JC Herrera – McAfee: Goal management, pay for performance and business execution

Steve

Hi, this is Business Execution Radio, I’m your host, Steve Hunt. This week we spoke with JC Herrera, who’s the VP of Compensation, Benefits and HR Automation for McAfee, and JC talks about the goal setting and pay for performance process used at McAfee, which involves five different events, four quarterly goal reviews as well as an annual focal, and he shares some of the things that they’ve learned in terms of putting in a really effective pay for performance strategy. So let’s listen to JC Herrera from McAfee.

Hi, this is Steve Hunt with Business Execution Radio. Today we’re talking with JC Hererra, who’s the VP of Compensation, Benefits and HR Automation for McAfee. Welcome to the show, JC.

JC

Hi Steve, thanks, good to be here.

Steve

So can you tell us a little bit about what you do, with that somewhat lengthy title?

JC

Lengthy title indeed. At McAfee, I’m responsible for really helping design and develop compensation and benefit programs that get us to attracting and retaining the right type of talent here for McAfee. Along with that though is, I also have a responsibility for making sure that our systems, from an HR perspective, are in good alignment with the goals that we’re trying to achieve, so we are trying to build systems for our employees that can help them manage their entire career here at McAfee, from the beginning of their career here all the way through to the end.

Steve

I think it’s sort of interesting that you’ve got compensation and HR automation together, which to me makes a lot of sense, but you’ve got a lot of organizations, when you look at structures that are put in place to sort of motivate and incent employees to act a certain way, often compensation is a little black box off to the corner, so people do all this stuff around performance management and goal setting, but the comp lives on its own, but it sounds like you’re really trying to say, compensation should very much be tied to the other things we do around performance management and career development – is that true?

JC

That’s absolutely right, I mean we’ve worked very hard in the last couple of years to make sure that we, as a company, have a routine around managing performance. A great example of that is we actually do set both company and individual goals on a quarterly basis, plus we have our annual focal and merit review session, so ultimately here at McAfee we’re reviewing people’s performance at least five times a year.

Steve

Wow, so how does that play into the compensation, is it just an annual compensation change? Do they get quarterly bonuses, or how does that play out?

JC

We certainly do have quarterly bonuses, and one of the best things that I think that gives us is a really good pulse at what’s going on with our employee population, it helps us steer, I guess, people’s goals, and help people get aligned to the overall company goals. I think that a lot of times employees struggle with how they fit into the overall larger scheme of things, with us being able to use our tools that are in place today, every employee can match each of their individual goals into one of our ten strategic imperatives for the year. So very seldom do we have confusion, I guess, as to where people are affecting the larger picture. So what we try to do is to make sure that people have goals that are aligned, not only to their manager, but their manager’s manager, and ultimately the larger overall company goals as well.

Steve

So you mentioned that you do this performance review five times a year, and it allows you to create this alignment – now, I’m guessing in a lot of organizations, if you were going to suggest we should go from one annual review to five times a year, the line managers would have a mutiny, not because they shouldn’t, but because how they currently review performance review processes. Have you always been doing it five times a year? – or is this something that you have created more recently?

JC

Well, it’s certainly, quarterly goals were certainly the norm here at McAfee prior to me joining the company, one of the things that we’ve done is to formalize it a little bit better. We’re not looking for quarterly goals to replace the annual performance review that you have at focal time, I mean our quarterly goals are really just that, you get people aligned, whether people are working on for the quarter, try to coach people on your normal smart goals, so your top three or five objectives sometimes stretch objectives that you’ve got for the quarter, and it’s nothing more that being able to identify in writing down on paper what you’re going to work on for the quarter.

So we’re not going through a full-blown review every quarter, but since we’re tying some compensation to it on a quarterly basis, it just makes sense for us to be able to document it, to make sure that people are aligned right from the get go.

Steve

Now, when you look to tie the compensation, which obviously makes probably people take those conversations much more seriously, what were some of the things you really had to manage, or what worked or maybe what didn’t work so well, when you looked to make a real clear link between these quarterly goals and people’s compensation?

