December 16 , 2017

The Future of HR From a Shareholders Perspective (Part 5 of 6)

Part One | Part Two | Part Three | Part Four

THE FUTURE OF INDIVIDUAL HR DEPARTMENTS

Having established the principles that will guide the shareholder aligned future of the HR function overall, it becomes clear that a majority of the traditional transaction oriented HR departments will be incapable of delivering the results needed and will need to change dramatically. Parts 5 and 6 of this series highlight how existing department will either evolve or cease to exist, and what new departments will emerge.

Existing Departments Evolve

A key differentiator of the shareholder aligned HR function of the future is the handing back of managerial transactions to line managers and employees.  Armed with both established and emerging technologies, the shareholder aligned HR function focuses more on devising real time process and tools that empower line managers to influence the design, staffing, and performance of their units while enabling employees to manage routine administrative activities through self-service.  Freed from a majority of the transactional tasks that prevent HR leaders from devising next generation solutions, the department evolve to become internal consulting and unit specific solution providers staffed with experts in what does and does not influence the workforce in the direction needed.

The Future of Compensation

The most radical change in a shareholder aligned HR function would focus on the compensation department and involve the following four major shifts:

  1. increased emphasis on bonus compensation for current results
  2. rewards for increasing the factors shareholders care most about (profit and share price)
  3. new emphasis on delivering non-monetary motivation
  4. management rewards for excellent people-management results

While the historical focus of the department has been determining the market value of work to be performed, in the future the role evolves to focus more on devising incentive and motivation schemas to increase performance without as much emphasis on market benchmarking. Because compensation is the largest variable cost in nearly every industry, shareholders would insist upon a dramatic shift in philosophy away from “show up pay” influenced by tenure to variable performance compensation influenced by individual performance, organizational performance, and real-time value of work performed.

The first shift under this new approach addresses a number of undesirable characteristics of the current approach that result in billions of dollars of salary waste globally. Variable compensation is superior because it enables the organization to allocate a bonus pool to work units based on the real-time value of work being performed (allowing for fluctuations both up and down), and doesn’t create an ongoing liability for the organization when performance fails to meet expectations.  While employees will continue to receive some percentage of guaranteed pay, the percentage at risk will most likely grow to exceed 50%.

The second shift helps balance the focus of incentives and motivational drivers to include a longer term perspective by rewarding employees for results that contribute to strategic objectives.  In addition, there would be less emphasis on cash rewards and more on stock related rewards, encouraging employees to think and act more like shareholders.

The third shift addresses a topic nearly ignored in most organizations today, non-monetary motivation.  Under this shift compensation professionals would develop, test, and categorize hundreds of non-monetary motivational drivers available to managers to influence performance.  Up to half of the departments time might be spent consulting and advising unit level managers on the application of specific programs and approaches to improve performance without driving up labor costs.

The fourth shift, currently a best practice in leading talent management organizations will become more wide spread, that being the evaluation and rewarding of managers based on people management performance.

Many operational aspects of compensation will also evolve. For the first time, performance metrics will be required to prove incentives and motivation approaches when applied directly influence high priority business performance. These metrics would allow compensation professionals to convincingly advise managers on what approaches have the most impact on increasing productivity, spurring innovation and increasing organizational cooperation.

As in all HR activities, prioritization will become a standard practice, with compensation consultants focusing productivity improvement efforts on key business units and key jobs (including revenue generating jobs). In short, instead of acting like a “money distribution” department, compensation would show managers the most effective and lowest cost ways for changing behaviors and increasing individual, team and organizational performance.

The Future of Benefits

The modern day benefits department is notoriously known as the “giveaway” department that invests large sums of money into prepaid services used by a miniscule fraction of the workforce on the unproven premise that benefits attract, motivate, reward, and retain talented workers. In the shareholder aligned function of the future the benefits department much like the compensation department will need to prove that benefits directly influence workforce productivity, retention and recruiting.

Instead of providing everything to everyone, the department would focus on developing unit specific benefit solutions designed to achieve specific objectives, each of which would be monitored extensively using impact metrics. The evolution would within the law, also tie benefits more closely to individual and unit performance. Benefit offerings demonstrating negligible impact on objectives would be scaled back or dropped. Prioritization schemas will focus benefit dollars where they will produce the greatest impact, ending the days of executive’s being treated like royalty and hourly employees receiving little.

