Bank of America or McDonald’s Case Study

Textbook

Best Practices in Talent Management: How th…

Author: Marshall Goldsmith, Louis Carter, The Best Practice Institute

ISBN: 9780470555231

CHAPTER 2

BANK OF AMERICA

BRIAN FISHEL AND JAY CONGER

A comprehensive, multi-phased executive on-boarding program that leverages multiple sources of feedback, coaching, and leadership and cultural competencies.

• Introduction

• Company Background

• The Leadership Dilemma

• The Need for On-Boarding Interventions at the Executive

Leadership Level

• Leadership Development Activities for Executive Leaders

• The Design Assumptions Underlying the Bank of America’s Executive On-Boarding Process

• The Bank of America’s Executive On-Boarding Program: Phases and Interventions

• Lessons for Designing On-Boarding for Executive Leaders

INTRODUCTION

The Bank of America is the first true national retail banking brand in the United States. Over the last two decades, the bank has grown dramatically, primarily through acquisitions. It began as the small regional North Carolina National Bank and has become one of the largest companies in the world. As a financial institution, it serves individual consumers, small- and middle-market businesses, and large corporations with a full range of banking, investing, asset management, and other financial and risk-management products and services. Following the acquisition of Merrill Lynch on January 1, 2009, Bank of America is among the world’s leading wealth management companies and is a global leader in corporate and investment banking and trading across a broad range of asset classes serving corporations, governments, institutions, and individuals around the world. The company serves clients in more than 150 countries.

In this chapter, we will describe the Bank of America’s executive on-boarding programs. Through a multi-phased approach supported by comprehensive feedback and coaching mechanisms, the bank’s programs have proven highly effective at both pre-empting leadership failures and for accelerating the knowledge and relationships necessary to step into an executive role. Our insights are drawn from an in-depth case analysis of these on-boarding programs at the Bank of America.

Company Background

The Bank of America example is one of the most comprehensive approaches to executive on-boarding in the field today. It also has a proven track record of seven years with successful results. For example, the Bank of America hired 196 externally hired executives between 2001 and May 2008 and had experienced twenty-four terminations—a new hire turnover rate of approximately 12 percent. This compares to estimates as high as 40 percent turnover in large corporations (Watkins, 2003). The Bank of America has tested its approaches out on a very large sample of on-boarded executives—over five hundred internal and external over the last seven years. Over the last decade, the Bank of America has been actively involved in acquisitions as well as organic growth. As a result, the organization must annually on-board a significant number of executives—both externally and internally sourced. This demand has created many opportunities to learn about the efficacy of various executive on-boarding interventions.

In addition, the Bank of America’s on-boarding program is expressly designed to help new executives learn to be facile at navigating the bank’s large matrixed organization as well as building and leveraging networks of relationships for career success and for implementing company initiatives. These same demands are common in most large corporations today. We feel that this particular case holds lessons that readers in a wide range of organizations will therefore find useful.

The Leadership Dilemma

The first-time executive leader faces three dilemmas as he or she steps into a new role. In a brief period of time, the leader must gain mastery over a complex and demanding role. The learning demands are often the most pronounced in a manager’s career. Second, expectations are high. It is assumed that the incoming executive already has the seasoning to lead in the new situation. After all, most executives have already spent years in managerial roles beforehand. As a result, there is little developmental feedback for those at the top of organizations. These two challenges produce the third dilemma. The probability of the incoming executive’s derailment is high. Complex new role demands combined with a lack of developmental support can produce a “perfect storm” in terms of failure on the job.

As can easily be imagined, the price of leadership failures in the executive ranks is very costly for any organization. Beyond the direct costs of on-the-job development, severance, and recruitment, there are more significant costs to the organization, such as stalled organizational initiatives, loss of business knowledge, damage to customer and staff relationships, dampened employee morale, and lost opportunities. In addition, there are the costs of recruiting a replacement as well as the replacement’s time in gaining mastery of the job and setting his or her own agenda. Given these high costs, there is a tremendous need for developmental interventions that place an emphasis on pre-empting failures in senior leadership roles.

