subject: BREAKING ORTHODOXIES ABOUT PEOPLE MANAGEMENT [print this page] BREAKING ORTHODOXIES ABOUT PEOPLE MANAGEMENT
SUMMARY
Business needs the talents of people. Yet, the management of people is producing ever-decreasing results. Employees are more disaffected from their work than ever before in recent memory. To turn this around, those in Human Resources have to take a look at themselves and what they've been told to believe. Orthodoxies of employee commitment and pay for performance are anachronisms. We're in the Internet age. It's time we started to think about employment in that context.
DO YOU REMEMBER WHEN
We all know the numbers. In the past few years' employee commitment has plummeted from 90% to less than 40 %. What's shocking is that we're shocked. What did we expect? We've spent the last two decades doing everything we can to break the "employee entitlement" mentality. Mission accomplished.
So now we find ourselves in a position where employees know there is no such thing as a job for life. We are all part of the temporary workforce. The corporate sniper can take you out at anytime. Employee sentiment is clear " this is where I work TODAY!"
Where was Human Resources (HR) during this demise of employer loyalty to their employers? It was a willing participant. HR decided that it could occupy a seat at the executive table by aligning with the business. It forgot that its true value was to be an integrated part of the business, not a servant to it. It bought into the siren song of shareholder value and gave up any pretence of representing employees as stakeholders in the success of the business. How well has that worked out? Not well at all.
Employees became one of the many resources to be manipulated for the bottom line. People became another expense just like capital, facilities, and supplies little more than a pawn in the game of shareholder value. HR were the knights; mobile and flexible in this short term battle. If the King made tactical errors in investing capital then the Knights were called on to sacrifice pawns to the welfare of the kingdom.
Here's an overview of how HR translated into Human Remains.
Sure, Pay Me Later!
Certainly a first thing to go was a sense of security in the pay envelope. Why should tenure be rewarded? Why should someone be paid for another year in the job? The thought that people added value because they accumulated corporate knowledge seemed to escape everyone. When you contact a call center would you rather talk with a high potential trainee, or an average employee with six years of experience? Most customers will choose experience over potential.
So we tore down "merit" pay plans and replaced them with "pay for performance." We replaced the certainty of an annual pay increase with a meager base pay and the opportunity to top up above the market through incentives. This philosophy works ok for a sales force because sales staff work on individual, measureable piecework; however, the majority of non-sales employees work as teams to produce outputs that aren't very clear or measureable. How do you reward someone for producing an organizational capability for customer focus, efficiency, or innovation?
For years we fooled ourselves that we had social engineering skills that were good enough to set incentives that would dramatically align people with the business and this alignment would produce wealth for everyone. Well pay for performance schemes don't work. We keep telling ourselves that they can be tweaked, but the best we ever do is turn peanut butter into chunky peanut butter. A mammoth performance management bureaucracy produces a few lumps here and there.
The net result is that in my working life of over 30 years the average wage has not changed. That is, unless you are an executive where entitlement has increased along with what gets taken out of the business. When I started working the top executives might get 10 to 15 times the lowest pay in their company. Now some of the more egregious executives get more that 300 times that mark. How cynical are employees about this!
Bennies Without the Jets
Back in the day employees may not have loved their jobs but at least there was a calculus that said that a bit of sacrifice at work had the upside of health and retirement benefits. Bennies on steroids!
Well those days are gone too. We all know the health benefits game; that's where benefits go down, co-pays go up, and costs of premiums shift to the employee. The alternative is to quit and have no healthcare not much of a choice.
Retirement benefits have been even more devastating. A 2008 McKinsey study reported that in my father's generation 70% of employees had pension plans and 70% were of the defined benefit type; in my children's generate 50% of employees have pension plans and 70% of these are defined contribution. Many people now don't look at 60 as a retirement age, but the beginning of a new career to fill in what employers took away and the stock market has not delivered.
Career Quo Vadis
The only commitment organization's can make to their people today is to severe them with respect. There is no expectation on the part of employer or employee that people will have a lifelong career.
Remember when succession planning actually meant developing people for a subsequent role in the hierarchy? We actually put names behind boxes and worked with people to give them skills and experiences to qualify for the next level. Sure, you had to be on a developmental track to get there, but if you had the talent and drive then success was within reach.
This too is a feature of the past.
WILL HR ANSWER THE BELL THIS TIME?
