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New, bite-sized learning from FTR

Can’t take a whole day off work for training? Wish learning could happen on your schedule, and not have to pack it all into a single day, with little time for interaction? Want access to the best instruction, but you have a lot to share as well, and more importantly you want to learn from the experiences of others?

We are happy to introduce Workplace Learning Circles, from FTR, in partnership with Singapore Learning Circles, LearnSG, and other partners to be announced soon.

Background on Learning Circles

For decades, study circles in Sweden have brought together communities of learners interested in a topic. Everyone shares, so learning is multiplied compared to instructor-led learning. Singapore has embraced the concept and is funding early adopters, taking advantage of an enabling technology platform designed specifically for Singapore’s learning needs. The Institute for Adult Learning (IAL) now supports adult educator entrepreneurs wishing to extend learning to individuals as well as employers. Learning circles are a form of community-led blended learning, to use the proper jargon.

An LC consists of a live session where learners physically meet, but also log into the virtual classroom and experience interactive training that is both face to face and online. Material is presented by the facilitator, and learners then get involved with online polls, checking out posted videos and URLs to articles and can post their own ideas, reflections, experiences or resources. This is followed by 1-2 weeks of “asynchronous” online learning, at the learners’ own pace and convenience, using any online device. New material is posted throughout the period to help learners develop a habit of daily learning with new material. Like social media, learners can contribute comments, questions or share links in relation to specific “slides”, and can “like” or rate (positive variations only) or comment on the inputs of others. The result is curated content. Neuroscience has found that learning is much more effective when people spend more time actively receiving, recalling, reflecting and researching a topic, compared to hearing a lecture with minimal time for application.

Learning circles are a form of community-led blended learning

Workplace Learning Circles from FTR

Freelance Total Rewards launched its first learning circle, “Promote Flexible Work Arrangements – DIY Learning Circle” on 9 September, 2017, to test-drive this approach. As an educator, I love it, but it takes some initial adjustment, kind of like using your phone as a music player or getting into a taxi that has no taxi sign on top. I am now committed to using learning circles to supplement our live learning opportunities. Introductory LCs will be free, while more in-depth learning may involve a fee.

Our next learning circle is our first designed exclusively for employers, on the basics of using rewards to attract and retain talent.

For more information or to register, click here for Attract and Retain Talent – Workplace Learning Circle. This will be the first of a series of learning circles leading to a Certificate in Workplace Rewards.

Are you ready to manage the annual salary review?

Our mission is to advance better rewards practices, and the annual salary review is the ultimate test.

Are you ready for the upcoming review?

Did you assess your last review? If not, it’s not too late. Use our free and simple Salary Review Assessment.

To help you run a successful annual salary review, now is the time to plan and equip yourself with the essential knowledge and skills, ranging from project management, stakeholder management, data management, pay for performance, budget allocation and control, manager input and approvals.

We have recently validated the competencies (knowledge, skills and attitudes) needed to manage a successful salary review, based on input from experienced regional rewards leaders. We have incorporated this knowledge into consulting and training offers you may find useful:

Annual Salary Review Support

This is a scalable, configurable service offering to assist you with your upcoming salary review. The level of assistance you require depends on 1) the scope and complexity of your review, and 2) the strength and capacity of your existing resources.

We have assisted large MNCs (10,000+ employees in 15+ countries), midsize employers (5+ countries, 1,000+ employees) and smaller employers as well, just in the past year. Depending on your needs and internal resources, we can provide expertise, an additional set of hands, guidance, or even full accountability for performing the work.

See Annual Salary Review Support on our Compensation Design page.

Annual Salary Review Training

We have also created a 1-day and 2-day version of training for C&B managers and professionals responsible for managing and administering the annual salary review. This an intermediate course (not for newbies) covering in depth the unique aspects of running a salary review. Learners are assumed to know how conduct market benchmarking and use Excel. We will teach advanced Excel skills for creating a salary increase guide, i.e. merit matrix, based on performance rating and compa-ratio. We will also provide a basic template for a manager input tool used to allocate their budget to their team members.

Check out these courses on our Training Calendar.

 

The Month ends in ‘Ber

The month ends in ‘ber, so it’s time to rememBER year end priorities for managing comp and benefits. Here’s my fifth annual (and updated!) “Ber” to-do list for C&B people.

