December 16 , 2017

Is Your HR Department Unwittingly A “Socialist” Institution

HR as Supporters of "Equal Pay" vs “Differential Pay”

Capitalists learn that you must differentiate rewards in order to improve performance.  What is needed is not "reward them all equally" or "reward each according to their need,” but rather reward those that produce the best results.  In contrast, most compensation departments act like socialists when it comes to pay.  They frequently give across-the-board cost-of-living raises that reward everyone equally for just "showing up".  They also frequently institute across-the-board pay freezes, which essentially “punishes” everyone "equally". When they do reward performance, there is often less than 15% differential between a top and average performer, which isn’t much of a reward differential for producing great results.

HR Focused on Seniority vs Relevant and Recent Performance

Capitalist principals tell you to reward based on results.  Unfortunately, all too many HR departments instead reward based on seniority.  They give preferences in job promotions, vacations, transfers and even pay increases to those with the most experience, even though others may have a higher performance level.  In addition, by giving 10 year pins but not giving out "top performer pins", HR is demonstrating that it is more willing to reward time in the job than it is to publicly recognize performance in the job. Although many HR socialists and union leaders believe in seniority, capitalists measure and reward performance, regardless of your tenure at the firm.

Equal Treatment of Departments and Managers vs Resources Based on Results –

Firms routinely prioritize their business units via the budgeting process.  CFO’s disproportionately allocate resources based on the department's results and its return on investment.  HR departments, in direct contrast, routinely treat everyone, every job and every department equally.  HR for example, almost always puts the same dollars, time and effort into hiring individuals in low priority departments as it does in high priority departments.  HR routinely treats all managers and problems equally, even though they should prioritize service offerings so that the most time and resources are spent on the most productive and high ROI managers, jobs and business units.

HR as Consensus Decision-Makers vs Innovators

It’s quite common for HR departments to make decisions in a meeting based on a vote or even worse, based on consensus decision-making.  A capitalist realizes that although input is important, it is essential that those with the most information and knowledge make the most critical decisions.  In a world that requires risk taking and innovation, consensus decision-making essentially dooms you to reducing all "wild ideas" to the average and the mundane.

HR as the "Protector" of People and Jobs vs being a Champion of Profit – Firms are in business to make a profit. HR professionals are often overly focused on defending people and jobs, even though that approach may be detrimental to the over-all profitability of the firm. An illustration of HR's over concerns about "protecting people" is HR's resistance to the practice of cutting the workforce. HR will recommend the cutting of training and the freezing of salaries and hiring in order to “preserve jobs” for the weak (instead of layoffs) even though freezing salaries and training for example might cause the majority of the workers to become frustrated and less productive. Layoffs are a chance to cull out the weak and the unnecessary as well as a method for reducing over-all costs.  It's easier to find a Republican that wants to raise taxes than it is to find an HR person that actively supports layoffs.  Offshoring is another efficiency practice that HR resists in order to protect jobs for the “little guy”. This insistence on maintaining local jobs raises costs and hurts the firm’s competitive advantage. The difference between the two approaches is clear: socialists champion “saving” the lowest common denominator while capitalists champion profit.

A Bias Towards People Over Capital Investments, No Matter What The ROI

It's time to face facts, in the business world, investment dollars go to the assets with the highest rate of return.  CEO's and CFO generally show no "human" bias and shareholders, without a doubt, show little particular favoritism for the human element.  They all just want high returns from their investments whether they are investments in people, equipment or financial instruments. In direct contrast, HR often sees itself as an employee advocate with little or no concern about comparing the productivity of human assets versus those of technology and finance. HR inevitably "sides" with the people element. "Capitalist" HR looks at people costs as a business investment that is no different than any other business asset. CEO's and CFO's invest money in resources based on their ROI, whether it is marketing, R&D or people, they have no preset preferences.  They expect all assets to demonstrate a return and naturally they invest the most dollars in those assets that provide the highest rate of return, require the least upfront capital, have the lowest risk and the shortest payback.  It's time to stop fooling ourselves by automatically believing that "human assets" have some special standing and instead support expenditures in what ever asset produces the highest return.

Other indicators that an HR department leans towards socialism and social

Additional characteristics of socialism and the bureaucratic approach to HR might include:

1.      A large emphasis on "showing up pay" (100% base pay and large benefit packages are all "show up pay") sends a message that showing up is more important than performing

2.      An emphasis on process, organizational charts, building relationships and meetings are all indicators of a bureaucracy

3.      Striving to eliminate any “special treatment” means turkeys and eagles get the same treatment

4.      Tracking and maintaining "headcount" (thereby considering all employees the same) rather than actual employee costs (salaries and benefits) and their ROI

5.      HR needs to be a unit that increases workforce productivity efficiencies not a creator or protector of jobs. Businesses make money by being efficient.  In the area of people management, efficiency means increasing workforce productivity (which is the dollar difference between the costs of paying and employing people and the value of the output that these people produce). It's rare to find a single HR department that talks about workforce productivity at all and only one in 1000 actually measures its workforce productivity as a regular part of its performance measurement activities. 

Why such a socialistic focus in HR?

Now you might be thinking… I agree some social work mentality does exist, why does HR have such a social work focus?  It's hard to point to a specific reason why HR focuses on equal treatment and loves to delve into social and community issues. The best evidence I've seen indicates that the primary causes for this anti-capitalist approach is that most of the people in HR do not have degrees in business nor do they have extensive experience managing a P&L business unit.  Let's face it, too many people in HR are there because "they like to work with people" rather than they like to make the firm a lot of money by increasing "people productivity".

You can also see this socialist bias in some HR publications that frequently place social concerns at center stage.  Even though the HR department is a business function (like any other business function) some of the people that write about HR seem more focused on outside social issues than the publications of any other business function.  These HR publications routinely focus on issues in the community. I've never met a CFO or CEO anywhere that stated that they saw that the role of HR department was to make the world a better place or to worry about the" little guy".  However, quite frequently I see the cover of HR Magazines highlighting social issues, obesity, housing issues and even concerns for a happy retirement. Maybe it's because most of the writers for HR publications are freelancers with no degree in business.

Conclusion

The war between capitalism and socialism is over and capitalism won because it's a superior approach. Now is the time to pass that message along to the numerous junior psychologists, former teachers and social workers in HR that just haven’t heard the message yet. Incidentally, these are also the individuals that fight the use of technology, ROI and metrics in HR because they feel that they "dehumanize" people in the people function.

OK, remember that I never said that all HR departments are socialistic but it is certainly true that a truly capitalistic performance culture is more of an exception then it is a rule. Firms like GE, Intel and Nucor are famous for their "capitalist" practices, while all too many HR departments act more like government agencies that emphasize equity over differentiation based on performance.  Rather than gripe about my expose’, now is the time for proud capitalists in HR to become the champions of differentiation and employee productivity.  If your goal is to increase your company's people productivity through the effective use of HR tools and strategies, it's time to change the DNA of HR. It's time to change HR so that it focuses on top performers and ensures that it spends most of its time and budget on high ROI activities.  In brief, it's time for HR to become a profit center.

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.