While some organizations have developed formal on-boarding interventions, the typical approach tends to be quite limited in scope and does little to effectively on-board an executive leader. Most are simple orientation programs offering an opportunity to network with the CEO and the executive team. They may also provide some form of overview of the corporation, its financials, and its activities. A handful of organizations such as General Electric and Toyota do have more sophisticated on-boarding programs at the executive and general manager level (Fulmer & Conger, 2003), but such programs are very rare in the corporate world. Instead interventions to preempt leadership derailments tend to be dependent on performance appraisals and talent management practices. The underlying premise is that failures at the executive level can best be avoided through continuous formal performance feedback to a manager and through the careful selection of jobs and bosses over the life span of a manager’s career (McCall, 1988). While we share this view, we also believe that developmental interventions focused solely on the transition to the executive role are a necessity. Companies such as General Electric and PepsiCo have long designed their leadership education programs around career transitions, especially at executive levels (Conger & Benjamin, 1999). In other words, a comprehensive on-boarding program at the executive level has an essential place in any organization’s portfolio of leadership development initiatives.

The Need for On-Boarding Interventions at the Executive Leadership Level

The transition from line management to an executive role is a significant jump in terms of scale and complexity of the job. Executives operate at the boundary between their organization and the external environment, whereas most managers are more organizationally and functionally oriented. Executives must also formulate company-wide strategies and play a critical role in their implementation—roles which they played to a far lesser degree prior to their executive appointments. Their decisions around staffing, rewards, measurement systems, and culture create a context that shapes the strategic choices made by managers and specialists throughout the organization.

The executive role comes with enormous visibility and accountability. It is extremely demanding with little time for learning on the job. At the same time, developmental feedback and coaching for executives tend to be minimal. There are the occasional opportunities for formal coaching and executive education programs. But beyond these interventions, there is usually little else. In conclusion, for many managers, the promotion to an executive leadership role will be the steepest jump in their career history, and paradoxically the one with the least amount of transition support.

The limited developmental support is a result of several factors. First, it is assumed by most organizations that their senior-most talent is well seasoned, given the many years of managerial experiences required for entry into the executive suite. Yet positions in functional line management roles are rarely broad enough to provide sufficient preparatory experience.

Second, the promotion itself and the many years of prior management experience can produce an often misplaced self-confidence in new executives that they are up to the task. This sense of self-assurance may discourage new executives from seeking out developmental feedback and from being more proactive in self-reflection and learning. There is a natural desire to appear in charge—in other words, to be seen as an effective leader immediately. Seeking coaching and feedback would dispel this impression, and therefore executives may be hesitant to seek either.

Third, in the executive suite, the environment is also more politicized. Peers at the executive level are often competitors jousting for the top roles. As a result, developmental support and feedback from colleagues tend to be far more difficult to obtain. In addition, many CEOs do not see coaching their executives as an essential part of their role. So the new executive’s superior may provide limited or no developmental guidance.

All of these forces coalesce to increase the probability of leadership derailments at the senior-most levels of organizations. The problem is even more extreme for organizations when outsiders are hired into executive jobs. As noted earlier, one estimate is that 40 percent of senior managers hired from the outside fail within their first eighteen months in the role (Watkins, 2003). Given the above discussion, it is easy to see why a developmentally oriented program to help transition managers into executive leadership roles might not only be helpful but essential. But what exactly should be the aim of such interventions and how best to design them?

Ideally, a well-designed on-boarding intervention can and should achieve three outcomes. The first is to minimize the possibility of derailment on the job. By accelerating the new executive’s understanding of the role demands and by providing support through constructive feedback, coaching, and follow-up, a well-designed program can and should preempt failures. The second outcome is to accelerate the performance results of the new leader. For example, research suggests that a senior-level manager requires an average of 6.2 months to reach a break-even point—the moment at which the new leader’s contribution to the organization exceeds the costs of bringing him or her on board and he or she has acquired a critical base of insight into the job (Watkins, 2003). Effective on-boarding interventions should shorten this cycle of learning by accelerating the development of a network of critical relationships, clarifying leadership and performance expectations, and facilitating the formulation of more realistic short- and medium-term performance objectives.

A third outcome for on-boarding interventions concerns organizations that are aggressively pursuing acquisitions or experiencing high growth rates. In both cases, they must grapple with socializing an influx of outside senior managers. An effective on-boarding intervention should facilitate a far smoother integration and socialization experience for these incoming executives. It accomplishes this by helping them to rapidly acquire an understanding of the business environment, socializing them into the organization’s culture and politics, building a network of critical relationships, and familiarizing them with the operating dynamics of the executive team. In the sections to follow, readers will see how the Bank of America on-boarding programs successfully achieves these outcomes.

