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Managerial Discipline

June 10, 2003
Related Topics: Compensation Design and Communication, Performance Appraisals, Featured Article, Benefits
The salary-management systems atMarriott International, Dow Chemical, andKoSa, with significant pay decisions pushed down to line managers, are part of abroader movement. "It’s a continuation of a trend that started 10 or 12years ago with broadbanding and the idea that managers need to take a moreactive role in linking pay to performance," says Laury Sejen, nationaldirector of strategic rewards consulting, Watson Wyatt. "It’s also just agood business practice because managers are clearly in the best position tojudge performance.

    "The decentralized approach to pay is effective, but there are lots of waysto run the train off the track." Human resources and line managers mustunderstand market data and the relevant performance factors. The key question iswhether managers really have both the information and the discipline they needto make salary-increase decisions. "Companies are getting better at this, butthe economic downturn means that there are fewer dollars available," Sejensays. "If you have a 5 percent salary-increase budget, it’s easy. But if youhave a 2 or 2.5 percent budget, tough decisions arerequired."

    Under KoSa’s new salary-management system, annual evaluations for managershinge, in part, on how well they differentiate employee performance. The system"weeds out" managers who cannot make tough pay decisions, says Peter Sparber,global compensation manager. About one-third of the employees under the newsystem receive no incentive pay in any given year.

    Managerial discipline can be instilled through constant education andcommunication. "We now have numerous studies that show the value ofsuccessfully differentiating pay for top performers," Sejen says. "Thestudies show compelling results. To the extent that these studies gain moreairtime, managers will become more aware of the necessity for discipline inmaking pay decisions."

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