JC

Yes, certainly, I mean I think with any company that’s going through something like this, you have to manage the expectation about bonuses or entitlements, and I think that one is making sure that both employees and managers understand that performance management should be a part of their daily routine, it’s a part of their quarterly routine. Sometimes you over-achieve on a quarter, and sometimes you might fall short for other reasons, but what we have tried to do is to make sure that our systems can support that philosophy, so sometimes we have, we’ve got a large majority of our employees receiving something other than 100%, which means they either over-achieved in a particular quarter, or they under-achieved, and what it does for us is it forces managers and employees to sit down and actually have a discussion about how they performed for the quarter, and we’ve done, I think, fairly well in taking the entitlement out of bonus pay, I don’t believe now that employees believe it’s an entitlement, they understand that both the company and themselves need to perform to the goals that they’ve identified in order to make that bonus.

Steve

What were some of the lessons learnt as you went through that process of saying, look, a bonus is called a bonus for a reason? – as far as getting employees to realize that it’s OK not to get 100% of your bonus?

JC

Yeah, boy, I think the big lesson learnt is you can never over-communicate this type of stuff, and the other one is that you’ve got to stick to your word, I mean there have been some quarters where we, as a company, have paid out less than 100% of our bonus, and then there’s been other quarters where we’ve paid more. I think the sooner you get to that routine, and being open and honest with people about how they performed, the easier the conversations will be; at the time you come to your year end performance review, there ought to be no surprises. I think the biggest lesson for us is, you can never over-communicate this stuff, and your measurement is really, how many people at the end of the year do you believe were surprised by their overall performance, and we’re shooting for the number zero in that category.

Steve

Do you actually track that? – do you have a survey that asks that question?

JC

Yeah, it'd be a good one for us to ask - we've not, a lot of this information typically comes through anecdotal information or feedback that we get from our employees. So far, so good, I mean the routines that we’ve put in place around quarterly goal setting and then the annual performance reviews have gotten good reviews, and throw a system on top of that, where people can clearly identify where they are in their performance management routine, have records of how they performed in other quarters, I feel like it’s working pretty well here.

Steve

Now, you mentioned the communication, and to me when you make a change like this, where the rubber really meets the road is that manager talking to the employee, and looking them in the eye and saying, you’re only going to get 50% of your bonus, whatever, and feeling good about that conversation now. I think a lot of times managers avoid that, because they take the path of least resistance on compensation, which is kind of giving everyone the same increase? I’m curious if there’s stuff that you do with your managers to equip them to have that discussion and be more confident in their ability to have that discussion with employees.

JC

Yeah, there certainly are, we hold training sessions periodically, obviously at the time that we do our annual focal review we will hold webinars and in person training sessions with our managers to coach them through having those types of sometimes difficult discussions with employees. We hold the same session for employees as well, so they know what to expect. We talk about how we rate performance, how we’ve got really the five times a year that they ought to be sitting down with their managers to talk performance, and sometimes it’s above your target, sometimes it’s below. Again I think the continuous improvement on training and getting in front of managers and employees is something we have to continuously work on, and I don’t think that any company does it 100% correct, but we’re learning, we try to put out some tools on our intranet that are self-taste, so we’ve got a couple of recorded sessions in there where managers can just log in and take a look at how they might have that tough performance management discussion, and then we’ll hold those live meetings from time to time throughout the year.

Steve

So it’s really just that constant communication you’re coming back to again? Sort of changing the topic a little bit, one of the things about pay for performance that’s a big decision is, what percentage of somebody’s pay should be bonus as opposed to just core salary? – how did you decide that, and is it the same for everyone across the company?

JC

Yeah, you know, it’s not the same for everyone across the company, there’s a number of different factors here. At McAfee, we have a broad base bonus program, so the goal is to have everyone have some sort of variable pay at risk, and that would be tied to both company and their own individual performance, that’s the goal, that’s the philosophy that we follow. Obviously, sometimes when we have, like mergers and acquisitions activity, it takes a little bit of time to get folks on to the same package, we can’t just increase costs just to put people on a variable pay plan, we have to kind of feather some of those costs in.

Now, on the other side of that is, we take a look at very strongly market data, and how we compare to market data, both from a base salary perspective as well as the total OTE around target earnings. Typically, in a company like ours, in our industry, you have more pay at risk the more senior you get. So we try to follow some guidelines, we do give our managers a range of flexibility in terms of how much variable pay they ought to be allocating to an individual, but those are the two things, we’ve got an overarching philosophy that we believe everyone should have some pay at risk, and share in the success of the company, and then two, take a look at ourselves against the market.