LEADERSHIP DEVELOPMENT ACTIVITIES FOR EXECUTIVE LEADERS

The impetus for the Bank of America’s interest in executive on-boarding is a product of its own corporate history. Over the last two decades, the bank has experienced dramatic growth through acquisitions. It began as a small regional North Carolina bank (North Carolina National Bank) and has grown into one of the largest companies in the world. As a result of this history of aggressive acquisitions, it discovered a need to more effectively on-board executive leaders from acquired companies and to quickly assimilate them into the Bank of America’s standards and expectations for performance. The organization’s leadership development group was very familiar with the research on executive derailment, which showed high failure rates for executives who were on-boarded into acquiring companies. In response, the bank developed on-boarding interventions. Over time, these programs have been expanded to the organization’s internal executive promotions to ensure that these individuals will succeed as well as feel that they were receiving attention equal to the outsiders.

It is important to note, however, that executive on-boarding is only one of several processes that the Bank of America deploys for the leadership development of its senior talent. While we explore this one activity in depth in this chapter, the bank’s success with leadership talent is a product of its multi-faceted approach to development at the executive level, along with Mr. Lewis’ and his executive leadership team’s unwavering support for leadership development. The latter is a critical driver of the bank’s success in this area. As illustrated in Figure 2.1, the range of the bank’s executive leadership development activities is extensive and includes selection, on-boarding, performance management, processes to upgrade executive talent, developmental experiences, and compensation.

A critical factor is that the executive development strategy is championed by the bank’s CEO Ken Lewis. In overview fashion, Figure 2.1 highlights the core dimensions of executive development at the bank. In addition, Lewis meets every summer with his top executives to review the organizational health and development strategies of each business. In two- to three-hour sessions with each executive, Lewis probes the people, financial, and operational issues that will drive growth over the next twenty-four months, with the majority of time spent discussing the key leaders, critical leadership roles necessary to achieving the company’s growth targets, and organizational structure. These meetings are personal in nature, with no presentation decks or thick books outlining HR procedures. But they are rigorous. Business leaders come to the sessions with a concise document (the goal being three pages or fewer to ensure simplicity) that describes strengths and weaknesses in their units’ leadership talent pipelines, given business challenges and goals. During these conversations, executives make specific commitments regarding current or potential leaders—identifying the next assignment, special projects, promotions, and the like. Lewis follows up with his executives in his quarterly business reviews to ensure that they have fulfilled their commitments. With this active commitment at the very top of the organization, leaders throughout the Bank of America sense that leadership development is a critical activity for the company. As a result, it is a widely held belief that leadership talent directly affects the performance of the bank. This belief sets up a mandate for the organization—to hire and keep great leadership talent.

FIGURE 2.1. Executive Development at Bank of America

Finally, the organizational culture promoted by Lewis is one that encourages candor, trust, teamwork, and accountability at all levels in the organization, especially at the executive level. The company has a deep comfort with differentiating individual performance (based on what is achieved as well as on how these achievements are attained). There is also a belief that today’s top performers are not necessarily tomorrow’s—that even the best leaders can fall behind or derail. As a result, the corporate culture is one in which the truth is more highly valued than politeness or tolerance for average or poor performance. These beliefs drive what and how the Bank of America builds and measures leadership success, whether it is in programs, performance management, or selection. This overarching environment is critical to the success of the bank’s executive on-boarding program. One cannot understand the on-boarding process without first appreciating the bank’s commitment to leadership and high performance.

The Design Assumptions Underlying the Bank of America’s Executive On-Boarding Process

Underpinning the Bank of America’s on-boarding interventions is a set of fundamental assumptions that have shaped its design features. These assumptions are the product of “lessons learned” from earlier experiences with on-boarding interventions and experiments. The baseline assumption is that successful on-boarding occurs over time—specifically during the executive’s first twelve to eighteen months on the job. Thus, any on-boarding process must be supported by multiple interventionsinstead of a single event, say at entry into the executive role. Interventions must occur at intervals over the executive’s first year to eighteen months, rather than solely within the first few months into the job. To be effective, on-boarding must also be supported by multiple resources, especially in terms of stakeholder resources. To engage solely the new executive’s superior (the hiring executive) is not sufficient to ensure a successful on-boarding experience. Instead the fullest possible spectrum of stakeholders must be involved in the new executive’s selection, entry, and on-boarding. Finally, interventions are completely dependent on the quality of the interaction between the executive and his or her stakeholders. A purely paperwork-driven or bureaucratic process will not produce optimum results. The approach must therefore focus on the quality of dialogue and interaction, rather than on documentation and formal processes.

