I was reminded of this when I was working with a client recently, developing a metrics scorecard for their organization.  We’d identified a number of metrics that we felt would be useful for the organization, the subsidiary of a larger parent company, to track.  We noticed, however, that some of the metrics were similar to metrics already being tracked by the parent company, though they were calculated a little bit differently.

“Should we just calculate the metrics for our scorecard using the same methodology as the parent company”, they asked?  Now it was my turn to play statistics professor.  “It depends”, I answered.  How were the numbers going to be used, both by the parent and the affiliate?  Was management going to be held accountable to specific targets, or were the measures being tracked to provide guidance and decision support to the organization’s leadership?  How important was it to be able to benchmark the results against other organizations? 

If there were different, and legitimate, differences in how the numbers would be used, there may be reason to calculate them differently.  I cautioned of course, that whenever you have two sets of numbers you need to be able to reconcile the two, and the onus to do so would undoubtedly fall on the affiliate, not the parent.  This obviously creates added complexity and risk of confusion.  Still, under some circumstances, it could be the right choice.

The example I gave for keeping two sets of numbers was around turnover.  This organization, like many, wrestled with whether or not to include certain types of terminations, like retirements, in their voluntary termination calculations.  Many managers argued that the retirement of their employees was something largely or entirely beyond their control (particularly true in countries or companies where there are mandatory ages set for retirement), and as such it should not be “counted against them”.  A debatable point to be sure, but certainly there are some terminations that even a good manager will have little power to prevent. 

However, when an organization is trying to monitor its workforce and plan for the future, it absolutely has to track all terminations, regardless of reason.  So the terminations of retirees, students returning to school, etc. absolutely need to be accounted for.

Again, the key here is identifying the purpose of the numbers – why are you tracking them in the first place?  If the aim is to assign accountability, you may calculate your metrics one way.  On the other hand, if you’re trying to understand the bigger picture for your organization, particularly if you want to  accurately benchmark yourself against other organizations, you might choose another calculation.  It’s all a matter of the broader context.

What’s the right answer?  “It depends”, of course.

A pay for performance culture is one where people receive monetary rewards based on the value they provide to the company.  The more value you provide, the more you are paid.   The assumption is people will provide more value if they are financially incented based on their contributions.   Another assumption is the company can accurately measure people’s performance contributions.

Adopting a pay for performance mindset, while generally a good idea, can over-simplify what business leaders truly want and what actually motivates employees.  To illustrate this, consider the following 4 pay for performance cultures in order of best to worst to somewhere in-between.

The best scenario:  performance without pay. Businesses don’t actually want to pay for performance.  What they ideally want is performance without having to pay.   But most employees are not willing to accept this proposition.  We rightfully expect to be paid for what we contribute.  Nevertheless, it is possible to inspire people to achieve high levels of performance without focusing on pay.  Volunteer organizations do this all the time.  There are a lot of things that motivate people.  The motivational value of pay varies depending on the type of job and employee, and business leaders who use pay as the sole tool for motivating employees risk adopting a very expensive and marginally effective leadership approach.

The worst scenario:   pay for poor performance. The worst case scenario for a business occurs when employees are rewarded for doing things that undermine company performance.  This occurs more often than companies would like to admit, particularly in companies whose managers have to comply with restrictive personnel policies, rules, and regulations.    Rewarding poor performance encourages counterproductive behavior and destroys the motivation of high performers.  High performers dislike it when they do not receive any sense of recognition or rewards for their contributions.  But they hate it when they see rewards going to poorer performing colleagues.

A lousy scenario:  performance only for pay. One of the problems with creating a direct link between pay and performance is some people will never feel they are getting paid enough.   No matter how much pay these people receive for doing something, over time they always seem to want more.  Payouts can quickly switch from being a reward to being an expectation.  Today’s financial bonus is tomorrow’s entitlement.  Once this happens, pay ceases to be a motivator and becomes a source of dissatisfaction.

The pragmatic scenario:  performance influences but does not completely determine pay. Research on productivity, fairness, and motivation indicates that there should be a positive relationship between how much people are paid and how much they contribute to the company.  But the relationship between pay and performance does not need to be perfect to be effective.  Many things influence pay levels beyond individual performance (e.g., overall company financials).   Conversely, pay is only one of many things that influence performance.  Companies should create a link between performance and pay, but should not overemphasize pay as the only reason why employees should seek to perform at higher levels.

Establishing links between pay and performance does tend to increase productivity.    But it is not just the promise of pay that drives the productivity.  When you link pay to performance, employees and managers get much more serious around defining what they mean by “performance”.   And clearly defining performance expectations drives all kinds of benefits for increasing workforce productivity, regardless of pay levels.

When done well, performance management creates a shared sense of performance expectations across a company, gives employees meaningful feedback that helps them improve their effectiveness, and provides the organization with insight into the quality and capabilities of the workforce.   When done poorly, performance management has about the same level of strategic value as the process for completing expense reports.  It simply documents what people did in the past (and often does this very poorly), and has very little emphasis on improving what they might do in the future.