The Future of Performance Management

Around the world performance management is one of the weakest departments within the modern day HR function.  There is little to no trust in performance evaluations, the process and tools are hated by all, and the output is rarely leveraged to do anything.  In the shareholder aligned function of the future, performance management will focus more on facilitating improvements in performance and gathering data to validate that talent management activities put forth by other department are producing intended results.  While establishing insight into performance to justify punitive actions will likely continue, the primary activities will be identifying the causes of performance failure and development/testing of the tools that consistently improve performance. Metrics would be instituted to ensure that individuals on a “performance management program” become average or better performers in a short period of time or be released. The revitalized function would also broaden its scope to provide advice and tools on improving the performance of teams.

A new focus of the performance management department will be the development of unit specific performance standards that will categorize units as performing below and above the standard. This growth in scope will enable the department to identify and fix or release bad managers that if left alone could cause tremendous damage. Instead of waiting for managers with performance problems to voluntarily seek assistance, the department would seek out problems and provide managers with alerts and guidance related to current and upcoming performance problems and opportunities.

The Future of Recruiting

In a shareholder aligned HR function of the future the use of labor is much more closely aligned with current need than historical organization design.  As result of better performance management and frequently evolving workforce needs, the recruiting department will experience more consistency in the demand for external talent, providing a more stable base to build a professional department upon.  To deliver consistency and take advantage of rapidly growing social communication and networking technologies, the recruiting department will partner closely with a newly established employer branding department charged with developing a brand as a desirable employer and instigating a “recruiting culture” that transforms employees and stakeholders into “talent scouts.”  The latter will require both recruiting and employment branding to partner with training to develop resources that guide employees on leveraging social networks to build professional relationships and driving conversion of those relationships via the employee referral program.

Leveraging the employee and stakeholder populations to source a majority of the candidates needed will free up recruiting resources that can focus on benchmarking emerging practices.  One of the key practices that will characterize shareholder aligned recruiting departments is robust source effectiveness analytics that ensure optimal resource allocation amongst a mix of sources capable of producing the applicant volume needed.  Again, prioritization will be applied so that limited recruiting resources are focused on hiring high impact top performers, innovators and game changers into mission-critical and key positions.

While the recruiting department will absorb transactional activities where an economy of scale enables them to deliver more value than independent managers executing the same activity, individual managers will be held accountable for the full recruiting lifecycle of open requisitions attached to their unit.  With a significant portion of accountability transferred back, the department will need to become more adept at advising and educating senior managers on the most effective ways to improve recruiting and new hire quality. To further support the agility of the organization, the recruiting department will also need to advice managers when it makes more sense to hire externally, leverage contingent workers, or fill positions through internal movement and promotion.

The Future of Training & Development

In a fast changing world, continuous learning may be the only universal competency desired. While the training function will continue to exist, the scope and focus will change significantly. Just as product lifecycles have gotten shorter, so to have the lifecycles of skills and knowledge.  While traditional training approaches could deliver some development in years past, the ability to deliver transformative change in the cycle times characteristic of organizations today is being challenged.  Like all other HR functions, in a shareholder aligned organization, the training development department will become a performance improvement department forced to prove with metrics that all solutions delivered actually improve on-the-job performance or success rates of internal promotions.

Sinking money into classroom training and hypothetical situation based case training will all but go away as the responsibility for continuous learning will shift to individual employees. Motivation to remain on the cutting edge of knowledge will be engineered through a combination of compensation, benefits and performance management.  To ensure that employees self develop in the right direction, a strong partnership will be needed between the T&D department and those charged with influencing the workforce.  The tools used to support employee self development will include many technology offerings related to social networks and collaboration platforms. In addition, self development on-the-job will be encouraged by providing short-term access to subject matter experts working as individual contractors and consultants, each of whom will have skills and knowledge transfer requirements written into their engagement contracts.

Up Next…

In the next and final installment of this series I’ll outline what new departments are likely to be found in the shareholder aligned HR function of the future.

About Dr John Sullivan

Dr John Sullivan is an internationally known HR thought-leader from the Silicon Valley who specializes in providing bold and high business impact; strategic Talent Management solutions to large corporations.