The last few months you’ve made progress on your KPI’s but now planning season is upon you. A few things start to happen for companies on a calendar year fiscal year. They may not all apply, but I’ll bet most of these priorities apply to you:

Seven Comp & Ben Priorities

  1. 2018 Salary Budgeting—You must deliver salary increase budgets for each country. There are 7 inputs to setting your salary budgets for each country:
    1. Last year’s budget – the decision makers will want to be reminded of this, promise.
    2. Local salary trend – big firms, WorldatWork have good surveys on salary trends and projected salary budgets, normally indicating merit, general (across the board) and total increase projections.
    3. Market analysis – benchmark your company’s jobs every year and compare the results for a matched set of jobs to see how much the market values have moved year-over-year. Average the market compa-ratios (employee salary divided by the job’s market value) for all employees together (incumbent-weighted) to determine your company’s overall market position.
    4. Business and financial conditions – if the economy, the industry or your company’s finances are strong, don’t be shy, ask for what you need. If there is economic or financial uncertainty, ask anyway, but expect pushback.
    5. Voluntary staff attrition rate compared to industry norms. If your salaries lag the market significantly but you are not losing good talent (low attrition rates), then your salary budgets can match market trend. But if you are experiencing high voluntary attrition relative to your industry, and you know your pay lags the market, you may need a catch up budget. How much to request? If you have a high attrition rate, and your salaries (and total compensation) lag the market by 10% or more (i.e. compa-ratios of 90 or less), you should request an additional 1.0% of payroll. If the gap is 15% or more, ask for an additional 2%. These are only rough guidelines. Don’t ask for huge catch up budgets–it will show your lack of business savvy. Take small steps and find other ways to address your high attrition other than raises.
    6. Total cash compensation – when considering your salary budget requirement, make sure your market analysis includes total cash compensation. If you pay big bonuses compared to your industry, it’s ok to let salaries lag the market. I know of a company in Taiwan that pays massive performance incentives and very low salaries (about 60-70% of market.)
    7. Promotion plans – some companies establish separate budgets for promotions. Other companies do not, arguing it is unnecessary since there are unplanned savings from vacancies during the year, and that vacancy-related savings are sufficient to offset the cost of promotions. If your company budgets for promotions, you can easily determine the right budget by answering two questions: first, what percentage of employees will be promoted? Second, what is the average promotional salary increase percentage? Multiply the answers to determine the required promotion budget, as a percentage of total annual payroll.
  2. 2018 Benefits Budgeting—You need to provide finance an inflation rate on your insured benefit premiums as well as self insured claims. Contact your broker and start shopping the market before blindly signing a renewal. If you’ve been with the same insurance company for 5 years, they are feeling comfortable so shop the market and make them re-earn your business. Locations with aging workforces will see higher premium increases. TowersWatson has some of the best analysis of healthcare inflation in Asia, indicating healthcare costs are rising about 10%. Check social security websites to see if contribution rates or pensionable salaries will increase next year.
  3. Annual Market Analysis—Your compensation surveys are being published in the next several weeks, with some coming out in September. Don’t wait til the last minute! It’s tempting to wait til late October when all your surveys have been published (by Hay, TW, Mercer, McLagan, etc.) but remember you need to confirm your matching, check the year-over-year market movement by job, to see if there are jobs where the market moved up more the expected, or perhaps moved downward, in which case you have to decide whether to accept the new market value or stick to the current market value (and see if it goes down again next year). Your market analysis results can serve as inputs to salary budgeting (see item 1 above), salary range updates, and to inform salary offers in the coming year.
  4. Annual Pay Cycle Planning—Do you know who is running the annual merit/increment process? Who is responsible globally, regionally, by country? Who is working with the software vendor (if you use 3rd party software) for modifications and configuration? What are the milestone dates? How will Chinese New Year impact milestone dates, manager deadlines, performance rating calibration and approval, etc.? Are you moving away from use of performance ratings? If so, your market analysis (step 3 above) is more critical, since you will need accurate compa-ratios. Who updates salary ranges? There’s a lot of work to be done for the annual salary review. In comp, this is the biggest project of the year, so plan now.
  5. 2017 Incentive Accrual—One thing I recommend doing now is updating your forecast for 2017 incentive payouts (to be paid early 2018.) Finance needs to maintain their accrual on the balance sheet for the bonus payment liability. If incentive-related business performance has been low, payouts may be lower than budgeted, depending on your plan design and funding formula (if any). If so, it’s bad news for employees, but good news for finance, who can make plans to earmark potential surplus incentive budgets for other needs. However, if business performance has been good, your incentive accrual may be insufficient and finance may have to increase that accrual to avoid a year-end cash flow crisis. Make instant friends with finance by giving them an estimate of year end bonus cost.
  6. 2018 Incentive Design—You think September is busy, it gets worse each month now through next March, so do yourself a favor and get some things out of the way now. For next year’s incentive plans, ask some business leaders if they have any input/feedback on the current plan design, likely payouts, etc. Update your accruals (see step 5) and have an informal chat with your head of HR and head of Finance and see if they have any sense about the richness of payouts, who’s getting low (or no) payouts, who’s getting bigger payouts, etc. Is the incentive plan doing what it is supposed to do? Will it help attract, motivate and retain the best performing individuals? Is it rewarding the best performing teams, units, regions, etc.?  If you can confirm that the plan is working well, then you can plan on a lighter incentive design process for 2017. If you get feedback that says something needs to change, then you should start more detailed planning now and make sure planning doesn’t get swept aside by merit and bonus planning, or other priorities in December and January. Ideally, new incentive plans/schemes should be issued in the first month of the new year, but no later than March, in most organisations.
  7. Finish your KPIs—it’s time to get realistic about what you can accomplish on your own time. What can you delegate? What do you need help with? If you (or your boss) have unspent consulting dollars, now is the time to get someone to help you get your KPI’s across the finish line. The only thing more tragic than not spending your consulting budget is not spending it AND failing to complete your KPIs!

