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Realignment Ties Pay to Performance

January 1, 1993
In the late 1980s, Pratt & Whitney, a designer and manufacturer of jet engines based in East Hartford, Connecticut, introduced its Quality Plus program, which included self-examination and established an environment that facilitated continuous improvement. An outgrowth of this initiative was the decision to improve the management of individual and group performance.

A task force of 10 people from different areas of the firm examined existing approaches and recommended improvements. Its only restrictions were:

  • Proposed changes should enhance ways in which HR systems supported the firm's strategic and cultural objectives
  • To give these recommended changes a chance to work, the company would wait at least three years before it made further adjustments.

After forming a performance-management, recognition and rewards task force, management decided to immerse selected members of line management in compensation-design issues. This gave the primary user of the performance-management system the responsibility of evaluating practices and implementing the changes needed to improve Pratt & Whitney's performance-management system. More important, rather than diminish the authority and influence of the HR compensation group on the design of the program, the task force increased the eventual impact by ensuring employee and management buy-in—compensation professionals became key advisers.

The initial task force began by examining the strategic and cultural issues. Strategically, the organization was determined to shape a new organization that effectively supported four basic goals:

  • Lowered costs
  • Improved marketing and customer support
  • More help for customers in managing existing and emerging fleets
  • The development of new technology needed for the future.

Culturally, management wanted to encourage participation, stress continuous improvement and focus on sound customer and supplier relationships.

Keeping these objectives in mind, the task force examined the company's existing performance-management approach. An early conclusion was that the old performance appraisal and the performance factors didn't support the increased emphasis on teamwork. To test its assumptions about the need for change, the task force conducted an employee survey and held special focus-group sessions that examined perceptions about the current system. The employees confirmed that some changes were needed, and the task force designed a comprehensive performance-management, recognition and rewards process for both employees and management. The task force designed the final process during the next few months.

Job requirements were developed by workers and supervisors.
Pratt & Whitney's overall vision and its mission statement were established and communicated throughout the work force before the new process was introduced. As part of the new effort, each work group throughout the organization established its own mission statement that would be compatible with Pratt & Whitney's mission and goals.

Under the new approach, once the work group's mission was established, the individual's role in supporting the mission was clear. Key job requirements established measurement standards. Unlike job descriptions prepared by a compensation analyst in the HR department, the employee and the supervisor developed key job requirements jointly. The purpose was to define and put into writing the major duties of a job during the next year or performance cycle. It was vital that each job requirement have written performance standards, to ensure that the requirements provided a useful measurement standard for evaluation. The key job requirements also could include such traditional standards as quality, quantity, timeliness of work, and so on.

"Sometimes managers spent hours on certain components of the point-factor system to try to justify or support giving a slightly higher grade."

Some behavioral competencies were included in these requirements, but a separate component of behaviorally oriented competencies also formed part of the performance-management process. These competencies described the knowledge and skills that employees must have as well as the tasks and activities they must perform to meet the group and company mission. They also indicated how employees must apply their skill attributes to get the job done.

By establishing universal competencies, the task force provided measurement standards for all employees. New cultural initiatives and business requirements translated on an individual level into:

  • Customer satisfaction
  • Technical expertise
  • Initiative
  • Quality
  • Commitment and contribution
  • Teamwork
  • Effective relationships and communications.

At the managerial level, the organization's new leadership initiatives suggested that leaders should be able to:

  • Create a shared vision
  • Empower others
  • Develop people
  • Recognize merit
  • Get results.

The performance-management process was predicated on the mutual establishment and agreement on mission, key job requirements and competencies established between employee and supervisor.

The ongoing mutual involvement in the process was reflected at the end of the performance cycle when the employee initiated the final appraisal through a self-assessment process. During this stage, the employee continued to share in the ownership of the process by summarizing the key events and behaviors that occurred during the performance cycle, to ensure including all relevant data in the performance discussion and to maintain the partnership of employees and management throughout the cycle.

The task force linked the measurable performance at the end of the evaluation period (usually one year) with appropriate recognition and rewards. The rewards—which ranged from appreciation memos and notes to group awards and special cash bonuses for individuals or teams—gave a supervisor (or peer) an opportunity to acknowledge exceptional performance by an employee.

Job grading and evaluation were revamped.
Once the changes in the performance-management system were in full swing, the company's human resources professionals examined the HR systems that supported the process. A second task force examined the approach to job grading and evaluation to see if the existing evaluation system supported the new program's objectives. A point-factor system, backed by thousands of job descriptions, had been in place for years. Did the systems facilitate teamwork and innovative approaches to complex problems, or were they simply administrative systems that distracted people from the real challenges? Did the existing grade structure, with its focus on frequent progression, support the development and motivation needs of the work force?

Pratt & Whitney's work force was aging and concurrently was facing increasingly limited promotional opportunities as the company became a flatter organization. Increasingly, it placed a greater emphasis on cross-functional and matrix-type team approaches to problem solving. The new approaches were successful, suggesting that a decreased emphasis on hierarchy might be appropriate.

After months of interviews with employees, and intensive study, the task force concluded that the old approach supported highly structured management. Finite job descriptions had helped the employees understand what was expected and had given managers perceived assurances of accountability. The team decided, however, that new cultural values demanded a system that encouraged flexibility, new approaches to complex technical and business problems, and teamwork. Moreover, after introducing key job requirements, management was in a good position to incorporate these key job requirements into the job-description process. Specific job descriptions, formerly prepared laboriously by compensation analysts, weren't as necessary, because managers and employees had started preparing specific key job requirements.

