# Presentation: 591916

## Office of the Comptroller of the Currency (OCC)

***Compensation and Performance Management:***
***Principles, Tradeoffs and Decisions***

**August 28, 2001**

## Table of Contents

- Why Change?
- Project Structure and Process
- Leadership Interviews and Focus Groups
- Education
- Decision Making: Key Elements
- Base Salary
- Variable Merit and Special Increases
- Performance Management
- Where Are We Now?
- Key Learnings:  Summary

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## Why Change?

- Reward a flexible and technology-proficient workforce
- Reinforce knowledge, skills and certifications/accreditations
- OCC repositioning, including right-sizing, downsizing, and restructuring
- It had been seven years since implementation of current system
- Requirements:
- Stakeholder input
- Pay philosophy
- Data driven
- Clear expectations and updated information
- Safeguard employee morale

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## Project Structure and Process

- Web
- E-mail
- Newsletter
- Q&A
- Training
- Briefings

**Executive Committee**

**Oversight ****Committee**

**  ****Design**

**  ****Interviews**
**  ****Decision Making**

**Implementation**** Steering ****Committee**

***Employee Focus Groups***

**  ****Input**
**  ****Feedback**

## Leadership Interviews

***Perceptions About the External Environment***
**Many external forces demand OCC nimbleness and skill**
- Bank consolidations have changed the structure of the industry (number and types of banks supervised)
- OCC seen as a premiere bank regulator
- Success demands striking a difficult balance
- Enabling appropriate risk vs regulation vs. consultative services
- Partnerships are critical - e.g.,
- Other bank regulators

## Leadership Interviews

- Project leaders must:
- be clear with employees about scope
- get thorough and diverse input, including from “person on the street”
- communicate every step of the way
- involve and train supervisors in program design and implementation
- assure leadership involvement and focus

## Interviews and Focus Groups

***Perceptions*****  of Classification System**
- Strengths
- 25 grades allow frequent promotions  good for recognition
- Career ladders provide good opportunity for growth
- Higher grades for examiners recognize primary line of business and provide status
- Weaknesses
- Complex system
- Too many position descriptions
- Too many grades -- difficult for managers/employees to differentiate
- OCC culture encourages precision, which intensifies classification focus
- Grades exist but not enough real promotional opportunity
- Limited flexibility to move people around

## Interviews and Focus Groups

***Perceptions *****of Base Salary System**
- Strengths
- Perceived as generally equal with other FIRREAs
- Allows recruitment of high-quality talent
- Incorporating part of Geo Pay improves base for pension, etc.
- Weaknesses
- Not believed to be competitive with private-sector financial institutions
- Little differentiation between new and long-term employees
- Salary “stops” seem unfair and discourage performance

## Interviews and Focus Groups

***Perceptions *****of Performance Management System**
- Strengths
- Complies with Federal law/regulation
- Provides some financial differentiation among performance levels
- Generic standards make process easier and more consistent
- Weaknesses
- Perceived inconsistencies among rating officers
- Evaluation creep
- Limited merit budget and differentiation make promotions too important
- Generic standards are not accurate for all employees

## Education Precedes Design!

- Web
- E-mail
- Newsletter
- Q&A
- Training
- Briefings

**Executive Committee**

**Oversight ****Committee**

**  ****Design**

**  ****Interviews**
**  ****Decision Making**

***Employee Focus Groups***

**  ****Input**
**  ****Feedback**

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**Implementation**** Steering ****Committee**

## Education Precedes Design!

***Two Most Common Approaches for Compensation Systems***
- Job-based
- Evaluate and pay for the job
- Person-based
- Evaluate and pay for the person’s skills and competencies
- Most organizations use a combination of the two

## Multiple Grade Systems vs. Broadbands:  A “Schematic”

_***Grades***__***	***__***Broadbands***_

- Grade 25

- Grade 1

***Band D***

***Band C***

***Band B***

***Band A***

- Considerations include:
-   Internal equity vs. management     flexibility
-   Motivational impact of promotions
-   Ability to distinguish between grades
-   Desirability of predictability
-   Burden of administration
-   Employees’ perception of management    fairness

