Talent Myth Management

by Anna Orgera and Loree Griffith

As the economic downturn continues, one thing seems clear to employers and employees: Uncertainty is the new reality. What began with a financial crisis in the United States has echoed worldwide as weakening global demand lowers economic growth rates and slumping confidence among consumers and producers drives cuts into spending. There is an urgent need for action, but governmental policy solutions will take time. If organizations are to thrive, not merely survive, until things improve, they need to embrace change now.

 

In this difficult climate, talent leaders are struggling with significant talent management and reward system challenges. Understandably, there is a tendency to be reactive when embracing a number of myths related to retention, compensation levels, performance management and reward systems. But reactivity may undermine long-term workforce effectiveness.

 

The Myths

 

Retention myth: Don't worry about retention. No one is going anywhere.

 

Retention reality: Retention challenges have given way to engagement challenges. Important questions to address are: How do we foster employee focus and performance in a climate of fear and uncertainty? And, how do we treat employees now to ensure we retain our higher performers when times get better?

 

Career pathing is one key to employee engagement because it fosters workforce focus on performance, development and the future. It incorporates strategies to develop connections between jobs as a means to achieve advancement, higher pay, benefits and enhanced skills.

 

Pay reduction myth: The key is to reduce pay levels now. Cut across the board and worry about competitiveness later.

 

Pay reduction reality: While it may be necessary to reduce compensation costs, it's important to be clear and transparent about the rationale behind actions taken. The key to retaining employees in the long run is to demonstrate the logic and wisdom behind certain actions.

 

Performance and rewards myth: Don't worry about whether salary increases or incentive programs work well. Not much will be paid out anyway. The current performance management system is good enough to differentiate pay-for-performance given current limited pay dollars.

 

Performance and rewards reality: Having effective pay-for-performance programs is critical in a time of limited resources to ensure any salary increases and incentives are distributed appropriately, with an emphasis on top performers and key workforce segments.

 

Market compensation data myth: Market data is unnecessary this year given pay cutbacks.

 

Market compensation data reality: It's important to understand what's happening in the market to ensure talent managers can control costs. They need to avoid falling too far behind market, particularly when it comes to high performers, who always will be in demand.

 

Practical Advice

 

More than anything, organizations need to find the right direction based on their business and talent imperatives. They need to create the right talent and rewards strategy and design the right management solutions for that strategy. This demands an understanding of the competitive environment and of the organization's internal labor market - its skills and capabilities - so talent leaders can create and implement solutions - from competencies to staffing, succession planning, performance management and rewards - that will drive business results.

 

Knowing who the workforce must be, what it must do and how to engage it will drive strategic direction. It's a matter of knowing the specific competencies required for mission-critical roles. Further, what changes are needed in organization structure? How is bench strength? Does it need building to fill critical talent gaps? What specific reward and recognition programs are best suited for critical talent segments?

 

Some guiding principles for success include creating and managing unique workforce segments aligned with the critical realities of the business; knowing high potentials and high performers; and allocating rewards and designing employment value propositions for them. Assess the short- and long-term risks of specific plans and programs to business and workforce performance. And engage the workforce through transparent, rational decisions while creating understanding and acceptance. Specifically:

 

Enable career paths to provide development opportunities, especially when monetary rewards are limited. Career paths are critical during an economic downturn because they help organizations focus employees on the performance requirements for today and tomorrow. Effective career paths provide clarity to employees around career choices they can make, skills they need to have and responsibilities they need to execute. Key components to address include:

 

a) A summary of the knowledge and skill requirements of key roles, such as people managers, professionals and professional support.

 

b) The level and type of impact required of each role.

 

c) Knowledge, skill, and behavioral and technical competencies required for roles on a generic basis. That is, applicable across people manager, professional, and professional support roles across all job families.

 

d) Knowledge, skill, and behavioral and technical competencies required for roles on a job-family basis - specific to job families such as marketing, sales, IT or finance.

 

Tune up the performance management process. In the past few years, firms have been revitalizing performance management to aid identification and differentiation of top talent. Mercer's research shows success drivers for firms most successful at performance management include:

 

a) Executive commitment to the process.

 

b) Use of calibration or cross-business meetings to level the playing field in how ratings are assigned and to aid differentiation.

 

c) Well-trained managers who provide fair evaluations, honest employee feedback and effective career development coaching.

 

d) Use of technology to enhance processes and analytics.

 

Be sure to review each element of the performance management process, such as performance planning, including ensuring goals are aligned at the organization, team and individual levels; interim and year-end performance information at the business level; interim performance feedback at the individual level; year-end performance evaluation including a review and assessment of the employee's performance versus goals, performance standards and competencies; and linkage of performance evaluation results with career progression, salary increase and incentive decisions.

 

Don't ignore market compensation survey data. Be sure to continue participation in market compensation surveys, particularly to cover executive jobs, hot jobs, those that are either in demand in the marketplace or are critical to the organization's competitive advantage, and those held by higher performers, as well as key workforce segments in key geographies.

 

Review reward program design and delivery to strategically allocate reward spend. It is critical to ensure practices and plans are effective to enable the organization to pay fairly for performance and concentrate limited dollars on high performers. Areas to address include:

 

1. Segmentation.

When an organization doesn't have a large reward budget, it is important to figure out how to segment the workforce - or where to place your bets - based on factors such as business life cycle, geography, business unit or brand impact. Segmentation allows an organization to identify where to provide premium, standard or discounted reward arrangements, depending on whether the focus is attraction, retention or a combination.

 

2. Salary increases.

Ensure they are aligned with performance. Consider how a proposed new salary level will compare to market to facilitate competitiveness and cost control.

 

3. Short-term incentives.

Now, more than ever, it may be the right time to introduce more structure into incentive plans, particularly if discretion currently prevails. Ensure incentive opportunities are competitive, provide for the desired degree of risk-reward leverage and align with performance results at the organization, team and individual levels, as appropriate.

 

4. Holistic rewards.

Emphasize rewards as something more than pay and benefits. Include careers and other intrinsic work factors such as culture, leadership and work-life balance.

 

Develop and implement an employee communication plan to quell fears, minimize distractions and increase productivity. Having clear, complete and honest communications is particularly important when employees are frightened. Talent managers may not always have good news for the workforce. But it's better to be honest about what's happening than to leave it up to their imaginations, because they will imagine the worst.

 

Whether curtailing costs or making strategic talent investments, have the right information readily available via development of human capital dashboards. These Web or desktop solutions combine multiple sources of financial and HR data from diverse corporate systems, surveys and external benchmarks into a single view to support human capital decision making and deliver the right information to the right people. Human capital dashboards can help track, measure and monitor internal and external workforce trends and reward program effectiveness.

 

Consider developing a human capital dashboard to enhance talent leaders' ability to answer questions such as: How effective are sourcing and recruiting efforts? Are retention programs having the desired impact? How well are we compensating high performers versus market?

 

Without question, these are challenging times for organizations and talent leaders. It's vital to avoid becoming a true believer in the myths of retention, performance and pay program effectiveness. Instead, take a critical look at practices and programs to manage through this economic downturn and position your organization for success - not merely survival - in the better days ahead.

 

 

[About the Authors: Anna Orgera and Loree Griffith are principals in Mercer's human capital business in New York.]