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Building a Performance Management Culturea Black & Decker Case Study

October 27, 2009


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Black & Decker Overview

Five Evergreen HR Strategies

HHI Case Study

Performance Appraisal Process

Strong Organizational Culture - Winning CultureValues

Alignment of Systems & Processes

Differentiating Performance & Rewards

Talent Review Process Employee Communication

Additional Performance Management Tactics

Lessons Learned

Inspire Great People


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Black & Decker

Founded in 1910 and based in Towson, MD

Worlds largest producer of power tools & accessories,security hardware, plumbing products & fastening systems

2009 revenues (est.) of $5B; 20,000 employees Manufacture in 12 countries and sell in over 100 countries

Hardware & Home Improvement (HHI) division based inLake Forest, CA

Revenues of $800M, 3,500 employees in U.S., Canada, Mexico andChina

Brands include Price Pfister, Kwikset, Weiser, Baldwin and K2

Grow Through Innovation


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Black & Decker

Strong Brand Names


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Five Evergreen HR Strategies

Talent Acquisition

Employee/Organization Development

Winning Culture

Employee Communications

Performance Management

BDHHI Core Strategies


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HHIPerformance Management - 2006 Case Study

Annual Development Plan - ADP (Performance Appraisal)

10 Winning Culture Values worth 20/15/10% of overall scoredepending on organizationallevel (Dir., Mgr., Indiv. Contrib.)

Goals made up the balance of overall score - up to 25 goals! ADPs (ostensibly) completed in Q1 each year

No periodic progress reviews during the year

Low accountability for completing ADP process

No linkage to other business processes oralignment with aperformance management calendar

Excel spreadsheet based process



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HHI Performance Management - 2006 Case Study

Merit increases granted on a rolling 13 month basis

Not a strong commitment to a Pay for Performance culture -merits, annual bonuses and equity grants

Low level of organizationalalignment No Vision Statement

Strategic planning process was secret; no group level strategies

Strategies poorly communicated and not well understood

Up to 32 annual goals/metricsresults werent reviewed

regularly by Leadership Team and little accountability

The Result: Siloed functional organizations - lowalignment among Vision, Strategies, Functional &

Individual Goals, Performance and Accountability



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Change Creates Opportunity!

Created a cross functional team in 1/06

Direct reports to Leadership Team members

Advantages of this approach:

Greater diversity of backgrounds, ideas and participation createdimproved results

Performance appraisal process is enterprise-wide; requiredparticipation by employees who are knowledgeable of theprocess from all functional disciplines

Empowered a team to make improvements to an important corebusiness process

Involvement in revising the process increased acceptance andsupport for the changes

Accelerate Global Growth


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Goals of a Performance Appraisal Process

Set goals and measure results

Assess and improve performance

Create development plans and enhance skills Career development

Help evaluate potential for promotion

Change/reward appropriate behaviors

Align with companys vision/values/strategies/goals Differentiate levels of performance and rewards

Strengthen a Pay for Performance culture

Deliver Operational Excellence


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CrossF

unctional Team -F

ocus Areas Role of Winning Culture Values

Competencies

Rating scale & descriptors

IDP/career pathing

360s

Forced ranking calibration

Design of the form and instructions

Web enabling the process

Communication

Training



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The Solution (contd.)

IDP requirement added and linked to BDHHIU courses

Online 360s - employees rated on Winning Culture

values and competencies Forced ranking/guided distribution done initially but later

moved to Talent Review process

All training and communication done during Q406

Strong support from top management was key - processaccountability now delivers 99% plus completion rate

Tool has been adopted across BDK



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Strong Organizational Culture - Winning

Culture Values

Before (10) Achieving Commitments

Great People

Raise the Bar

Focus

Boundarylessness

Attitude

High Energy

Urgency

Risk Taking

Impact vs. Activity

After (4)

DemonstrateUnyielding Integrity

Inspire Excellence

Deliver on

Commitments Win Through

Teamwork


Yet Another Cross Functional Team Opportunity


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Great People


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Alignment of Systems and Processes

Vision

WinningCultureValues

Strategies

Goals(Functional &

Individual)

Metrics &Accountability

(BalancedScorecard)



