Manager’s Guide to
Communicating Performance & Rewards YERR 2011
Contents Overview.............................................................................................................................................................................. 3 Preparing for your Conversation ........................................................................................................................ 4 Preparing for the Performance Conversation. ..................................................................................... 4 Preparing for the Rewards Conversation. ............................................................................................... 5 Having the Performance Review Conversation ....................................................................................... 6 Communicating Performance Ratings....................................................................................................... 7 Example Performance Discussions ................................................................................................................... 8 Communicating a Medium Rating. ............................................................................................................... 8 Communicating .......................................................................................................................................................... 8 Communicating a Lower than Expected Rating. ............................................................................... 9 Explaining Why an Employee is not Receiving a Promotion .................................................... 9 Communicating Base Salary Increases ...................................................................................................... 10 For Employees Not Receiving a Salary Increase. ........................................................................... 10 Communicating Management Incentive Plan (MIP)........................................................................... 11 For Employees Receiving a MIP Awards .............................................................................................. 11 For Employees Not Receiving a MIP Awards (low performers): ......................................... 12 Communicating Restricted Stock Units Grants .................................................................................... 13 For Employees Receiving an RSU Grant............................................................................................... 13 For Employees Not Receiving an RSU Grant. ................................................................................... 13 Tips for the Reward Discussion ........................................................................................................................ 14 Resources for Managers ........................................................................................................................................ 16
Overview As a manager, two of your most important responsibilities include engaging and retaining the right people, and making effective compensation decisions. While these are year-round responsibilities, they are top of mind right now as you are preparing for your annual performance discussions with your employees. This document provides helpful information and discussion guidelines to make sure the conversations are successful for both you and your employees. . It’s important that you provide consistent and continual communication around performance and pay decisions. Tell your strong performers why they’re being rewarded and what they need to do to continue to develop. Create a development plan for those who have not performed as expected to get them to the next level.
People Manager Responsibilities
Preparing for your Conversation The most important part of the Year-End Review and Reward Key Facts about Preparing for process is the performance Discussions discussion with your employee. This conversation involves reviewing how the employee has • Complete your employee’s written performed to goals, rewarding performance review in Y!TM by February 29 the employee for that • Click “send review to employee” in Y!TM at performance, and planning for least 24 hours in advance of the discussion future development. Telling and make sure to notify your employee employees where they stand— either verbally or by email formally and informally—is the • Print both the Performance Review and key to helping them perform at a Reward Statement, and bring both documents to the meeting with your high level and increasing their employee engagement with their work. • Print your employee Reward Statements as When you give your employee soon as possible and review for accuracy. frequent performance feedback • Conduct performance reviews and reward throughout the year, the year-end conversations no later than March 14 performance discussion simply summarizes this information. If you haven’t already done so, preparing for the conversation is critical to it’s success.
Preparing for the Performance Conversation. Of course you’ve given your employee valuable feedback throughout the year! But now it’s time to summarize all this good information in the Year-End performance review discussion. To prepare for this conversation do the following:
Preparation is crucial. Review the performance review you have written, and be familiar enough with it so that the conversation can flow from accomplishments to development opportunities. Be prepared with examples rather than generalities so your employee can truly understand your perspective. Go Beyond the Nine Box. Yes, you may choose to use the Nine Box to communicate the rationale for salary or incentive discussions, but don’t reduce the conversation to a mere description of where they sit in the Nine Box. Once they know this information, plan to move the conversation to the specific reasons for the assessment and what steps they can take to improve, learn and grow. Prepare for negative reactions. Even in the most positive of discussions, some employees will focus on a word, a phrase or feedback they disagree with. Listen carefully to what they have to say and help them put feedback into context of the overall review. When talking to an employee with performance gaps, be prepared to talk about specific examples and recognize that those you’ve observed directly are the most credible and useful. Respect the confidential feedback received through Y!TM and calibration sessions – the final rating was yours. Timing is everything. Select a time and place for the discussion where you will both be undisturbed and undistracted. This sends
the message that this is important to you, and that you value their time as well as yours.