Steve

Do you ever ask employees how much they’d like to have at risk?

JC

You know, we have not, I think that in the revamp of some of our programs here, one of the things that we are going to get out to do is to do an employee survey, we’ve not had one in a few years, it’s something that we want to get to, get a pulse of what employees are thinking. I think that by nature you’ve got the split in how much risk people are willing to take. I think if you were to ask the average person, especially in the last 12 months, how much risk they would want to take on in their overall pay, they’d probably say, pretty little. On the other hand, if you go to someone who grew up in sales, as in a sales person type mentality, they’re going to put as much risk probably in their pay, because they know that the reward’s at the end. So we’ve not asked that question, but would like to.

Steve

Yeah, I think that’s interesting, that I agree with you, as the economy changes, it’s not that people, no-one wants to take risks, they just don’t want upside risk.

JC

Absolutely!

Steve

Having worked so much with pay for performance, and having so many employees to do in a system that is working in general, I am curious though, because there’s a lot of debate, if you look in the academic literature on motivation around pay for performance across different individuals – are there any things that you would caution organizations, as they start implementing pay for performance – this is stuff you need to get right, or this is stuff that’s going to happen, just be ready to deal with it?

JC

Yeah, again I think every company is built a little bit differently. It takes time to change the philosophy, or a pay philosophy, in a company. I think that, if you are an organization that is willing to, quarter after quarter, talk to all of your employees about both how the company performed, and how individuals performed against their goals, I think that having a pay for performance plan like the one that we’ve got could work for you. We have a quarterly meeting where our CEO stands up in front of the entire company, and you can either see him live or on a webcast, or a recorded session, where he’ll talk about the company’s performance. If you’re a company that maybe doesn’t get out in front of employees as often as we do, you might want to think about a different way to do things, but for us, it works, it’s something that is a part of our culture, which is why I believe it works, and I think that folks need to do what they believe would be much more accepted, and would be valuable to their own organization.

Steve

I think it sounds like, if you’re going to do pay for performance, what people are going to ask is, why did I receive what I got, so as a company you’d better be really good about being comfortable at explaining the “why” before you tell them the “what”.

JC

Absolutely.

Steve

Sort of shifting gears from the variable pay to merit pay, I assume you also give merit pay increases, is that based on the focal, the annual focal review?

JC

Correct.

Steve

How do you handle that, how is pay for performance worked into the merit pay conversation?

JC

Yeah, that’s a great question, we really do work with our managers on being able to identify their top performers first, and it’s no big secret in terms of how we allocate budgets here, and the idea is that your top performers ought to be getting something more than your strong performers, and your strong performers ought to be getting something more than your normal or average performers. We work hard again at the communication here, the more you give to your normal and average performers, the less you can give to your truly top performers, call it the top 10% of your group, and I think that resonates pretty well with folks. At the end of the day, when you think about the economy that we’re in today, when the economy picks back up, probably the folks that have the best chance of leaving, if they wanted to leave, are your top performers, they’re probably the ones that are most networked, they’ve got an unbelievable skill set that’s very valuable in the marketplace, I think that’s the group that you can’t afford to lose. So we do a pretty decent job of making sure that we communicate to managers that you’ve got a finite amount of money, and boy, you’ve really got to take and look after your top 10%.

Steve

Do you give managers full discretion on how they give that, so could they take their entire pot of money and just give it to one person, if they felt that made sense? – or do you have some strict guidelines that force them to distribute it a certain way?

JC

Yeah, it’s not a policy by any means, but it certainly is a guideline. I think that we do a decent job, well one, we’ve got the tools to be able to report on it, but we do a pretty decent job of going back and taking a look at our data after it’s been submitted. In our HR business partner, we’re working very closely with our compensation team, and to be able to identify one-off cases like the one that you just described. Chances are, a manager has got a reason for doing it, but we would go back and go through some coaching, and really identify what they’re trying to do there. In a lot of cases maybe, it’s not all around pay, I mean you’ll hear that a lot, people don’t leave because of pay, but there are other things throughout the year that we can do in order to keep that employee motivated. So it’s not a strict guideline, we do go back and have a lot of active discussions with our line managers, so we try to do things that way, as opposed to put a hard stop on things.

