Pay for Performance, with Rex Gatto

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Rex Gatto, Ph.D.
Gatto Training Associates

Session Moderator: Dr. Gatto is the founder and president of Gatto Training Associates (GTA). Dr. Gatto's practice has been dedicated to helping people in the workplace to enhance productivity through a better understanding of themselves. He has done extensive research in the area of individual working, thinking, personality, leadership, teamwork and communication styles and their impact on the working environment. As a behavioral scientist and counselor he has devoted his energies to helping all levels of business people: CEOs, vice presidents, managers and professionals to have an enriched work life. Dr. Gatto consults on matters of organizational effectiveness, conducts training programs and also conducts one-on-one and team coaching.

In the area of employee assessment he has developed inventories on 360 degrees Feedback: Interpersonal Working Associations and Leadership Insight Assessment, and written fifteen Behavioral Assessments and Leadership Assessment Simulations. Assessment can be taken over the Internet. You can log onto the web site for information.

As a business consultant and lecturer, he has presented to business people throughout the United States and Canada. He has presented for many professional organizations and received an outstanding speaker letter from the American Society of Training and Development acclaiming him as a dynamic and thought-provoking speaker. He has developed customized training workshops for many corporate 500 companies, CPA firms, hospitals, small businesses, universities and colleges, and has trained and facilitated all positional levels of business people. As a change interventionist, he has written and presented for business teams, corporations and helped people achieve an enriched, productive, and enjoyable work life.

I'm going to present his presentation - he will be here later to answer your questions. I have him on the phone and he will respond to your questions as we go. Sorry for the confusion.

There are Ten Sections to today’s presentations.

We will discuss each section and address any questions that you may have. Please ask questions at anytime.

1. Background Information

Money represents recognition, which leads to motivation, reinforcement of behavior, self-initiative, leadership, and enhanced communication. A monetary Pay for Performance process needs to be thoroughly thought out before it is instituted. A bonus is recognition through pay for performance process based on an employee meeting or exceeding expectations of work performance and accomplishment.

All employees need to think about the work that they have performed, and then, in a concrete way (externally), see, by means of a monetary reward, what they have accomplished. In other words what does someone of authority think the employee’s performance is worth? There are a number of issues that need to be taken into consideration to establish a process to reward and distribute money Pay for Performance.

2. The key aspect of a bonus or reward is to tie it to performance.

Then, two questions need to be answered: first, does the money equal what employees feel they deserve, and, second, does this money demonstrate to the employee that he/she has gotten his/her fair or equitable share compared with others?

Session Moderator: The program is and was a success. The program was set up to support employee performance with the acknowledgement of an involvement of partners.

3. These two issues should be considered when thinking about instituting a bonus process. A key to addressing these issues is how well the person’s performance is documented. Often an employee performs work and those in authority do not know all that the employee has done to accomplish the work, minimizing what the employee and others have accomplished.

Focusing primarily on outcomes, money generated, debts, and type of work rather than individual performance does not tell the entire story. Another problem with a bonus process is how consistent the observations of the employees’ performance are by the people of authority rewarding the performance. It is imperative that what the employee does is clearly outlined, understood, and supported through documentation by the employee. It is the employee’s responsibility to demonstrate and present what he/she has accomplished. It is the responsibility of the people of authority to distribute money without bias to recognize and reward successful performance.

4. An area of potential trouble would be to give money as a bonus before the performance goals had been clearly established, and before standards had been established for equity and measurability.

It is important for the employee to continually update to all of the things they are experiencing such as the amount of time they put into projects. Frequently, employees just do the work without letting people know all that went into fulfilling the project and then the employee assumes that the partners will know what it took to complete the project.

Sound familiar?

It is the employee’s responsibility to update progress and completion of engagements. It is partners (management) responsibility to listen to employees express what they have accomplished. It is important for people of authority to continually ask employees to clarify their performance goals for what they want to accomplish. In other words, both need to work together to accomplish firm goals.