Ok, the past is the past. We're here now. It is what it is! The question is how will HR respond this time. Will it willingly sit back and take dictation on management's new people policies; or will it develop a distinct philosophy one that helps build sustainable organizations based on the value of human beings; one that provides a foil to shareholder driven management.
If HR wants to be a strategic partner it will have to assert a new and valuable role. It will have to break two of its major orthodoxies:
That there job is to build "commitment" among employees
That employee behavior can be controlled through extrinsic rewards
Orthodoxy # 1: Employee Commitment
Employee commitment, like customer loyalty, is on the junk heap of the past as we remember them. It's nice to think that customers and employees will stay with us forever, but that's just not going to happen in our mobile, personalized economy. Oh, the aspiration of employee commitment is worth working for as aiming point; however, attainment is not realistic.
Let's accept that we have broken the bond with employees in our Internet society. What does this mean? Well it means that people coming into the workforce will increasingly hold the beliefs of the Internet age: like open sourcing where everyone can contribute their opinion on a level playing field; or situational leadership based on immediacy of need, not tenure; and spider web organizations paralleling the model of communicating through social media.
You will always be able to buy employee skills; however, it's up to employees to volunteer their passion. They will choose to be engaged, but not committed. It's the old story of breakfast: the pig was committed; the chicken was engaged.
It's going to be harder and harder to force employee compliance through the heavy hand of the corporation. In a few short years, everyone in the world will be connected to everyone else all the time. If someone is thinking about working for your organization they will be able to get everything they want to know about you just by pointing their smart phone at your building. Anything that's ever been tweeted, blogged, or You-Tubed about you will layer on top of the image.
So, how do we get employees engaged? Easy, you connect them to the only work factor they care about their customers. Employees don't work for their boss anymore. Bosses delude themselves into thinking that 100 people work for them. No one works for them. Improving management and leadership programs is a waste of resources if they're not redesigned on the foundation of the employee-customer interface.
The strongest motivation that brings employees to work on a daily basis is their customers. Employees don't have an interest in making money for shareholders. If they're going to make 1/3rd of their life profitable it will come through the satisfaction of doing good things for customers not enriching investors.
HR, in conjunction with managers, has the responsibility to find the most enriching experience possible between employees and customers. This is easy for a sales force or front line employees like retail clerks, call center representatives, or repair staff; but what about the hoards of people behind the scenes? Like an accounts receivable clerk? You may have to draw the line for them. The line between collecting money and the cash flow that let's the company do good things for its customers.
This customer connection will be a big step for HR. It will have to learn more about the external world in which the company competes. It will have to understand economic discontinuities that are changing the business and the customer touch point that make the business work. This could have an immense impact on recruiting, development, and retention plans. For example, maybe the developmental focus has always been on systems, processes, and cost containment. But what if customers care most about relationships skills. Resetting priorities will bring all employees closer to their customers.
The bottom line is that passionate employees are high performing employees; and passion goes to customers, not bosses. The Internet HR strategy has to be driven from the customer-in. HR has to focus on employee engagement through customer-focused passion. Trying to build employee commitment the old fashioned way just isn't going to work. Employees have little interest in performance management systems they don't believe in; or reduced control procedures in the name of empowerment when they accept empowerment as a given; or new work methods, tools, or work arrangements when these are expected. The old HR answers are worn out. HR needs to have only one focus, and that is the customer. The HR orthodoxy of internally driven employee commitment is standing in the way of customer-based passion.
Orthodoxy # 2: Pay for Performance
One of the biggest orthodoxies in "American-style" management is that people work for carrots. Rewards are extrinsic. People's performance can be managed (manipulated) from the outside. Hog wash. Passionate, engaged employees work for intrinsic reasons and are willing to auction their value in the open market to get what's important to them.
HR and executives have to abandon this "carrot compensation" orthodoxy. Simple observation tells us that it doesn't work in fact it is usually a negative influence. I ask executives about their best retail experiences. Their answers are often Starbucks or Apple. I ask why. The answer is simple: "the staff is there to help me, not to make a commission!" Astounding. These are the same executives who go back to their business and implement a performance based incentive system. Unbelievable.
There is lots of research to show that people work hard to avoid a loss that is tangible ("pick up your game or we'll have to cut your salary") but don't put forth an equal effort for an illusory gain ("work harder and we'll increase your salary"). Similarly, there is research to show that the positive effects of incentives are fleeting ("I'll use my bonus to buy a car that's bigger than my neighbor's ooops, they just bought a bigger car"); while the negative effects are lasting ("how come I only got 3% while that jerk next to me got 4% - I think I'll start looking for a new job!").