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HHI Core Strategies


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Metrics & Accountability--Our Balanced Scorecard


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Differentiating Performance and Rewards

Merit increases - use a matrix of recommended increase %sbased on performance appraisal scores

Annual Incentive Plan (AIP) - metric is operating income factoredby working capital charge

Brands tied to their own results GMs have 75/25 split to drive line of sight alignment

Support staff tied to division results

Personal Performance Factor (PPF) as a second levelcalculation to leverage bonus from 0 - 150% ofactual; rangeof differentiation is typically 75 - 125%

Equityannual grant is tied to PPF with wide differentiation

All Rewards recommendations reviewed by President & VPHR

We rack and stack and give feedback to Leadership Team



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Organization Assessment Process (OAS)

Online employee survey conducted every 2-3 years Up to 95% response rate

HR is process gatekeeper

Focus groups make recommendations to management

accept/modify/reject Follow up action items owned by functional executives

Quarterly report out to President and VPHR to ensureprocess accountability and continuous improvement

Quarterly pulse surveys (6 questions) done in the interimstarted in Q1, 2008

50 - 75% response rate

Corrective action taken here as well

Results are published to employees via HHIOne (intranet)



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LF

Q1

LF

Q2

LF

Q3

LF

Q4

HHI

Q1

HHI

Q2

HHI

Q3

HHI

Q4

HHI

FYGoal

I feel safe in expressing myopinions openly without fear ofretribution

7.23 7.52 6.86 7.09 6.55

Managers are genuinely involvedin helping people develop their

potential

7.16 7.25 7.11 7.15 6.60

I have a good relationship with mymanager

8.01 8.12 7.60 7.63 7.24

BDHHI generally lives up to thevalues of the organization, evenwhen times are tough

7.51 7.73 7.51 7.56 6.95

BDHHI does a good job of keepingemployees informed about mattersthat affect them

8.01 7.98 8.10 8.03 7.33

How likely would you be torecommendBDHHI to a friend orcolleague as a place to work

7.43 7.76 7.23 7.31 6.91

Q209Lake Forest


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Talent Review Process (Succession Planning)

Prior process was a forms intensive, largely HR oriented exercise Low linkage to talent management processes

Little accountability foraction and follow up

Process was reengineered

Number of templates reduced, fewer metrics and rich dialogue

ensued Discussion is now focused around A positions, organizational

gaps, hipos/retention and employee development

Action items are followed up on

Core business process involving a 4 step, upwardly cascading process:

Functional Talent Review

Cross Functional Talent Review

Commercial Talent Review (Sales & Marketing)

Talent Review with Chairman and SVPHR

Four panel feedback is shared with all participants



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Employee Communication

Strategy driven by Director of Employee Communication

Communication philosophy is completely open and transparent

Frequently, redundantly and using a wide variety of media

Intranet (HHIOne) as employee portal

President visits alllocations for Town Hall meetings annually HHI-wide communications meeting every 2 months

Anonymous OneTeam questions

President conducts skip level meetings with direct reports tofunctionalleaders

1-800 Ethics Hotline (SOX requirement)

Pulse surveys and focus groups

Quarterly site newsletters

Launching digital signage

Accelerate Global Growth


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Additional Performance Management Tactics

Outside psychologist worked with LT and severalfunctionalleaders to build high performing teams

Built strong organizational culture

Quarterly biz reviews with LT of the 4 brands

Quarterly biz reviews with Chairman and CFO

Ops reviews in every functional support area

Use of self-assessments (Insights Discovery) asfoundation for development plans

Extensive use of cross functional teams

Associates now live our Winning Culture Valuesthefoundation for everything we do

BDHHI Core Strategies


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Recognized in 2008/2009 as one of Orange

Countys best places to work . . . .

2008 & 2009 2009


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Lessons Learned

As always, top management support is critical Must take an integrated, systems approach to effective

employee management processes

Initiatives must be aligned with the business operatingrhythm

Business is dynamic and your processes need to evolve

Solicit regular feedback from your customers

Cultural change is a team sport

The smart person uses all the help s(he) can get

Involve others cross functionally

Remember: The only sustainable competitive

advantage is your talentit must be well led, valued

and empowered to make a difference

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