Preparing for the Rewards Conversation. Research shows that managers who are prepared to communicate with employees about compensation are three times more likely to positively impact employee loyalty. If you haven’t delivered rewards to an employee at Yahoo!, or if you’d like to hone your skills, review the Understanding Base Pay eLearning (or the Manager’s Guide to Understanding Base Pay on Manager Central) before your review discussion. Make sure you understand this information well so you can confidently communicate it to your employees. The goal of the performance review discussion should be to strengthen your partnership with your employee by focusing on performance strengths, openly discussing development areas and building a development plan to support their continued growth. Compensation plays a big role in this conversation, as your employee’s performance and how it is directly tied to his or her rewards for the year. The main objective of communicating compensation is to help your employee understand the process for determining pay, and help them understand that the process is fair. Having a productive conversation with employees about their pay helps to set expectations, which will ultimately increase their engagement and loyalty to Yahoo!. Here is some general advice on conducting pay conversations with employees: Share Your Employee’s Reward Statement Pay Conversation • When communicating pay messages to employees, make sure to explain the "what", the "why" and "what's next". • "What" - Present the employee his or her reward statement and walk through the contents • "Why" - Clearly explain the correlation between the employee's rewards and their performance. Give specific examples. • "What's Next" - Explain what future actions/behaviors are necessary for employees to be rated as "meeting" or "exceeding" performance expectations. Of course, performance reviews are subjective, so be clear that you cannot make any specific guarantees.
Having the Performance Review Conversation Start with Performance.
Preparing for the Future Here are some tips to help Development Conversation make sure that the discussion is one that both you and your • Consider Strengths and Development areas employee will agree is • Focus on 1 -2 strengths that the employee can informative, valuable and build on to be even more successful creates an environment for • Identify 1-2 development areas that the success during the coming employee can improve by building new skills year. According to the • Take into account adult learning theory when Corporate Leadership recommending development activities - a mixture Council, when these of learning methods are best, and the most conversations are executed effective learning comes by "doing" - we call it well, delivering performance the 70:20:10 rule: reviews and focusing on the • 70% is from real life and on-the-job experiences, right type of feedback can tasks and problem solving. This is the most impact employee important aspect of any development plan. performance by more than • 20% is from feedback and observing and 25%. working with role models. Review the employee’s • 10% is from formal training. Yes, only 10%! comments in Y!TM, then • Provide examples of what each would mean in start with an appreciation the context of your organization of their contributions over the past year. We all work hard and want to know our efforts make a difference and are appreciated. Everyone likes to be told about what they’re doing right. Again, provide examples rather than generalities and describe the impact their work had on Yahoo! “You did a great job” is nice, but not very helpful when you want your employee to understand what they should do more of to remain or become more successful. Listen – a lot. It’s a two-way conversation, and you‘ll learn much about your employee by listening to their point of view, even if you don’t agree with it. Ask for their perspective. Take care not to judge the person. Avoid words like “weakness”. You are evaluating their performance, not them. Focus on development. For Yahoo! to be the best, each and every one of us needs to commit to continuous growth and development. Start by asking your employee what development goals they would like to make for themselves in the coming year. Confirm and/or redirect their suggested development, sharing what you and others have observed. Align on their development goals, then ask them how they would go about meeting them. Work together to create a development plan, and tell them how you will support them. You can find
resources to help you with this step on the Develop Employees page of Manager Central.
Summarize the conversation and outline next steps. Be sure to repeat the
positive information, and let your employee know they can count on your continued support. “Thanks” goes a long way! Wrap up with a statement of appreciation and/or confidence in your employee and enthusiasm for the coming year.
Communicating Performance Ratings. Here’s a helpful way to think about the
Strong performer, meets and frequently exceeds expectations Strong relationships within the function and cross functionally; able to bring the “right” people together when needed to get things done Takes a leadership role within the team and cross-functionally
Solid performer, meets and occasionally exceeds expectations Understands function’s direction, goals and those of key cross-functional teams Good network and relationships within Yahoo!, function and key cross-functional teams Actively builds teamwork
Medium/Low
On the cusp of Moving into High Performance
Medium
Medium/High
middle band – because it’s so broad, you’ll have people on the very top and very bottom, and in the middle – think about where you place each of your people in the medium performance band and the reasons why.