***There are Pros and Cons to each system***

## Geographic Differentials

- Cost of Labor (Locality Pay)
- Based on surveys of actual salaries in various cities
- Cost of living is subsumed in data
- Data for actual jobs used; not a “model employee”
- Cost of Living (Geo Pay)
- Based on cost of living in various cities
- Market basket of goods and services
- “Profile employee” expenditures measured

## Development of an OCC Reward Philosophy

- What is a reward philosophy?
- Articulates how an organization leverages its pay and benefits programs to support its business objectives
- Consists of the following elements:
**Money**
- comparator groups
- targeted competitive level(s)
- reward elements
**Mix **(degree of emphasis among reward levels)
- base vs. incentive
- cash vs. non-cash
- short-term vs. long-term

## Development of an OCC Reward Philosophy

**Messages** (what the organization wants its people to “hear” from its pay program)
- “We’re all in this together.”
- “The market drives our pay because we need talent.”
- “We pay for performance.”
- “We pay for skills.”
- “Stay with us for your entire career.”
- etc.
- Must be tempered (but not driven) by budget considerations

## Culture Sort Discussion

***Culture -Sort Analysis***

- Brief survey tool
- Provides an assessment of OCC’s current desired work culture
- Identifies priority gaps
- Provides input into the design of a compensation system that will support OCC’s goals
- 56 behaviors/activities (culture attributes) were ranked from most supported to least supported
-  For the current work culture
-  For the desired work culture

## Culture Sort Discussion

***General Conclusions***
- Across all groups, four themes emerged around the types of  changes that are most needed to achieve the target culture
*Increase innovation, risk-taking, and flexibility*
*Trade hierarchical culture for empowerment and speed*
*Attract and retain top talent*
*Create a new employee-employer expectation*

## Culture Sort Discussion

***	******          ******Overall Results:  Graphic Depiction of Current vs.   ******	******Target Work Culture***

***Functional***

- Disciplined

- Reliability

***Process***

- Unified

- Responsiveness

***Time-based***

- Adaptive

- Opportunism

***Network***

- Flexible

- Venturesomeness

***Degree of Correlation to Hay’s Culture Models***

## Decision Making Tool:  OCC’s Top 10 Compensation Objectives

## OCC’s Top 10 Compensation Objectives

## Decision-Making Tool:Performance Management

***Type of System***

## Decision-Making Tool:Performance Management

***Type of System***

## Decisions

**Representative Decisions Made**
- Compensation System
- 9-grade structure effective 1/1/01
- Whole job slotting classification system
- Special increases paid out twice yearly
- Promotional increases enhanced
- Retain current differentials, i.e., Geo Pay
- Merit Increases
- Variable merit payouts
- Common anniversary date for all employees
- Manage increases for each department via budget pools
- Merit calculated off of actual salary

## Decisions

**Representative Decisions Made (cont’d)**
- Cost Controls
- New system with all components will be cost neutral
- Budget pools primary internal control
- 100% lump sum at range maximum
- Performance Management
- Implement new system 10/1/01 (FY2002)
- 4 level system
- Individual outcome-based performance planning
- Competencies for development in 2001
- Competencies replace skills-based standards

## The Paradox

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## Variable Merit Increases

- Range of merits
- Budget pool
- Reconciliation process
- Pilots!

## Special Increases

- Permanent 5% increase to base salary to a set % of workers
- Recognizes how an employee’s *job has* *changed* vs. *how well* employee performed
- Employee has *clearly* increased contributions
- Employee *applies and demonstrates* new skills and/or carries out expanded duties
- New or expanded contributions are *ongoing*
- Funding is control

## Where Are We Now?

- Getting Ready for 2002:
- 2002 Salary Planning
- FIRREA Survey
- Geo Pay
- Performance Management
- 360 Feedback
- Finalizing Competencies
- Finalizing Rating System
- Training
- Pay
- Performance Management
- Ongoing Communication / Focus Groups

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## What Have We Learned?

- Leadership/Employee Involvement is Critical
- Education
- Tradeoffs
- Systematic Change Requires Inter-disciplinary Collaboration
- Effort pays

***It Takes Time!***

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