5. In order to establish guidelines for performance, it is important for a firm to outline why it was profitable the previous year and what the causes of profitability were. What was done right that should be continued next year? What was not done successfully (performance behaviors) and what should be eliminated as unproductive actions? Productive performance should be outlined as measurable goals for the next year.

It is important to identify why your firm is successful. What are the causes for success?

Also, identify what needs to be eliminated. What was not successful?

Any questions?

Based on how a partner is rewarded, they will frequently reward others. There is a whole psychology of how people feel about themselves and based on that, they will reward others.

William Crayon: This sounds subjective, how do you measure?

Session Moderator: You measure it by outlining behaviors such as client/customer relationship. How organized was the engagement? Were the workpapers clear? Was the goal met in timely manner?

Another example. Communication - was there a steady flow of reliable information to and from the client? Did the person actively listen and follow through? Were meetings effective, efficient and informative? All of these are measurable and can be put on a scale of 1-5 and comments of observation can be given/derived. Does that answer your question William?

William Crayon: Yes, but as an administrator, outside of the flow of client work, it will be hard to get the proper feedback to keep management informed.

Session Moderator: William - Rex has developed a Developmental Skills Assessment. It is to be filled out by the employee and the person in authority. It focuses on client customer relationship, communication, interpersonal relationships, leadership/follower-ship, planning/organization, initiative, innovation/creativity, accountability, motivation/teamwork, problem solving/decision making, computer technology, business knowledge, community/professional involvement, flexibility/adaptability.

Session Moderator: Research indicates that those in authority who receive substantial bonuses usually give out substantial bonuses. Conversely, those people of authority who are frustrated by the bonus process usually are resistant to giving substantial bonuses. This has a direct relationship to the output on the employee.

Robert A Gaida: Our firm is moving to 1/3 of comp being bonus. How does that compare with others?

Session Moderator: Robert - Others are using a flexible approach so it is not necessarily 1/3. The most powerful reward a person can get is pay that is directly linked to performance. More firms are using a performance pay plan.

Robert A Gaida: We pay bonuses within 30 days from the conclusion of the activity and fees received. Good?

Session Moderator: Robert- The more immediate you can make your reward the better - this is outstanding - you are relating the bonus to the actual activity on a very short time frame.

Do others have any comments about this?

Ann Swanson What type of response are you getting from "accountant" personalities with type of pay plan? We have found they can become very uncomfortable.

Session Moderator: Ann- Generally, accountants are introverted and MAY have difficulty expressing their ideas, however, we ask that they actually fill out a performance rating on themselves with comments and ratings. They do this by themselves. They are comfortable doing this.

Ann Swanson: Has this pay plan increased or decreased turnover?

Session Moderator: General turnover right now, retention of employees, is difficult because a lot of people are moving and changing in the CPA industry. Trying to keep turnover of employees between 10-20 percent would be the main objective. The truth is that I can't comment on the retention rate because they are different for each firm. Some have had success with retention and some haven't but there are many variables that coincide with this.

6. Questions and Thoughts - Is the reward process:

  • Equitable and fair; does it reward what you want people to continue to do by way of performance, attitude, communication, and client relationship? People look for rewards in a lot of different ways. The last person promoted to partner is also a very loud communication throughout the firm.
  • Able to identify the performance level and quality of the work you want people in the future to strive to attain? Continuing to challenge people is a very strong motivator.
  • Going to be presented in such a way as to motivate all employees, pointing out the appropriate people for their contributions? This can be done as a team. These two theories could also be combined. A team component and an individual component
  • Going to lead the partners/managers/staff to rely on one another and build a team or departmental approach?
  • Going to identify behaviors you want to reinforce as a firm?
  • Going to reward successful or appropriate behavior and performance with the client?
  • Going to fairly represent the work performed in support of other partners, managers and staff?
  • Robert A Gaida: I find that rewards provided to specific activities get people to focus. The negative side is such a reward system introduces greed and takes away from team service. I favor the way we are doing things and accept the challenge of fostering teamwork.

