Building a Performance Management Culture a Black & Decker Case Study October 27, 2009

1. Building a Performance Management Culture a Black & Decker Case Study October 27, 2009

2. Black & Decker Overview Five “Evergreen” HR Strategies HHI Case Study Performance Appraisal Process Strong Organizational Culture - “Winning Culture Values” Alignment of Systems & Processes Differentiating Performance & Rewards Talent Review Process Employee Communication Additional Performance Management Tactics Lessons Learned Inspire Great People

3. Grow Through Innovation Black & Decker • Founded in 1910 and based in Towson, MD • World’s 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 in Lake Forest, CA • Revenues of $800M, 3,500 employees in U.S., Canada, Mexico and China • Brands include Price Pfister, Kwikset, Weiser, Baldwin and K2

4. Strong Brand Names Black & Decker

5. BDHHI Core Strategies Five “Evergreen” HR Strategies • Talent Acquisition • Employee/Organization Development • Winning Culture • Employee Communications • Performance Management

6. Inspire Great People HHI Performance Management - 2006 Case Study • Annual Development Plan - ADP (Performance Appraisal) • 10 Winning Culture Values worth 20/15/10% of overall score depending on organizational level (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 or alignment with a “performance management” calendar • Excel spreadsheet based process

7. Grow Through Innovation 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 organizational alignment • No Vision Statement • Strategic planning process was secret; no group level strategies • Strategies poorly communicated and not well understood • Up to 32 annual goals/metrics—results weren’t reviewed regularly by Leadership Team and little accountability • The Result: Siloed functional organizations - low alignment among Vision, Strategies, Functional & Individual Goals, Performance and Accountability

8. Accelerate Global Growth “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 created improved results • Performance appraisal process is enterprise-wide; required participation by employees who are knowledgeable of the process from all functional disciplines • Empowered a team to make improvements to an important core business process • Involvement in revising the process increased acceptance and support for the changes

9. Deliver Operational Excellence 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 company’s vision/values/strategies/goals • Differentiate levels of performance and rewards • Strengthen a “Pay for Performance” culture

10. Inspire Great People Cross Functional Team - Focus 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

11. BDHHI Core Strategies The Solution • Nine month project from team formation to deployment of a web-based solution • Launched tool in 10/06 for 2006 performance appraisal and 2007 goal deployment • Reduced Winning Culture Values from 10 to 4 and rated them on a “pass/fail” basis • Competencies introduced—6 for individual contributors and a 7th for associates with direct reports • 50% of overall rating • Goals reduced to 5--8 maximum • 50% of overall rating • Five point rating scale initially introduced and later changed to 4 point to align across all of BDK

12. Inspire Great People The Solution (cont’d.) • 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 - process accountability now delivers 99% plus completion rate • Tool has been adopted across BDK

13. Grow Through Innovation “Strong Organizational Culture - Winning Culture” Values …Yet Another Cross Functional Team Opportunity Before (10) • Achieving Commitments • Great People • Raise the Bar • Focus • Boundarylessness • Attitude • High Energy • Urgency • Risk Taking • Impact vs. Activity After (4) • Demonstrate Unyielding Integrity • Inspire Excellence • Deliver on Commitments • Win Through Teamwork

14. Great People

15. Deliver Operational Excellence Alignment of Systems and Processes

16. HHI Core Strategies

17. Metrics & Accountability--Our Balanced Scorecard

18. Inspire Great People Differentiating Performance and Rewards • Merit increases - use a matrix of recommended increase %s based on performance appraisal scores • Annual Incentive Plan (AIP) - metric is operating income factored by 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 level calculation to leverage bonus from 0 - 150% of actual; range of differentiation is typically 75 - 125% • Equity—annual 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

19. Grow Through Innovation 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 ensure process accountability and continuous improvement • Quarterly “pulse” surveys (6 questions) done in the interim—started in Q1, 2008 • 50 - 75% response rate • Corrective action taken here as well • Results are published to employees via HHIOne (intranet)

20. Q209 Lake Forest

21. Deliver Operational Excellence Talent Review Process (Succession Planning) • Prior process was a “forms intensive, largely HR oriented” exercise • Low linkage to talent management processes • Little accountability for action 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

22. Accelerate Global Growth 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 all locations for Town Hall meetings annually • HHI-wide communications meeting every 2 months • Anonymous “OneTeam” questions • President conducts skip level meetings with direct reports to functional leaders • 1-800 Ethics Hotline (SOX requirement) • Pulse surveys and focus groups • Quarterly site newsletters • Launching digital signage

23. BDHHI Core Strategies Additional Performance Management Tactics • Outside psychologist worked with LT and several functional leaders 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) as foundation for development plans • Extensive use of cross functional teams • Associates now “live” our Winning Culture Values…the foundation for everything we do

24. Inspire Great People Recognized in 2008/2009 as one of Orange County’s best places to work . . . . 2008 & 2009 2009

25. “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’ “operating rhythm” • 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 talent…it must be well led, valued and empowered to make a difference