Trends and Business Cases of : Performance Management 2 ( PepsiCo)

Performance Management & Best Practices

Practice 2 : PepsiCo Establish Performance Management as an Organizational Priority Based in New York, is an international food and beverage company. The company generated revenues of $26.9 billion and employed more than 100,000 individuals in 2001. Case Description PepsiCo introduces two discrete appraisal ratings to measure managers’ performance against people objectives as well as business management objectives. The two ratings are kept separate at all times and are directly linked to merit increases and bonuses for each employee. Goals To embed strong accountability for managers to perform against people and performance management targets as well as business objectives. To provide managers with a tool to effectively differentiate employee performance in the two key areas driving the overall performance of the organization. Results Completion of the first rating period revealed that a significant number of individuals score more highly on business performance than they do on people management. PepsiCo reports an increase in manager commitment to people management as well as higher levels of employee satisfaction with the performance management process because the dual ratings ensure finer performance differentiation and manager accountability for people management.

Practice Driver Employee research emphasizing the vital importance of the manager to employees’ commitment… …and the importance of manager quality to employee retention… …PepsiCo identifies an opportunity to improve its performance management system ① Accountability to People Management • People management undervalued • Financial rewards driven by business results ② Rating Categories • Lack of employee differentiation • Demotivating rating labels

Performance Management Practice in Context PepsiCo introduces a new “dual rating” system which examines employee performance from two perspectives: “Business Results and People Results” Performance Management Process at PepsiCo Dual Performance Rating

Dual Performance Rating Establish Two Performance Ratings Business Results include traditional financial measures like sales, revenues, etc. People Results measures include managing people, cross-functional teamwork, and personal development goals.

Dual Performance Rating Develop Measures for People Expectations Every “People Metric” is designed to be observable

Dual Performance Rating Evaluate and Calibrate People Performance Multiple sources of information on individual’s performance Calibrated across a group of managers to support accuracy and consistency of assessments Manager Calibration Meeting

Dual Performance Rating Assign Business and People Performance Ratings While Jeff excels in managing the business… Each employee’s achievements against key performance management objectives in both Business and People Results are identified and evaluated. …PepsiCo’s new dual ratings highlight a significant gap in achievements against People Results. In contrast to the old system, Jeff’s People Results are clearly visible and will be addressed

Dual Performance Rating Link Ratings Separately to Compensation Individuals’ merit increases and bonus awards are based 66 percent on Business Results and 34 percent on People Results A low rating in People Results significantly reduces an individual’s merit increase and bonus eligibility Compensation Formula Business Results Score ( ) × 2 = ( ) + People Results Score = ( ) Compensation Index ( ) Compensation Index (Example) Compensation Index Merit Increase Range Bonus Eligibility Score 3 - 4 0% 0-20 5 - 7 1-3 % 50-90 8 - 10 2-6 % 80 - 120 11 - 13 5-9 % 115 - 160 14 - 15 8-15% 150 - 200 Assuming a base salary of $150,000, Jeff is rewarded with only an additional $7,500 owing to his poor people score… …whereas Vanessa is rewarded an extra $19,500 merit increase and an additional $10,000 in bonus.

Dual Performance Rating Provide Performance Focus for Poor People Managers PepsiCo mandates that employees receiving scores lower than two in either rating must go onto a developmental action plan Performance plan outlines detailed actions to enable poor performers to lift their performance in either business or people ratings.

감사합니다. Our Customer 우리는 귀사의 유익한 파트너가 되길 원합니다. [와이즈포스트파트너즈 담당자 연락처] 와이즈포스트파트너즈 주식회사 HR부문 박 효종 수석 TEL : 02) 785 – 1112 (代) 011-424-0144 FAX : 02) 785-1107 phj@wpcon.co.kr