Existing pay grades clashed with emerging values.
During its review, the task force recognized that managers sometimes had spent many hours on certain components of the point-factor system to justify or support a slightly higher grade. The team also knew that the structure of the existing point-factor evaluation system, which dictated narrowly defined pay grades, clashed with the emerging values of participative involvement and teamwork. Combining salary ranges—and generally rebracketing the existing structure into broader bands of pay ranges—seemed to present an obvious solution.

After examining the existing structure, the task force determined that there were several levels of exempt employees:

  • Entry-level employees
  • A professional group that had had at least several years of experience
  • A more experienced, professional-level employee, who typically had had five years of experience or more.

Beyond these three levels, depending on the size of the organization, there were some highly specialized individual contributors, who frequently provided technical direction to others, and there were one or two levels of middle managers.

In all, the existing structure had 11 levels, from entry level through the middle-management level. Six levels seemed more appropriate and would permit the transition to a slotting type of evaluation system, which would improve on the current, time-consuming, point-factor evaluation approach without abandoning it entirely.

The task force learned, through an analysis of survey results, that employees and supervisors considered the point-factor evaluation system to be credible. Accordingly, the task force decided to keep the point-factor system as a backup method, to be used if complaints or questions arose while using the new approach.

Management recognized the need for change and approved the task force recommendations. The biggest obstacle to the new approach was the existence of more than 3,000 current job descriptions. The new structure would neither support nor require the existing job formats.

A team of compensation professionals reduced the number of jobs and wrote generic job descriptions that covered the highlights of job responsibilities. They pooled together similar occupational groups or families and created new, broadly defined job families. Six months later, 3,000 existing job descriptions had been reduced to several hundred, as common features from similar jobs were pooled together in an abbreviated descriptive format. After further study, the analysts realized that they could make an effective transition to a modified slotting system for grade assignments, while retaining the point-factor evaluation system as a backup.

Once the generic jobs were complete, the analysts established an implementation plan for introduction of the changes. The management-information and payroll systems had to change job code and job title information for nearly 15,000 employees. The company also needed a carefully constructed communications plan for supervisors and employees. Salary ranges needed to expand to accommodate the reduced number of levels.

A key communications objective was to make job evaluation and grading distinctions an area of lessened interest for employees, so the communications approach was, by design, low-key. Implementation went smoothly, and with a minimum of fanfare, for several months.

The new system continues to evolve.
By 1992, the changes in the performance-management and recognition-and-reward processes, as well as in the new job-evaluation approach, were working well. The new system has enabled supervisors and employees to take ownership of performance evaluations and the application of rewards. Such terms as shared vision, mission statements, key personal competencies and key job requirements all have become part of Pratt & Whitney's company language.

The first task force has yielded to management teams that provide fresh insights into changes that may be needed as the process matures and develops. Gradually, the administrative forms and procedures associated with the process of performance management, and recognition and rewards, have been streamlined. There's an increased emphasis on teaming and how the system recognizes group efforts.

The company has become aware that the upward evaluation of supervisors is another area for further study and evaluation. The systems changes made in support of the new effort also are working well. For example:

  1. Job evaluation is quick and painless, families the assignment against key benchmarks found in the new grades.

  2. Grade determinations and discussions with supervisors and employees are cleaner and faster.

  3. The tendency to fine-tune job descriptions is gone.

  4. Employee career decisions are focused more on whether a potential move is the right change for future growth and development than on whether a potential position is a higher grade. Leadership development is easier because management now has greater flexibility to move key people within a broader range of assignments. More important, the deemphasizing of grades is appropriate for a maturing work force, which sees the number of positions available to experienced employees increasingly limited because of a flatter organizational structure.

The new approaches have put more pressure on the HR staff to maintain external market relationships. Banding salary grades together has enhanced pay ranges to the maximum pay level of the higher of the two grades. Wider salary ranges have resulted. Combining the ranges didn't disturb midrange relationships greatly between individual benchmark jobs and market pay (because of the previous overlap of adjacent ranges), but the need to ensure effective market pricing of key benchmark jobs has become critical. The new approach makes an effort to ensure that the overall pay equation doesn't emphasize finite data points.

Another positive result has been the decrease in the staff time needed to maintain an elaborate job-description system. Several hundred generic position descriptions have replaced the nearly 3,000 original descriptions and can be applied to many different jobs. The compensation staff no longer needs to write and rewrite job descriptions. These employees now work in other areas, and the remaining staff can concentrate on providing counsel to supervisors on broader issues. Employee and supervisor now coauthor the specific job requirements at least annually. This keeps the actual designing and shaping of job duties in the hands of the people who need clarification and communication most—employees and supervisors. Even more important, the key job requirements created by the employee and supervisor incorporate measurable, behaviorally oriented performance standards directly into the job requirements.

Certainly, the longer-range effects of the new changes won't be felt for several years. Already, however, the key objective of reducing the job-evaluation system (and grades) as a subject of discussion and focus, has been realized. The company further expects that the seemingly modest changes to job evaluation and broad banding will make an ongoing contribution to the management of employee performance and will help Pratt & Whitney meet future challenges.

The company expects that the reduced number of grades eventually will lead to a need for fewer management layers and will improve vertical communications overall. Workers will focus less on their orientation in the hierarchy and will pursue knowledge and experience laterally. Above all, everyone involved now recognizes that the original HR systems can be modified successfully, allowing Pratt & Whitney to meet changing business and cultural needs without eliminating viable existing systems and approaches.

Personnel Journal, January 1993, Vol. 72, No. 1, pp. 74-77.