The Fatal Flaw in Performance Reviews No One Ever Talks About...

Compensation Planning for 2012

Several members of the compensation café – Ann Bares, Jim Brennan and myself – teamed up yesterday for a TLNT webinar to examine where compensation practice is headed in 2012 and beyond. 

You can replay the webinar here or read my summary of compensation trends over at the Compensation Cafe.

Beyond Pay for Performance

Are you in a pay for performance rut?  Maybe it's time for a new approach. 

Read more in my latest post Stuck on Pay for Performance? at the Compensation Cafe.

Top 5 Talent Management Trends in 2011

Here are five of my favorite talent management trends to help you get excited about 2011. Why? Because these trends promise change, growth and opportunity.

Trend #1: Creative talent acquisition strategies - In response to talent scarcity companies will continue to pursue creative strategies to acquire top talent such as contractors, remote workers, retirees, part-time workers. As a result, the workforce will grow increasingly culturally diverse, global, virtual, connected, and multi-generational. Needless to say, traditional top-down hierarchical management styles and one-size-fits-all approaches to talent management won't cut it with the modern workforce.

Trend #2: Focus on engagement - Few top performers consider themselves highly engaged and as many as 1 in 5 are actively looking for new opportunities. This isn’t surprising given that the workforce has undergone both a cognitive and a demographic shift while talent management practices lag behind. Given ample evidence that companies with highly engaged employees outperform companies with neutrally or negatively engaged employees, over the next few years we'll see more companies adopt - not just talk about - best practices such as closer scrutiny of manager quality, continuous feedback, talent mining and mobility, workforce segmentation, employee recognition programs and differentiated pay.

Trend #3: Technology’s finally starting to deliver on its promises from the 80s - I've been waiting a long time to say that! Modern talent management solution capabilities include talent profiles, faceted search, talent pooling, goal alignment, embedded multi-dimensional workforce analysis, mobile device access and collaboration tools. These solutions help business people work together across borders and time zones; accurately assess workforce costs, capabilities and capacity; align work to business objectives; and optimize deployment of a highly diverse workforce.

Trend #4: HR’s about the business - It always was, but now that costs have been cut as far as they can there’s a new focus on value creation. HR professionals have a unique opportunity to help drive share price with improved workforce insight, alignment and optimization and it will be interesting to see how they take advantage of this opportunity. Modern HR solutions can help but aren't a substitute for strategic thinking and execution - the solution needs to fit the strategy, not the other way around.

Trend #5: Global's the new black - According to a recent Towers Watson study Creating a Sustainable Rewards and Talent Model companies are focused on creating globally consistent talent and rewards strategies in order to improve efficiency and alignment while reducing costs and risks. Global consistency will require companies to identify talent programs and critical talent pools across borders; standardize job profiles, compensation plans and competencies; and define a global performance and rewards process. At the same time, companies must remain locally flexible in order to stay competitive and compliant in each region. In other words, global companies need to get better at managing both globally and locally.

Wishing you a very talented new year!

Talent MANAGEment

A cynical person might describe Pay for Performance like this: Management pretends to have a bevy of rewards that are earmarked for top performers and employees pretend that their daily activities are aligned with corporate goals and that their performance was instrumental in helping the company meet them.

But I'm not cynical. Let's face it, it's human to want to put your best foot forward and 'Pay for Performance' has a much better ring than 'Punish Medicrity' or 'We Have No Money This Year But Thanks For All Your Hard Work.'

When I started blogging on human resources topics about a year ago the market was depressingly oriented toward automated talent management solutions, as if to supplement poor management rather than improve it. Kind of like treating the symptoms rather than looking for a cure.

What not many people seemed to realize is this: The key player in making performance management process successful is the manager, not the process.

A good manager is more than someone with decent social skills who does an acceptable job of consolidating team metrics. Heck, anyone can do that. A good manager:

...is someone who makes employees feel important and valued.
...motivates people to either take on more responsibility or else be satisfied with the responsibility they have, as needed.
...makes employees believe they are rewarded in accordance to their contributions, which is especially important when times are tough and there are no promotions or raises to be had.

In other words, a good manager is equally versed in the art of mentoring employees and stringing them along.

And with respect to the current economic situation, if you only have a tiny merit budget, you need even better managers. Kind of like you have to spend more on flattering clothes if you're overweight - if you're skinny you can look great in any old thing but if you like to hit the cake you need better clothes.

From a corporate point of view the quality of managers is the single most important thing you can get right.

Think about it: This is the person you are counting on to coax the best possible work out of average performers, motivate or identify and eliminate underachievers, and retain the loyalty and channel the creative energy of top performers.

And it goes without saying that managers also need and deserve good managers.

The good news is that today I see ample evidence that the attention of HR professionals is starting to shift to the manager. Every HR blog I visit seems to have something to say about the importance of good management. Which is great but it's only the first step.

The next step is answering this question:

How can companies do a better job assessing and developing the skills of their managers?