These assumptions have directly shaped the on-boarding interventions that the Bank of America deploys. For example, the bank’s program is designed around multiple phases. Different kinds of interventions occur in each phase. It engages the new executive’s many stakeholders in a simple, transparent process, with the aim of achieving a broad range of outcomes. Dialogue and feedback are at the core of all of the various interventions. In the discussion that follows, we will examine how these design assumptions play out in each of the major phases of the on-boarding process.

The Bank of America’s Executive On-Boarding Program: Phases and Interventions

The on-boarding experience spans four core phases—selection of the new executive, initial entry into the executive role, a mid-point phase of 100 to 130 days on the job, and a final review phase at the end of the first year. We will examine each of these phases, its central activities, and its goals.

Selection Phase The first element of a successful on-boarding process is the selection process itself. While expertise and experience are the overriding criterion, there are additional dimensions when it comes to selection at the Bank of America: leadership ability and cultural fit. If the new executive is lacking leadership and interpersonal skills and cultural sensitivity, he or she will have a much higher probability of derailing. To ensure this does not happen, the human resources function at the Bank of America devotes a great deal 

CHAPTER 9

MCDONALD’S

JAMES INTAGLIATA AND NEAL KULICK

This chapter describes five separate initiatives that have been introduced in the past eight years to strengthen the areas of performance development, succession planning, and leadership development. For each initiative we describe how and why the changes were introduced, how they have been refined, and the multiple positive impacts they have had on the business over time.

• Context for Global Talent Management Initiatives

• The Need for Change

• Business and Global Workforce Strategy

• Striking the Right Global/Local Balance

• Customer and Employee Focus

• Evolution of the Talent Management System: Key Initiatives and Enhancements

• Initiative 1: Performance Development System Enhancement

• Initiative 2: Global Succession Planning and Development Process

• Initiative 3: The Leadership at McDonald’s Program (LAMP)

• Initiative 4: The McDonald’s Leadership Institute

• Initiative 5: The Global Leadership Development Program

• Overall Summary

CONTEXT FOR GLOBAL TALENT MANAGEMENT INITIATIVES

The Need for Change

For most of its fifty-four years of existence, McDonald’s has been quite successful growing its business while utilizing a decentralized approach to managing its global workforce. As the size, complexity, and global character of the business have continued to grow (to more than thirty-thousand restaurants in 118 countries serving fifty-five million customers per day), however, it became increasingly apparent that sustained success requires the development of more consistent and disciplined approaches to talent management and development. In response to this recognized need, McDonald’s has taken a number of steps, starting in 2001, that have enhanced its capabilities for developing local leadership talent and ensuring management continuity throughout its global system. This chapter will provide an overview of how McDonald’s system for developing its management talent throughout the world has evolved over the past eight years and will focus on describing the design, roll-out, initial impacts, and continued refinement of five major initiatives that have been introduced to enhance this system since 2001.

A number of factors led the organization to the conclusion that enhancements in its talent management and development system were needed. First, after many years of outstanding business results and growth, business performance began to falter. For the fourth quarter of 2002, in fact, the company declared the first loss in its history. In contrast to the significant problems surfacing in the company’s business results, however, the ratings of managers in McDonald’s performance management system were incredibly high and suggested that everyone was doing an outstanding job. More specifically, more than 90 percent of the managers were rated either “outstanding” or “excellent,” and over 75 percent were assessed as having the potential to advance to take on greater responsibilities. Senior management recognized that “something was wrong with this picture.” It was clear that the bias toward inflated ratings of both performance and potential did not align with the overall performance of the business. Furthermore, senior management noted that, despite the very high ratings of employees’ potential throughout the system, when key leadership positions actually needed to be filled, the company was frequently having difficulty finding individuals everyone could agree were truly ready for these roles.

These factors led senior management of the company to begin to take significant actions to upgrade the company’s talent management systems and processes on a global basis. (Note: While the initiatives to enhance talent development that are described in this paper were well under way at the time, the urgency for them was painfully validated when in April of 2004, McDonald’s CEO Jim Cantalupo died suddenly and unexpectedly. Fortunately, due to the heightened attention that was being given to talent management at this time, his successor, Charlie Bell, was quickly and smoothly named to step into the CEO role. Tragically, not long after Charlie Bell was named as CEO he was diagnosed with colon cancer and died within a year. Once again McDonald’s was challenged to address the succession issue at the very top of the organization and did so by naming Jim Skinner as CEO in January of 2005.)