Why does this orthodoxy persist? Well, part of it is manager's insecurity in managing people. Most managers are afraid to manage people. They hate setting expectations, monitoring performance, and correcting deviant performance. They want to manage through spreadsheets. They want the people answer to fall into the cell in the bottom right had corner of a spreadsheet "you got 3% and they got 4% because the spreadsheet says so. See! Look right here."
Well, that may have had some merit in the era of large transactional bureaucracies. But we're now in the day of network communication and relationships. The Internet generation isn't going to put up with false managers. They're going to demand transparent communication about what is expected of them and how well they're doing. At the end of the day if the boss and company aren't performing they'll twit themselves into a new job.
So, what roles will incentives play in this world? Hopefully the right one! Hopefully we get back to a simple system of market base pay with an incentive based on company profitability. That's right, chunky peanut butter. The formal pay system won't have a lot of room for differentiated performance. It won't set the silver bullet expectation that has never been delivered by "pay for performance."
The only questions of compensation philosophy and strategy are: "where do we want to be paid relative to the market; how much of this will we have to give in base pay and how much will come from a distribution of profits?" HR isn't going to have to worry about elaborate compensation studies and incentive metrics. Most of this stuff is on the Internet. If the HR comp analyst doesn't have it all they have to do is ask the employees they'll get it for them.
This system lets us get away from all of the nonsense of performance appraisal systems one of the biggest non-value added processes ever imposed on business. The process is painful, deceitful, political, and does not deliver the differentiated result that it promises.
All we ask managers to do is what they find to be intuitive. We want them to bucket their people into: "top", "doing the job", and "on the bubble." It's not hard to convert these buckets into a quota system (yes, I said "quota" we might as well be open about it) and layer it into annual base pay increases followed by a distribution of profits.
Let's cut to the heart of the matter. People don't come to work saying, "I really want to screw up today." They come because they have to make money, but that doesn't preclude them wanting to do a good job. It is childish, or certainly paternalistic, to believe that every work action requires a Pavlovian reward.
I can hear HR, and particularly compensation people, screaming. The charge will be one of returning to the past going back to capricious, political, and discretionary management. Well, I think the world has moved a long way. We live in an individualistic society and work world. Managers no longer operate in a cone of silence. They work in the world of "open sourcing." Deference to hierarchy has passed. Employees have the means and attitude to hold managers accountable, and when it comes to compensation they want simplicity to go along with the mobility they already have. If they don't have a pay scheme they understand they'll "Google" until they find one that they do.
But what about all of those "high performers" we keep hearing about? How do we reward them for their extra contribution? Well, if you can't promote them or put them on an exciting new project, then they have the answer in their hand on their smart-phone. If employees aren't using their passion at work then they will take the license to market it. You might as well get ahead of that curve. Give them the permission to go to the market. That's right; help them look for a new job! That doesn't mean that you want them to take it, but it does mean that you want them to be informed about their true market value.
Employees should have the freedom to market themselves. The market should set the value on performance, not our organizations. The market will either respond with an offer in excess of the employee's current package or it won't. If the package is higher then you'll need to decide whether to match it. If the package is lower, then you've just learned that you're capitalizing the employee they have an interesting career, but they need you.
Let's face it, you're not prepared to buy employee commitment by giving them a job for life; so why are we wasting time designing convoluted compensation arrangements in an attempt to overcome this fact? Let abandon this orthodoxy. Free our employees to do what they're going to do anyway take their talents and passions to the marketplace.
BRANDING THE NEW HR
Business today is transparent. Employment is transparent. It's time for HR to be transparent. HR has to free itself from two debilitating orthodoxies:
Employee Commitment: This aspiration was lost a decade ago. What we want is employee engagement and that derives from the passion employees feel when they have an enriching experience with their customers.
Pay for Performance: We are not omniscient. We do not have the social engineering skills to motivate behavior through extrinsic rewards. That's the job of the market place and it's fully equipped to play this role.
The challenges for HR have never been higher. How do you build a high performing work force in a mobile, Internet economy? I submit that tweaking the past can't do it. It's time to think differently about how we employ people. It's time to think of it in a way that parallels the personalized world in which people live.