Back to the Basics

I work in Munich. Not surprisingly, my colleagues are German. We're a small group so we often have lunch together in our favorite local restaurant, which happens to be Italian. Every month or so they publish a new menu and we dutifully select one of the specials, eat it, have an espresso, pay and walk back to work.

Today we had an Italian guest, a global IT consultant that came to discuss global payroll strategy. He used to manage IT for the United Nations and has a steady supply of stories and business insights. We took him to our Italian restaurant.

Without glancing at the menu he engaged with the waiter in Italian, asking him what he recommended. After several moments of consultation it was decided that lightly grilled fish with a side order of steamed vegetables would be the best choice.

I've spent time in Italy and know enough to follow Italian recommendations on food so I promptly ordered the same, even though I didn't understand much besides, 'fish.' Wine was also procured.

Naturally, it was delicious. 'Was that even on the menu?' I asked.

He smiled. 'I have no idea.' An expressive shrug to show that it was of no importance.

Waving his fork, he continued. 'It's all about people. You have to engage with people to get the best results. You have to talk to them.'

Yes, I thought. You have to engage with people if you want them to do their best for you. If you give people a form to fill out they will fill out the form, with varying degrees of enthusiasm or boredom. Nine times out of ten they will not bother to do more than fill out the form because that's what you asked them to do. If you want them to do more you have to ask them to do that, too, and pretty soon you have to tell people to dot every i and cross every t.

Sometimes the menu is just in the way.

Recently the Compensation Cafe blogged about how processes can get in the way of people doing a good job. The actual credit goes to Steve Roesler at his All Things Workplace blog. The main idea is that most people want to do a good job but in too many cases it's the organization and processes that try to force them to work in a particular way that discourage engagement and prevent them from meeting their full potential.

I would say it like this: The best organizations let people play to their strengths.

My lunch companion also shared with me three rules for effective management, none of which had anything to do with organization or process:

'I tell my employees three things.

One: Be curious. If you aren't curious you will never stretch your potential.

Two: Don't be afraid to make mistakes.

Three: Don't work alone. Even if you do your best thinking on your own, come up for air and communicate. Share. Connect.'

Well. That beats filling out forms any day.

Who's right?

Two compelling sides of the AIG bonus story:

Focus on pay for company performance: If I Were CEO

Focus on breach of trust and unfair accusations: I Quit

Food for thought:

Is Talent Management about sticking up for your people, honoring commitments and rewarding people for doing their jobs?

Or is it about rewarding based on how a company performs?

Performance MANAGEMENT

When you get right down to it, Performance Management is about negotiation. Each side wants something. Management wants employees to work harder, work smarter, work more and moreover, really care about what they are doing so they’ll sacrifice their personal lives for the greater good of the company. Employees want more money, more recognition, more career opportunities, more flexibility, better benefits, more autonomy, more coaching, more stock, etc. They also want to feel like they are part of a team, something greater than themselves. And as in any negotiation, both sides tend to bluff a bit. Management pretends to have a bevy of rewards that are specifically earmarked for top performers and employees pretend that their daily activities are aligned with corporate goals and that their performance was instrumental in helping the company meet them.

Not that these things are never true but the point is that even when they aren’t true both sides politely pretend that they are. Let's face it, it's human to want to put your best foot forward and 'Pay for Performance' has a much better ring than 'Punish Medicrity' or 'We Have No Money This Year But Thanks For All Your Hard Work.'

But here is a revelation that should shake the foundations of how we think about Talent Management: The key player in making this process successful is the manager. A good manager is more than someone with decent social skills who does an acceptable job of consolidating team metrics. A good manager is someone who makes employees feel important and valued. A good manager motivates people to either take on more responsibility or else be satisfied with the responsibility they have, as needed. A good manager makes employees believe they have a career path and that they are rewarded in accordance to their contributions, which is especially important when times are tough and there are no promotions or raises to be had. In other words, a good manager is equally versed in the art of mentoring employees and stringing them along.

Put simply, a good manager is someone who is able to broadcast the message: “I am interested in you, I believe in you, and I am doing my best for you.” And be believed.

From a corporate point of view the quality of managers is the single most important thing you can get right. Think about it: This is the person you are counting on to coax the best possible work out of average performers, motivate or identify and eliminate underachievers, and retain the loyalty and channel the energy of top performers. If we believe that people are important, how can manager performance not be a vital component of business performance?

Talent Management places ample focus on upper management, as evidenced by the adoption of succession planning at upper levels, cascading goals, benchmarking tools, etc. And there is plenty of focus on individual contributors - in fact most of the top performance management solutions offer various ways to drive edicts from on high downward, then measure if everyone’s following them. And I don’t want to argue with these – at the moment – because I find what’s missing more interesting than quibbling about what’s there. And what’s missing in all of this Talent Management analysis is focus on the manager, who of all people in any company should arrest our attention.

And yet as we review the various talent management solutions we see that they are depressingly focused on automation rather than interaction. Even more depressingly, it seems that many companies are looking for software solutions to supplement poor management rather than improve it, rather like treating the symptoms rather than looking for a cure.