Business and Global Workforce Strategy

Before launching into an in-depth description of McDonald’s talent management system, it is important to make clear how this system fits into McDonald’s overall business strategy and aligns with its key values. McDonald’s strategy to develop its global workforce is designed to be aligned with and support the execution of its over-arching strategic business goal, which is “to become everyone’s favorite place and way to eat.” McDonald’s has an overall “plan to win” that provides the global business with a common framework for developing tactics to reach this goal. The framework includes five key elements: (1) people, (2) place, (3) product, (4) promotion, and (5) price (see Table 9.1).

The five initiatives that have strengthened the company’s talent management system, and that will be described in this chapter, are key elements of the “people” component of the “plan to win.” They have been designed and implemented to enhance the organization’s global capability to develop and have “at the ready” the quantity and quality of leadership talent needed for effectively executing its “Plan to Win” and ensuring the company’s continued growth and success. Further, in order for these talent management initiatives to be successful, it was clear that they also needed to reflect the value that McDonald’s places on striking the right global/local balance and customer/employee focus.

Striking the Right Global/Local Balance

In order for McDonald’s to successfully execute its business strategy, the company has determined it needs to excel at developing and successfully implementing a balanced global/local approach in managing and developing its global workforce. While global frameworks and parameters can be used to set the stage for success and align the entire business with regard to strategy, essential tactics, and a shared company culture—at the end of the day, the actual execution of the company’s “plan to win” depends on the capability of local talent to develop and customize the elective tactics to fit their local culture and circumstances. As a business, McDonald’s success relies not only on the leverage that comes from its coherent business strategy and focus on standardizing core operations/processes but also on its ability to adapt its tactics to fit the needs and preferences of specific customers in particular regions or countries and to develop a deep connection between McDonald’s and the local communities in which it operates. This connection is reflected in McDonald’s commitment to local charities; to Ronald McDonald Houses; and, most importantly, to the very people who own, operate, and manage McDonald’s stores in any locale, country, or region. Given this, it is deemed highly important that the individuals operating the business come from, understand, and represent the communities and cultures in which the business is located.

TABLE 9.1. Framework for “Plan to Win”

All areas of world have freedom to execute in their locales as long as they stick within the basic parameters of the “plan to win” framework by (1) developing an aligned strategy, (2) meeting customer needs within the marketplace, (3) supporting the global brand campaign—“I’m Loving It,” and (4) ensuring that their peopledevelop and demonstrate key competencies that reflect the core elements of the company’s common culture and support its “plan to win.” In addition to having the technical skills and expertise to do their specific jobs, staff throughout McDonald’s are expected to be attentive not just to getting results but to doing so in a way that is aligned with the company’s shared global company culture and values.

Customer and Employee Focus

Whatever is done within McDonald’s is routinely assessed and measured against its impact on customers. Customer service and experience levels are key metrics that are embedded within the performance expectations for employees throughout the system. The company’s focus on and commitment to quality, service, cleanliness, and value (QSC&V) is strong. These variables have been shown to be strongly linked to customer expectations and loyalty. Any and all efforts to enhance the company’s global workforce management system incorporate a focus on key behaviors (customer focus and service orientation) and results-metrics (speed and quality of service, food, and environment) that deliver to customers what they value.

McDonald’s has also paid significant attention to its employees and their development throughout its history. The company is well known for the opportunities it has given many of its people to grow with the company and to rise (over time) from working as a member of a store crew to its highest executive ranks. In addition, the company has placed strong emphasis on its managers’ ability to create a work climate within which their employees are motivated to excel, give their best, and help to make McDonald’s “everyone’s favorite place and way to eat.” Since 1997, McDonald’s has used its commitment survey to assess the extent to which the desired work climate is being created throughout the company. This survey gathers employee feedback on a wide variety of specific management behaviors and practices that have been shown to be linked to employees’ personal satisfaction and commitment and to the company’s business success. More specifically, the survey assesses employee satisfaction with such factors as the support and recognition they receive, the extent to which their skills are utilized and developed, their workload, the degree of their empowerment, resource availability to get the job done, the quality of supervision/leadership, and their compensation /benefits. A manager’s scores on the commitment survey are one of many important factors considered in rating his or her effectiveness and potential for advancement. In addition, turnover and tenure measures are used to evaluate the effectiveness of managers—especially in retaining top talent. The global workforce initiatives described later in this chapter were developed so that they reflect both the customer and employee focus described above.