Using performance management to drive business execution is largely a matter of focusing on four things:

Accuracy: have you clearly defined the goals and competencies that people are being evaluated against?  Effective performance management starts with accurately defining what you mean by performance.

Relevance: Is performance management data used for anything that is important to the managers who are completing the reviews?  If managers know their performance ratings are going to be examined by senior leaders in the company and used to inform important workforce decisions then they will take them more seriously.  For example, are performance management ratings used to influence succession and promotion decisions?  Are managers expected to discuss their ratings with their peers, or do performance ratings just go into a file cabinet never to be seen again unless they lawyers show up?  Note, pay is probably the most common outcome linked to performance reviews.  While pay decisions are certainly relevant to managers, in terms of impacting the value managers get from performance data, tying performance to the pay of their direct reports is probably relatively low on the list.

Accessibility: Is it easy for managers to provide and use ratings?  Do they have access to the tools, skills and knowledge needed to make accurate ratings and hold productive employee feedback discussions?

Accountability: Do leaders in the company hold managers accountable for making accurate performance ratings?  What happens to a manager if they refuse to complete their performance reviews or provide poor quality data?

Focusing on these four areas will go a long way toward increasing the impact of performance management on business execution.   Conversely, a failure to think through issues of accuracy, relevance, accessibility and accountability is almost certain to lead to a performance management process that solely focuses on tracking the past as opposed to influencing the future.

Well, not really. What employees truly want is the amount of work they have to do to match the expectations they had when they took the job. During the on-boarding process and throughout the early years, every employee continuously re-evaluates the “deal” between themselves and the company. When the “deal” is still fair, employees are satisfied (even enthusiastic), when the “deal” sours, they become highly attuned to dissatisfiers.

Part of most employees’ “deal” is to feel valued. This has a personal and performance component. They want to certainly be treated fairly and with all the common courtesies (like management not ignoring them, not being treated as a second class citizen, etc.) as well as having their current and future development needs met (so they can achieve their own personal work-related goals – whatever they may be).

Employees who are bored (reporting “too little work”) are often doing work for which they are ill-suited, or have jobs that are poorly designed. As a result, they have by far lower job satisfaction, sense of accomplishment, and pride in their employers compared to all other workers. All in all, they feel less valued.

Feeling overworked – a condition that could lead to job burnout – is far more prevalent than feeling bored and spikes during 2-5 years with the company. Employees who complain about being overworked often feel they are not receiving adequate support from co-workers. In addition, they contend that the quality of their work suffers (because of this inefficiency), resulting in greater stress and tension, and their feeling that they have sacrificed their personal lives for their jobs.

The complaints of both overworked and bored employees should be taken seriously, yet being bored has far more serious consequences for an organization than being overworked. Complaints about being overworked can be an indication of poor quality or work processes, and it can be difficult in certain circumstances to retain employees who feel they are overworked and out-of-balance with their work-life. But bored employees have an even greater negative impact on an entire organization, lowering morale and productivity, and draining resources.

One mechanism of action at play, as previously indicated, is employee perceptions of the “deal-delivered.” Work-life balance is almost an afterthought to people who feel their employers are meeting their end of the “deal” by being fair, providing interesting and meaningful work, and recognition or rewards for a job well-done. Work-life balance becomes a real issue when employees feel that their employers aren’t holding up to their part of the partnership.

However, when employee don’t feel valued (like when they feel bored) or feel overworked (because the company is being inefficient or cheap vs. dealing with an unexpected – or expected – rise in demand) issues like work-life balance, commuting, etc. become highlighted in their minds and become true dissatifiers.

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The idea of seeing the future is always appealing, but as Dr. Jac suggests (and as we know from our horoscopes), not all that easy. Even so, I’d argue it’s worth the effort when it comes to people. Not attempting to understand your complete talent picture – so that you can stay ahead of the curve – is, in my opinion, downright stupid. Seeing and understanding but not acting is equally bad.

In our work, we see forward looking companies starting to take the idea of predictive HCM seriously. But most organizations are waiting. Waiting for the economy to turn, or waiting to realize they are no longer attracting and retaining critical talent. Waiting to find out they can’t protect their margins or even stay competitive because they don’t have the right people in place. They haven’t yet figured out that calamity is just around the corner and are waiting to do anything meaningful about their talent situation.

Maybe it’s that they are too comfortable, or too oblivious, but a recent McKinsey Quarterly article exposes this widespread lack of strategic planning around talent:

“Executives’ concerns about executing and aligning strategy are likely exacerbated by a perceived lack of integration between the company’s strategic-planning group and its human-resources group. When asked to consider strategic planning’s integration with several major corporate functions, respondents rank HR as second-to-last in terms of degree of integration. Respondents who are dissatisfied with their company’s strategic planning see the least integration. Of these, only 14 percent say planning is completely or mostly integrated with HR, and 59 percent say the two groups are integrated slightly or not at all.”

Simple supply and demand planning with some scenario analysis is commonly made in all other areas but HCM. To me, that’s a bit silly if only for the simple reason that people are your biggest asset (or biggest expense – depending on how your look at it). It’s truly time for that to change, and I welcome Dr. Jac’s initiative and look forward to continue working with him this year.