Steve

How do you handle them, I’m sure you’ve had this conversation, the manager who says, well, all my employees are top performers, therefore I’m paying them all the same amount?

JC

That is a very tough one, for sure, it’s a performance management discussion at its best, I mean I think that at some point, and being a good manager means that you’ve got to be able to differentiate. We do have slightly different conversations around folks who truly have high performing teams, and sometimes an example might be, they will say, you know, your entire team has raised the bar – that’s got to be that one person who’s raising it just a little bit further, so we try to go at it a different way, maybe identify the one out of the 15 that’s doing really well, and have that be the new bar that’s been set. So we do have nice discussions about those, the fact of the matter is there are some small teams that are really just kicking butt out there, so how do we best reward those folks, and put them relative to the rest of the company?

Steve

Have you had instances where you’ve actually said, you’re right, your team, everyone here warrants the highest possible percentage, while somebody else’s team, nobody warrants it, we’re taking money from that team and we’re giving it to this team?

JC

You know, we leave that to groups who have larger numbers. As an example, when we set budgets, we do it at a pretty broad level, but for each executive or vice-president in our organization, they’ve got hundreds if not thousands of people, and they’re well within their rights to take from one group and move to the other, based on their judgement of performance. It’s not that extreme of a case in a lot of cases, maybe it’s a percentage point here versus there, or maybe you’ve got a group that’s all brand new to McAfee, and they’ve just been hired on, maybe they don’t need the full budget, so we do let managers do that, and we work those budgets behind the scenes.

Steve

You know, JC, as you’re talking, the thing that’s coming through to me, that makes this work for you, and tell me if this is not on, is saying, it’s not so much about having rigid policy, it’s about having guidelines and then having real conversation around why people may not always have to follow those guidelines.

JC

You’re absolutely right, I mean I think that the differentiator, and not just here at McAfee, and hopefully we do this well, but anywhere you are, is to be able to know what’s going on in your organization, and to do that you need to be connecting, and you have active discussions with your line managers, coach them through what they’re seeing or what they’re hearing from their employees. But that active communication, I say that the anecdotal information I get on a daily basis is probably more valuable than any market data that I’m getting that might be six months old, right? I mean I think being able to talk through your guidelines with managers, and make them broad enough, but guiding them in the right direction, is probably the most valuable part of performance management that we do.

Steve

I think that’s a great example, I think you kind of contrast companies where the effective approach is, we issue guidelines as tools to structure good conversations, as opposed to we issue policies to avoid having conversations.

JC

Absolutely right on, I like to think of us as having nice guidelines that are relevant to our market, and relevant to what our managers need to be equipped with, well you know policies are a little bit tougher, and I don’t think that it’s in our culture to take that hard line, we’re always willing to listen to different market pressures that our managers might be getting, we try to set that guidelines to those.

Steve

Well JC, thank you for sharing your insights, it sounds like you have put together a pay for performance process both at the quarterly level and the annual level that is really working for you. I’m curious, as we just come to the end of the show, if there’s any last thoughts or comments that you would have for listeners that are saying, wow, that sounds like that’s a good approach, we want to do more of this pay for performance stuff – any general thoughts or recommendations you have for them?

JC

Yeah, I think my number one recommendation is to make sure your executives are buying in, and that it’s something that fits in your culture. It’s something that we’ve worked hard to change and improve upon here at McAfee, but there’s no way we could feel like it’s a successful program without our executives really buying into it, and also without it being culturally accepted, and one of the things that, like I said earlier, I believe we do pretty well is to get out in front of employees right from day one, employees know that we’re setting goals on a quarterly basis, so you can never over-communicate this stuff, get executive buy in on it, make sure it fits with what you are trying to do as an overall company.

Steve

So really make sure those executives are willing to put the time in that’s required to set those goals, communicate those goals, talk about those goals?

JC

Absolutely.

Steve

Well, thank you so much for appearing on the show, JC, and we look forward to maybe having you back again on Business Execution Radio.

JC

That sounds good, thanks Steve.