EVOLUTION OF THE TALENT MANAGEMENT SYSTEM: KEY INITIATIVES AND ENHANCEMENTS

As mentioned earlier, five separate initiatives were developed and have been implemented since 2001 to enhance McDonald’s talent management and development processes and support the organization’s goal of meeting the global leadership needs of the business. These include: (1) the redesign of the performance development system (PDS) for all staff positions throughout McDonald’s; (2) introduction of the talent review process for all officer-level positions; (3) the development and roll-out of a series of accelerated development programs beginning with the Leaders at McDonald’s Program (LAMP) launched in 2003 to enhance the development of high-potential individuals for officer level positions; followed by (4) the introduction of the McDonald’s Leadership Institute; and (5) the design and launch of the Global Leadership Development Program.

Initiative 1: Performance Development System Redesign

Prior to 2001, McDonald’s performance development system was comprised of (1) an “MBO-based” annual performance plan that measured performance against established annual objectives but included no assessment of how these results were achieved (that is, leadership behaviors); (2) a 5-point rating scale of overall performance ranging from “outstanding” to “unsatisfactory”; (3) a personal developmental planning element based on a McDonald’s-wide competency framework that included nine core competencies and four leadership competencies as well as a menu of “elective” competencies that could be chosen/applied as relevant in specific functional areas (see Table 9.2); (4) a three-level assessment of career potential that combined performance and demonstrated leadership competencies; and (5) an annual compensation system element tied to the results of the annual performance rating.

TABLE 9.2. McDonald’s Competency Framework (as of 2003)

While the process for rating performance and potential was not unusual in structure and design, the outputs of the system reflected the culture of McDonald’s at that time. Specifically, there was significant rating inflation for both annual performance (98 percent of managers were rated either “outstanding” or “excellent”) and potential (78 percent of managers were rated as having the potential to advance in the business at least one level). Because there was significant inflation in such ratings, there was little meaningful performance and compensation differentiation. Further, since almost everyone was rated not only as being an excellent/outstanding performer but also as having advancement potential, it made differentiation for purposes of realistic succession planning very difficult.

Senior management realized that because the business had been so successful for so long, a culture of entitlement may have set in. This was exemplified by many employees believing that their past success and associated rewards would guarantee their future success/rewards rather than their having to earn success each day with every customer. Senior management believed it was important to change the culture in order to help the organization become better able to face the challenging realities of a more competitive global marketplace. As one approach to signaling the need for this change to the organization, the top management team at McDonald’s asked human resources to redesign the performance development system in order to (1) place a stronger focus on accountability for results, (2) increase performance differentiation, and (3) enhance openness to change and innovation.

The redesign and enhancement of the system (designed for all staff throughout the company—not just officers) rolled out in 2001 included the following changes:

1. The addition of six key expected leadership behaviors termed “performance drivers” (see Table 9.3) as an element of how annual performance will be assessed so that managers would be measured not just on the “what” of their accomplishments but also on “how” they accomplished them. The performance drivers were very much like “competencies” but were written to measure the actual application of those competencies on the job versus measuring one’s level of capability. Further, these “performance drivers” were used as an additional key lever by top management to signal the importance of needed culture change along certain dimensions identified as critical to enable the organization to compete more effectively in the marketplace (greater accountability and performance differentiation, more innovation, etc.).

2. The introduction of a 4-point rating scale (“exceptional performance,” “significant performance,” “needs improvement,” and “unsatisfactory” to replace the 5-point scale) with a rating distribution guideline of 20-70-10 percent for each category, respectively (the last category of 10 percent includes both “needs improvement” and “unsatisfactory”). The new 4-point rating scale and distribution guidelines were put in place to help address the rating inflation problem.

3. A new incentive compensation plan that tied to the improved performance differentiation and ensured that those rated in the “top 20 percent” were receivingsignificantly higher compensation than those who did not.

4. A revised assessment of potential that utilized a combination of performance, performance drivers, position-specific competencies as criteria supported by a facilitated calibration roundtable process. This revised assessment of potential was also accompanied with a guideline that stated that no more than 20 to 25 percent (this guideline was set based on internal discussions regarding what was realistic as well as some external benchmarking done with outside companies) of managers in any given year were expected to be assessed as “ready” immediately for a promotion to the next-higher level and “ready within two years” for such a promotion.

TABLE 9.3. Performance Drivers

New System Roll-Out—Global vs. Local Emphasis How this new system was rolled out globally reflected the balance between the global and local approaches to workforce management. When it