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Erik Berggren is SuccessFactors Director of Customer Results. He has worked on strategic consulting service engagements with more than 30 different companies across Europe and the US. He has held positions with Ernst & Young in Stockholm and New York and most recently worked with Capgemini in the Nordics.

The Atlantic Monthly has been running excerpts from old issues as part of their 150th anniversary celebration. Reading over an issue this weekend, I came across an article written by a Colonel R. Williams about a decade after the civil war ended – in 1878. His issue? That the military’s practice of promoting those with the longest tenure was “fostering apathy” rather than bravery or a commitment to excellence.”

Amazing that the same battles we fight today for meritocracies were equally well articulated 150 years ago.

Here’s an excerpt:

Our army presents the only known example of a business or profession, either public or private, in which incompetency and want of zeal bring the same substantial rewards as energy, capacity, and active attention to duty. Such a system of promotion is in violation of all the rules of common sense by which men are governed, as well as of those by which they are incited to strive for superior excellence, and the condition of our army at the outbreak of the rebellion affords an excellent example of its inevitable result. At that time the superior grades of the army were filled by old men, who, having outlived all above them, had been regularly promoted, in accordance with this system, to the positions which they occupied, regardless of the well-known fact that in the majority of instances they were unfitted, both by age and infirmity, to perform any military duty whatever. The spectacle was so pitiable, and the lesson it taught so apparent, that it might be supposed the government would have profited by such crushing experience, and been led by it to the adoption of wiser measures. Such, however, was not the case. Our system of army promotion is the same to-day as before the rebellion, and we are slowly, but surely, approaching the same result, from which the same experience, disastrous as it was to the country, must necessarily follow. At the close of the rebellion, and with the sad experience it had taught still before us, some effort at a change was made. The army was reorganized, and many young officers who had acquired experience, both of the regular and volunteer force, and who had especially distinguished themselves, were deservedly placed in high positions; but this spasmodic effort at reform was deemed sufficient, and we have again fallen back into the system of promotion by seniority, which, unless some dire necessity forces a change, must render the condition of our army equally as deplorable as when the rebellion commenced, by filling its superior grades by worn-out and superannuated old men. It seems needless to describe the effect which this system must produce upon the subordinate and junior officers of the army. In most instances it is deadening to all effort at improvement or professional skill, and suggests the natural conclusion: that, as superior rank is obtained only by longevity, each should strive to avoid all exposure, hardships, or dangers by which health may be impaired or life risked.

So often, pay for performance is a concept assumed to be applicable only to the rank and file. It’s a worthy cause to elevate it to the c-level as well and it’s great that Bush is pushing the idea.

It just makes you wonder what HIS salary would be if we applied pay for performance thinking to his $400k “guideline.” Given his approval ratings, it would be an interesting exercise indeed.

DDI and Badbossology.com (that’s actually a real site) did a survey of 900+ employees to determine the worst (and best) qualities of a manager. And, the survey says:

A bad manager:

• Tries too hard to be everyone’s friend
• Micromanages
• Ignores conflict
• Arrogant
• Wishy-washy
• Impulsive
• Unable to delegate
• Impatient
• Stubborn
• Unprofessional

You’ll have to read the article as written up on CNN.com to find out the best qualities and to take the quick “how good a boss are you?” survey.

It’s easy to dismiss this stuff as just for fun – but when you consider that employees often leave jobs due in whole or in part to their relationship with their managers, this kind of thing takes on real meaning. And it’s also fun.

As you can see from the responses (nearly 200 of them) 60% of respondents said fuhggedaboudit (AKA no). Originally based on this post from the Chief Happiness Officer, the poll was an attempt to see if people agreed with Alex who argues that there are a number of very compelling reasons to do away with the secret salary system.

While I, too, balk at the idea of publishing my salary, in many ways doing so would represent the natural evolution of something we already do at SuccessFactors: make our goals public. The idea behind pay for performance is that those who perform best get paid the most – thereby incentivizing increased performance. But if people don’t know what others are getting paid, there is a disconnect. I know what Joe did or did not accomplish from his public goal plan, but I don’t know if he got paid more or less (and how much more or less) as a result. There is a perception of pay for performance, but no proof-laden pudding to support it.

I guess my question then becomes – can you realize the ultimate promise of pay for performance without open salaries?

The article tells the story of a nurse who applied for a position for which she was ultimately not selected. What left the bad taste was not that she didn’t get the job, but rather that she found out that she wasn’t selected when the new hire was announced and it wasn’t her.  That’s an understandably difficult blow. If your organization doesn’t have enough respect for you to talk to you personally in such a case, why would it be reasonable to invest your loyalty in it?

Now, such an occurrence doesn’t mean the nurse is headed out tomorrow – but “will she return calls from another organization if called? Yes. Will she look online for openings at other organizations? Most likely. Will she leave? Yes, if something doesn’t happen to retighten her loyalty.”

The negative experience plants a seed of discontent that may one day grow into full blown rejection. So how do you avoid alienating your employees like this? The article first suggests a specific communications program for employees who aren’t selected for promotions -but that seems to me to be a point solution. The second suggestion is more appropriate: talk to your employees.