Usually meets expectations, “misses” due to newness in role, responsibilities Works effectively in teams, may need to grow understanding of function’s direction, goals or those of key cross-functional teams Growing network and relationships within Yahoo!, function and key cross-functional teams
We expect the majority of our employees to meet the challenging expectations of their individual job assignments (represented by a 70% guideline in distribution)
Because the middle is a wide performance band, be prepared to describe “where” you see the employee within the band – are they at the bottom on the middle, in jeopardy of moving into low performance, or are they at the top of the rating band with only one or two things preventing them from high performance? Or, are they a strong, solid performer? Ratings are relative and you can’t “promise” a future rating. Like Olympic runners who are continuously training and improving throughout the year, it’s the races at the Olympics that determines who has improved the most, relatively. Ratings are relative to goals achieved and also, the performance of others. While you can coach and provide feedback to your employee, you don’t control the relative performance of others.
Example Performance Discussions Communicating a Medium Rating. Scenario: Jeff has five people on his team in the middle performance band – it’s such a wide band it’s really difficult to describe performance with a “medium rating.” How should he deal with this? Tips: • Acknowledge the breadth of the “middle” band and state that Yahoo! expects that the majority of employees meet the expectations of their individual job assignments, which is represented by the 70% guideline in distribution. See the performance indicators above for the different levels within the middle band. • Prepare to explain “where” you see each of your employees within the middle band – are they at the bottom of the middle in jeopardy of moving into low performance, or are they at the top of the middle rating band with only one or two things preventing them from high performance? Or, are they a strong, solid performer? • Don’t make promises you can’t keep. Ratings are relative and you can’t “promise” a future rating. Like Olympic runners who are continuously training and improving throughout the year, it’s the races at the Olympics that determines who has improved the most, relatively. Ratings are relative to goals achieved and also, the performance of others. While you can coach and provide feedback to your employee, you don’t control the relative performance of others.
Communicating Feedback that You Were Surprised About. Scenario: Karen was surprised by feedback that her top performer, Eva, wasn’t perceived that way by members of the team she has been working with. What should she say in the performance review discussion? Tips: • Provide feedback immediately. Let Eva know you were surprised by the feedback you received and ask her what her experience has been on the team. Listen openly and be curious about her point of view. Try to understand how others might have interpreted her behaviors as less than collaborative – explore them together. Agree on one or two simple things she can do to get back on track. • Commit your support and coaching. Let Eva know you still value her contributions and have faith in them – commit to providing the support and coaching she needs to make this a valuable development experience. Be sure she has the business context for the work the team is doing and with the project manager, align her individual goals with the team goals. • Establish ongoing, two-way feedback. Increase the frequency of feedback to reinforce progress and identify additional changes that could be implemented. Meet regularly with the project manager to make sure you’re working as a team.
Communicating a Lower than Expected Rating. Scenario: Kara has been Peter’s manager for the past six months. His previous manager left the company and Peter had an interim manager for two months before Kara took over. She had rated him a H (High on Performance) based on her assessment of his performance and results, peer feedback and feedback from his interim manager. However, during calibration discussions his rating was finalized as M (Medium on Performance). Kara knows Peter is expecting to be rated a “H” since he has done very well through the past year. He has also reflected this in his self-assessment. How should Kara communicate why he was rated a medium performer? Tips: • Provide the assurance that she has taken into account Peter’s performance for the entire year. • Share how she gathered information/feedback on his performance since she was not his manager for the entire review period. • Own and provide the feedback for the entire review period. • Use the overall input that was provided during calibration discussions, which led to his rating being normalized to M. Don’t share specific names of feedback providers. • Explain the calibration process (should we link to the page where we describe it?) • Explain the difference between the rating of H and M, and how M is a solid rating and reflects that they are meeting expectations. See the Performance Indicators.
Explaining Why an Employee is not Receiving a Promotion. Scenario: Ann has been consistently exceeding expectations. She collaborates well with others, shares knowledge and is also considered a “go to” person by her peers. She requires minimal supervision and is open to feedback. She has been handling the same kind of work for two years now and in the last year she was given additional responsibilities which were aligned to the next higher role. However, she was not able to effectively handle the stretched expectation. Therefore, you have rated her an M on Growth and Anticipated Contribution (GAC). As she has been with the organization for a long time and has not been promoted for more than three years, she is expecting a promotion this year. She is not being promoted since she wasn’t able to handle the higher level responsibilities. What should you say to Ann? Tips: • Explain her performance as H and reinforce what she has done well. • Explain what GAC is and that it is used to plan for development. • Explain her GAC rating with examples of what she has been able to do, aligned with the descriptors for medium GAC. See the Performance and Growth and Anticipated Contribution Indicators. • Explain that her reward is a differentiator and in line with her performance.