    Session Moderator: Robert - as you will see later in our discussion, team performance is also a way to provide bonus to the entire team. Many firms are rewarding team performance rather than individual performance so team is emphasized and not competition.

    What you reward your firm will become:
    7. Methods for Distributing Bonus

    Establish weighted criteria; for example, have six key criteria and weight the criteria with points. This needs to be done without bias. As an example six criteria points could be: client rapport, achievement of performance goals, communication, self-initiative, attitude, and interpersonal skill (team building).

    Ask the people in authority to respectively do an employee review: who helped them the most and what was the outcome? This needs to be done without being a popularity contest.

    Robert A Gaida: Yes team bonus is a good thing but when you want to move certain services out to your clients that are high value you find that the top 20% players of the firm do it and they resent the bottom 20% participating. In the end you need to focus on the top players making sure they are rewarded with the large bonuses.

    Session Moderator: While that is true, we still have to look for ways to motivate the low-end employees. Ask the people in authority to respectively do an employee review: who helped them the most and what was the outcome? This needs to be done without being a popularity contest.

    8. Tie the bonus to the performance document; what were the goals that were established for this person by way of performance strengths and development from the previous year? How much was this person responsible for producing in the previous year? How did the person’s work help to sustain present clients? How much client development did the person do? How much profit did the person bring into the firm by way of work performance (generating work or complete/fulfill client needs)?

    Review each performance standard of the person. Did each person accomplish his/her performance goals? Make this pay for performance process more individualistic (comparing the person against his/her personal goals) than comparative and competitive. There are two types of successful employees in a firm: employees who generate clients and employees who fulfill client needs. A method to reward employees could simply be to divide the money based on the impact the person has had on the firm’s net bottom line.

    Rex Gatto: Identify for each person what they did right. Catch an employee doing something right.

    Robert A Gaida: I think you are better served with top grading the low performers. There is no correlation to providing low performers with bonus and seeing their work improved.

    Rex Gatto: Unless you can find the goodness that people provide they may become very discouraged. It is important to have people believe in themselves.

    9. Two problems arise when employees do not pull their weight or when someone is very good, or an outstanding performer and not rewarded. People of authority need to decide what they are rewarding: team performance (a new concept), individual performance, or profitability in spite of outstanding, fair or poor employee performance.

    What needs to be kept in mind is that the people of authority may be emotional (creating a popularity contest) when discussing the distribution of money based on after the fact thinking from last year’s bonus distribution.

    The distribution of money needs to be devoid of emotion and based on cold facts. Trust will continue to be an issue with the distribution of money as a bonus if it is a popularity contest. Money being primarily distributed in a subjective way will generally create disappointment and demotivation.

    Rex Gatto: The psychological issues of the Halo Effect, Bias Central Tendency Leniency need to be overcome by the rater. This is an issue.

    Session Moderator: 10. An Approach to Distributing the Bonuses

    Identify the net amount of money generated by your firm that can be used for bonuses. Then calculate three possible rewards: high, medium, and low. Those in authority then can review and suggest the employee reward be based on performance value to the firm and clients, through the achievement of individual performance goals. This will simplify the bonus process. Here again, the problem is the subjective interpretation of work performance.

    The next step is to identify how the money can and should be distributed next year based on what you learned this year.

    Does anyone have any questions? It sounds like many of you are already working in this direction.

    Rex Gatto: Performances need to be focused on providing direction for individuals and team, therefore firm learning. The firm of the future must be geared to being a learning organization. The popularity contest within firms for bonuses needs to stop to provide a clear direction in performance for the future.

    Session Moderator: Before we wrap up, I want to thank Rex Gatto for offering this informative workshop today (via me). He has offered some very compelling points regarding performance.

    We are out of time. Before we end the session, are there any questions?

    No? Okay, then I want to thank each of you for joining us today and particularly, Rex Gatto!

    Have a successful week! If you have specific questions for Rex, he is listed in our consultants' directory.

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