Timid tinkering no way to address the talent crisis

Sep 07 2007 by Nic Paton Print This Article

Employers struggling to recruit and hold on to top performers are making life much harder for themselves by taking a timid and unimaginative approach to pay, incentives and performance management.

The past decade has brought seismic shifts in the business landscape, including increased globalisation, an ageing workforce and the war for talent, yet the response by employers when it comes to pay and benefits has been minimal to say the least, according to consultancy Towers Perrin.

Very few employers are prepared to take a "blue skies" look at how they should be rewarding performance in this day and age, despite it being one of the key weapons in their talent armoury, the consultancy has said in a study of 600 HR and compensation managers in 21 countries.

Employers were happy to tweak the edges of their reward programmes, adding in a benefit here or there, extending performance-related pay by a notch and so on, but too often shied away from doing anything more substantial.

There was also a growing "say/do" gap around reward design and delivery, it said.

Although many of those surveyed said their reward strategies were designed to retain and attract talent (three quarters and nearly six out of 10 respectively) few of the actual tactics they reported were consistent with this stated focus.

"Overwhelmingly, we found that companies are making very incremental changes in reward and performance management programmes and they're doing so year in and year out," said Ravin Jesuthasan, managing principal and practice leader at Towers Perrin.

"What makes this of concern is that business changes have been anything but incremental. In fact, it's fair to say the last decade has been among the most turbulent in recent business history, encompassing the dot-com boom and bust, post-9/11 cycles of recession and recovery, and dramatic technological and workforce shifts that are changing both the way companies do business and the way people do their work," he added.

"In this environment, we expected to see comparable innovations in rewards practices. Instead, we found most companies doing things like adding or eliminating measures in variable pay plans, broadening or cutting back on eligibility for incentives, and shortening or lengthening the pay communication cycle," he continued.

"Put simply, our data confirm what amounts to a pattern of 'tweaking' at the edges of programmes, rather than creating the more systemic and integrated approach required to address the scope, intensity and magnitude of change on the business side," he warned.

For instance, the survey found very little in the way of customisation of rewards, with it most chiefly focused on sales positions.

Yet it was perfectly feasible to extend such an approach to other functions or roles critical to executing strategies, such as customer service staff within retail organisations or research and development talent within pharmaceutical companies, said Towers Perrin.

Customised rewards in these environments could make a real difference in both retaining and motivating people, it argued.

More than three-quarters of the managers polled had changed their variable pay programmes in the past three years, and nearly half expected to implement more changes to variable pay and bonus programmes in the near future, the report conceded.

Yet the most common shift was an increased emphasis on using company-wide performance as a metric, a somewhat surprising focus given the relatively small number of employees who could materially influence corporate results, the survey concluded.

When it came to performance management, most firms put too much emphasis on technological advances, such as automating processes and online self-service systems.

But, said Jesuthasan: "While technology can go a long way toward increasing the efficiency of performance management systems, and is a 'needed to play' attribute, it cannot take the place of the human interaction that truly powers performance management: the personal relationship between manager and employee.

"This focus on high-tech over what we call 'high-touch' could explain why just 43 per cent of the respondents said their performance management programme was only somewhat or not at all effective.

"It's certainly easier to implement technology than teach managers to have meaningful performance discussions, but an effective program requires both," he pointed out.

The survey also identified a disquieting lack of measuring of return on investment. More than two thirds of those polled said their organisations had no formal method for measuring the return on their considerable investment in rewards.

Yet, without such data, HR and compensation executives would normally find it difficult to make a case for more strategic investments in rewards programmes or to justify current expenditure, said Jesuthasan.

Just as worryingly, fully 43 per cent said their performance management systems did not effectively link to business needs, while a similar percentage felt their systems did not effectively equip managers to identify, develop and reward high performers or deal with poor performers.

"These are critical strategic gaps that will ultimately derail the very purpose of performance management. Getting the strategy right is a key first step in effective performance management and one that few companies appear to be paying enough attention to right now," said Jesuthasan.

"On one hand it's encouraging to see that companies are emphasizing performance and talent retention. On the other hand, what they're doing to reward and improve performance is not particularly effective or in line with overall business performance and strategy.

"There's a clear disconnect between the contributions senior management wants to elicit from the workforce and the specific tactics organisations are engaging in to realise this contribution," he added.