Communicating Base Salary Increases For Employees Receiving a Salary Increase. When discussing base pay with employees, emphasize that many factors are into account when determining a salary increase, including:
Performance rating Business criticality of role Experience and skill availability in local market Growth & anticipated contribution Base salary relative to peers
taken Key Facts about Base Salary • All base salary increases are effective April 1, 2012 • Salary increases will appear in the April 25 paycheck in the US and between April 15‐30 outside the US • Emphasize Yahoo's pay for performance philosophy
In addition, to communicating base salary, also refer to the total percentage increase. If your employee requests it, you can share their salary range information with them. If the employee is receiving a promotion, explain that the promotional increase has also been factored into the new base salary and explain how it was determined (i.e. performance, position in range/quartile, and pay relative to peers in the new level).
For Employees Not Receiving a Salary Increase.
For employees not receiving a base salary increase, be sure to explain the reasoning. If their performance did not qualify them for an increase, discuss the necessary steps to improve their performance and explain that it could result in an increase during the next YERR cycle. If the employee’s base salary is already high in their salary range, explain that their current salary is very competitive from a market and internal equity standpoint. If your employee is new to Yahoo!, explain that there was insufficient information on their performance to make a salary increase determination and/or their new hire offer at Yahoo! was competitive.
Communicating Management Incentive Plan (MIP) MIP is a discretionary annual reward given to employees not covered under another bonus program. It is based on Yahoo!’s performance and their individual performance. The Management Incentive Plan has four objectives: To enhance Yahoo’s competitiveness and ability to attract, motivate and retain top talent To recognize the role employees play in Yahoo’s success To reward annual financial and individual performance that complements our longer-term strategic focus To align the participants on common goals
Key Facts about MIP • The 2011 MIP pool is funded at 90% • MIP awards should be communicated as a % of target incentive, NOT a percent of company funded (like previous years) • MIP will be paid on March 14, 2012 in the US, and between March 14 – 31 outside the US • If an employee was hired in 2011, newly eligible or promoted into a MIP level for MIP or got promoted to a higer MIP level, the MIP target incentive is prorated. • Employees on a leave of absence will receive their MIP award at the same time as all other employees. Managers are responsible for communicating with these employees about the process.
Employees often do not understand how MIP awards are determined, so it may be helpful to explain: MIP award budgets are managed as a pool and determined by company performance; award levels are typically announced early in the year. MIP eligibility is determined by job level and work location. Managers award bonuses as a percentage of an employee’s target incentive based on his or her performance during the fiscal year. Managers are encouraged to differentiate MIP awards based on performance. An employee is not guaranteed a bonus; MIP awards are discretionary based on performance. An employee’s actual bonus payment may vary from his or her target.
For Employees Receiving a MIP Awards
Congratulate your employee on receiving a MIP payout! Communicate the MIP payout amount to your employee. Share that the company aggressively differentiates payout based on performance. Briefly summarize their key achievements over the past year and how they performed against goals. If payout is above target incentive level (high performers), explain that only a small percentage of employees across the company received a payout above their target incentives, given the MIP pool is funded at 90%. Thank your employee on his or her hard work and contributions in 2011!
For Employees Not Receiving a MIP Awards (low performers):
Tell your employee that he or she is not receiving a MIP payout. Share that the company aggressively differentiates payout based on performance and those who did not meet expectations during the last year do not receive a MIP payout. Explain how they performed versus goals. If there is a task, commitment, teamwork or style issue, explain how that impacted performance assessment and the payout decision Close with a commitment to work together and have regular check-ins on his or her 2012 goals.
Communicating Restricted Stock Units Grants RSU’s are given to key Yahoos to engage them in the future success of the company. RSUs are conditional stock awards that are based on a vested time schedule and requirements. Employees who earn RSU awards are those who : Are in higher job levels Are top performers Fulfill critical roles for Yahoo! Exhibit the high growth potential necessary for Yahoo’s long- term success
For Employees Receiving an RSU Grant.
