual Performance scoreis ofthe new results Or target employees within 6 months.
15
15
60 Days
80
70 days
82
Training hours per employee per 10 We should develop year system capture % difference in the to rate of 10 productivitythese before results. & after training.
achievements.
40 hrs/yr 50%
90%
37 hrs
67% 80%
90%
2% USD 2 MIO
74%
2.3% USD 1.9 MIO
15
10

Recruitment
15
60 Days 80 40 hrs/yr 50%
70 days 82 37 hrs 67%
86
15
103 93
Training hours per employee per 10 year % difference in the rate of productivity before & after training. 10
134
90%
90% 2%
80%
74% 2.3%
89
82 87
15
10
USD 2 MIO
USD 1.9 MIO
95

Recruitment
15
15
60 Days
80
70 days
82
86
103
Training hours per employee per 10 40 score : Actual / Target x year hrs/yr 100 (for % difference in the rate of KPI Maximize, 10 50% higher the better) or productivity beforethe & after training.
Formula to calculate
37 hrs
67% 80%
93
134 89
Target Actual x 100 90% fully/execute 10 Performance & % of employees that (KPI Minimize; their individual development plan. the Career lower the better). 90% Management % of employees that participate 15
74%
2.3% USD 1.9 MIO
82
87
15
2% USD 2 MIO
10
95

Recruitment
15 15
60 Days 80 40 hrs/yr 50% 90%
70 days 82 37 hrs 67% 80%
86
13
103 93
15 9
134 89
13 9
90%
2% USD 2 MIO
74%
2.3% USD 1.9 MIO
82
87 95
12
13 10
15
10
95

Recruitment
15 15
60 Days
70 days
86
13
Training hours per employee per 10 40 Final Score = Score x year hrs/yr Weight /100 % difference in the rate of 10 50% productivity before & after training. 90% 90% 2% USD 2 MIO
Formula to obtain
80
82
37 hrs 67% 80% 74% 2.3% USD 1.9 MIO
103
93
15
9
134 89 82 87 95
13 9 12 13 10
15
10
95

Recruitment
15 15
60 Days 80 40 hrs/yr 50%
70 days 82 37 hrs 67%
86 103
13 15
93 134
9 13
90% 80% 89 9 Performance & % of employees that fully execute 10 Final Score is used to determine their individual development plan. 82 12 Career bonus allocation, salary increase, 90% 74% Management % of employees that participate 15 in career coaching program. and promotion.
15
2% USD 2 MIO
2.3% USD 1.9 MIO
87 95
13 10
10
95
Principles
KPIs should not be an end in themselves, but be considered
as an aid to management for designing compensation. KPIs should be seen within their local context and have more a meaning as a comparison over time than as a comparison between organizations. KPIs should be reviewed and updated. The targeted performance description, which is described in measurable terms through the KPIs, must be deployed to the organizational level that has the authority and knowledge to take the necessary action.
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Incentive Pay KPIs

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1

Adds to base pay Motivates employees

Pay influences employees through

Motivational Force = E*I*V

Individual incentive plans

Quantity of work output

What are Key Performance Indicators?

What are Key Performance Indicators?

component, but an integrated collection of components. Like

A one-to-many relationship (e.g. one goal may have many strategies)

A one-to-one relationship (e.g. one measure has one target)

KPIs vs. Objectives

Measuring what matters the most

Why Measure Performance?

Performance Objective of HR Manager

KPIs for HR Manager & Measuring Methods

KPIs for HR Manager & Measuring Methods

Training & Development

Employee Retention & Productivity

KPIs for HR Manager & Measuring Methods

Training & Development

Employee Retention & Productivity

KPIs for HR Manager & Measuring Methods

Training & Development

Employee Retention & Productivity

KPIs for HR Manager & Measuring Methods

Training & Development

Employee Retention & Productivity

KPI for HR Manager & Measuring Methods

60 Days 80 40 hrs/yr 50%

Training & Development

90% 2% USD 2 MIO

Employee Retention & Productivity

KPIs for HR Manager & Measuring Methods

Training & Development

Employee Retention & Productivity

KPIs for HR Manager & Measuring Methods

60 Days 80 40 hrs/yr 50%

70 days 82 37 hrs 67%

Training & Development

Employee Retention & Productivity

USD 1.9 MIO

KPIs for HR Manager & Measuring Methods

Training & Development

Employee Retention & Productivity

KPIs for HR Manager & Measuring Methods

60 Days 80 40 hrs/yr 50% 90%

70 days 82 37 hrs 67% 80%

Training & Development

Employee Retention & Productivity

KPIs for HR Manager & Measuring Methods

Training & Development

Employee Retention & Productivity

KPIs for HR Manager & Measuring Methods

60 Days 80 40 hrs/yr 50%

70 days 82 37 hrs 67%

Training & Development

Employee Retention & Productivity

2.3% USD 1.9 MIO

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Motivational Force = EIV