Personally, I am riveted by the manager and I don’t think HCM specialists can continue to ignore this fascinating character. Not all managers are equally interesting from an HCM perspective, however. Truly great leaders are born, not made. So arguably, the best thing HCM solutions can do for the great manager is try to stay out of the way. A poor manager can do untold damage and would make an interesting topic for HCM but most companies are smart enough to weed out terrible managers on their own once enough people have complained or quit.
That leaves us with the average manager, who in many cases is quite decent, means well and does relatively little harm. The average manager offers ample scope for driving additional business success and is therefore interesting from an HCM perspective.

How can Talent Management solutions do a better job helping companies assess and develop the skills of the average manager?

Thoughts about Talent Management

In my role as an HCM strategist for a business software company I’ve been thinking about talent management and have identified what I think of as five popular ‘myths’ about talent management – there are probably more but these are my favorite five:

Myth 1:
Talent Management and Core HR are separate functions – this seems to be the de facto position of leading talent management solutions, but effective talent management requires consolidated access to employee, staffing and business data.

Myth 2:
Executive succession planning is essential for the ongoing success of any company – actually, from an employee performance and retention perspective at larger companies, managers have more direct impact than executives.

Myth 3:
Canned reviews are better than none- actually this is true, but it’s still not good enough and we shouldn’t settle for it.

Myth 4:
Process automation can improve management quality and employee satisfaction – ironically, while the judicious use of process automation may well make good managers more effective, it may have the reverse effect on bad managers.

Myth 5:
Cascading goals help employees feel more aligned with company goals – rarely does a purely top-down approach ensure anyone’s loyalty.

Pay, Performance and Pay for Performance
Let’s dig a little deeper: There seems to be pretty universal agreement that linking compensation management with performance is important and as a compensation specialist I was pleased to see that Yankee Group forecasts a 19.6 percent growth in compensation management over the next several years. Also on the compensation side, we see the need for a streamlined approach, a high degree of visibility into global compensation and the ability to provide managers with clear, consistent compensation guidelines. So, basically everyone agrees that compensation should be easy, consistent and fair.

On the performance management side it gets more interesting, however. To over-generalize everybody into two camps, one camp stresses the need for automation, for example, providing managers with pre-delivered employee review feedback. A few apologetic-sounding members of this camp argue that although personalized feedback would be ideal, canned feedback is better than nothing. Opponents claim that nothing makes an employee feel valued than personal recognition, which is more important than cash in some cases. If we agree with this, it does tend to make the canned review look pretty lame.

When we look at pay for performance there is even more controversy because apparently quite a few managers are either afraid of being disliked and give everyone a raise, or else inflate their performance figures to increase their own budget allocations, so that the average delta between high and low performers is pretty small. How un-motivating.

Despite a certain amount of controversy around whether pay for performance actually works, more than 75% of all U.S. companies connect at least part of an employee's pay to some performance measures. Generally speaking, these companies have either turned to best of breed solutions or built their own, each of which comes with its own set of challenges. Best of breed solutions must be integrated to core business systems in order to link to employee data, staffing processes and business performance results and that can be difficult to maintain. As for home grown solutions, they require a team of people to build, integrate and maintain the solution as well and also come with the risk of losing tribal knowledge when Joe, the guy who built it all without documenting anything, leaves the company due to disagreements with his manager.

Talent MANAGE-ment
Not surprisingly, discussions about talent management always seems to come back to the manager, who is apparently too busy to write an employee review from scratch, or else is too afraid of being disliked to penalize low performers.

So far the leading talent management solutions have not solved the problem of poor management, which seems like a pretty important problem to solve if you want to attract, retain and motivate good people.

Not that this is a criticism of talent management solutions because in all fairness, management of people isn’t a software problem. The criticism is that talent management solutions have implied that it is a software problem and that the solution is to automate talent management processes. The real solution is better leadership, which can’t be installed. To this day the number one reason top performers leave companies is their managers. And given how much attrition actually costs, no one can afford to lose good people to poor management.

So when I see that the main selling points of leading talent management solutions are communicating company goals from on high and automating managers’ jobs, I can’t help feeling like people are missing the point. When companies start holding managers accountable for managing maybe we’ll see some real talent management.

Talk to People
Talent management is a human problem first and a software problem second. If you are a company of any size you will still need some sort of technical solution to support your performance and compensation processes, although in their current form, isolated from core business applications and focused on automation, the long-term value proposition of TM-only solutions may be limited. But even more important is the good old-fashioned, non-technical art of conversation.

Companies that want to encourage good management won’t get very far without talking to people. This means making it a company priority for managers to talk to the people they manage, really talk to them; making a point of soliciting people’s feedback and allowing them to be active in decision making processes for their own careers; and talking to managers and employees about what they need to be successful. And of course, it also means being ready to remove poorly performing managers out of management roles.

Talent management software should be used to facilitate the talent management conversation, not automate poor management.