Key Facts about RSU • Only a small portion of employees receive an RSU grant (25-30% of employees) • Grant date is scheduled for February 27, 2012 (May 25, 2012 for France) • RSUs vest 25% annually each year, 100% vested after 4 years (except France) • Equity awards will be available in E*TRADE by late March and must be accepted by the recipient (except in France)
Celebrate success! Congratulate your employee on being awarded an RSU grant. Confirm the number of RSUs being awarded and the vesting schedule. Explain why they were awarded an RSU grant and how it relates to his or her performance and growth and anticipated contribution. Explain only a select number of key employees receive an RSU award during this annual review process, so he or she should be very proud. Emphasize the importance of discretion as many employees will not be receiving this grant. Thank them for their contributions in 2011…and their commitment to future contributions!
For Employees Not Receiving an RSU Grant.
You do not need to communicate proactively to an employee not receiving an RSU grant. If your employee asks, let them know that: o Most employees did not receive RSU grants. o RSU grants are typically reserved for higher level employees or employees making a significant impact to the company. o Employees typically will not receive an RSU grant every year. o Yahoo! concentrates RSU awards on those employees that have made the biggest positive impact on company results.
Tips for the Reward Discussion Below is a list of steps and example for your reward conversation. We have also included italicized brackets with some wording examples that you can tailor to your specific employee. Steps Examples Provide a copy of your Employee’s Reward Statement
Explain His or Her Merit Increase And MIP Bonus if Applicable
“…Now that we have discussed your performance rating specifically, let’s move on to your reward statement. Here is a copy you can keep for your records.” “…Now that we have talked through your performance, I want to discuss how your performance has influenced your rewards. Let’s walk through this copy of your reward statement.”
Manager Tip: bring an extra copy of the reward statement for your employee to take with them after the meeting “You have received a ____% base salary increase and your new salary is $____. If MIP eligible: Based on your ____ [solid, strong] performance in 2011 you have received a $____ MIP bonus, which ____% of your target incentive. The MIP bonus pool was funded in 2011 at 90%” “As a ____ (high or medium) performer, you have received a salary increase of ____%, which brings your salary up to $ ____.
Manager Tip: incorporate decision making process, potentially referencing position in range, contribution compared to peers, etc. “Thank you for being a ____ [solid performer and a valuable team member]
Congratulate your Employee
Link Performance and Pay
Look to the Future
Discuss Development
during 2011!” “You consistently ____ [met and exceeded your performance goals and had solid results]. Thank you for your contributions; you are a valuable member of the team.” “As we’ve discussed, both your salary increase and MIP bonus link back to your performance rating of ____, which means you have ____ [produced solid work and consistently meet my expectations].” “As you know, merit increases and MIP bonus payout are discretionary driven by performance. Like we discussed in your performance review, you have ____ [highlight their strengths], but ____ [highlight their development areas].” “One of the ways you can potentially increase your pay in the future is to improve your performance. Specifically, if we look at your performance review, you’ll notice one of your development areas is ____ [improve quality of deliverables, time management, communication skills].” “I believe you can improve your performance, and therefore potentially improve your compensation, if you work on improving ____ [your time management, attention to detail, public speaking skills].” “Let’s set up a meeting to walk through your development plan and set up specific goals for your work in 2012. We can____ [look through the Learning @ Yahoo! and other internal or external learning offerings to improve your skills].” “For 2012, if you develop in the following areas: _________ [consistently meet
deadlines, improve communication skills, develop stronger project management skills]—you could improve your performance, and as a result, can potentially
Time For Questions Reminder About Deadlines
influence your future pay, increase your promotional opportunities, and/or take on new challenging roles.” “Thank you for your contributions in 2011. I would be more than happy to answer any questions you have regarding your review or reward discussion.” “Just as a reminder, please go into the Y!TM and acknowledge that we have had a performance review conversation. This should be completed by March 30”
Resources for Managers • • • • • • • • •
YERR Rewards Education Session for Managers Performance and Growth and Anticipated Contribution Indicators Quick Reference Guide Recorded session of Manager Rewards Overview eLearning & Guide: “Understanding Base Pay” Reward Tool FAQs Reward Tool Printing Instructions user guide Develop Employees page on Manager Central HRanswers@yahoo-inc.com