We now offer annual salary review support based on years of experience, including very current experience.

Here’s wishing you a strong finish to 2017 and solid preparations for a successful 2018.

Tom

Honoring My Mentors

Spent some time today reflecting on how blessed I have been (and still am) to have the best mentors one could ask for in my profession. I am not a self-made man; many have taught and guided me, or occasionally whacked me upside the head.

Here are those who come to mind, from the start:

  • Don Schwager, who taught me that work and serving God can be one
  • Jean Hornback, hired me as Personnel clerk as a student, 1985
  • Jeff Robinson, said in 1985 I’d go far and I’d go fast. He was right.
  • Daniel T. Carroll, consulting legend, whose words resonate since 1986
  • Dr. Fraya Andrews, EMU comp professor, taught me to hit .9 r-square
  • Dr. Jim Conley, told me I’m an ops guy, not staff. He was right.
  • Dr. Richaurd Camp, Performance = Motivation x Ability x Opportunity
  • Jack Behler, my first consulting firm boss in 1989
  • Frank Zyber, bonus brother. Kelly still uses our bonus plan, globally
  • Nancy Fraser, taught me the right attitudes for managing comp
  • Kathy Chiaravalli, taught me all I know about international C&B and more
  • Gary Chicoine, taught me to be politically astute without being political
  • Gary Yezbick, great HR team builder, gave me my first manager role
  • Bob Bradshaw, 100% pure comp nerd, taught me LTI basics
  • Marty Shapiro, best consultant I ever had on the corporate side
  • Robert Powell, friend and confidant as we lived through hell together
  • Jane Romweber, gave me a chance at big firm consulting Hewitt
  • Darcy Eikenberg, gifted giver of strong head medicine
  • Jack Moran, true coach and friend with the right words at the right time
  • Jason Jeffay, best consulting leader I’ve ever known, could sell a $1 million project in a minute
  • Lori Gaytan, gave me life-changing opportunities at IHG
  • Stevan Porter (RIP), truest Servant Leader I have ever known
  • Ceri Ittensohn, best HR leader I ever worked with, starting with good character
  • Tony South, didn’t have to, but gave moral support when I really needed it
  • Dr. Fermin Diez, true friend, chairman, partner and only guy who can teach me new stuff
  • Freddi Marquez Jr., my partner in the Philippines, friend, and inspiration to do the impossible

There are others who have made a big difference in my career, but these are the major influences. To all of you, thank you. I hope to inspire and help others the way you have helped me.

Who are your mentors?

Why I Do What I Do

Wanted to share why I have been doing the same thing for 32 years, and still love it.

First, what I do. I am a specialist in compensation and benefits, which is about who gets what and how much, in an organization. I have been figuring out who makes what since March 1985. I have participated in hundreds of pay surveys, analyzed the numbers, considered internal salary relationships, linked salary increases to performance and calculated tens of millions of dollars of bonuses. I’ve managed employee benefits which address needs cash cannot address. Beyond comp & benefits, I’ve introduced recognition systems, work at home practices and crafted career ladders to facilitate fair and transparent career growth with hotels, legal departments and giant soft drink companies. I’ve consulted about 150 companies. I have had a direct influence on the incomes (and lives) of more than a million people, easily.

So why have I devoted most of my waking hours since my 20’s to this field we now call total rewards?

Because I have worked. You see, I believe attitudes about pay and work are inseparable. How you work should determine how you are paid. I do not believe in simply paying everyone equally, unless the work done is actually equal. But I have always loved doing good honest work, from delivering newspapers on bicycle at age 10, to “skiddin’ bricks” at 15 (digging bricks out of the dried mud with a trowel and stacking them on a pallet), or driving a lift truck at age 18 at a factory.

By the time I was 20, I had been a member of the Teamsters Union, supervised 10 people, fired someone (for doing drugs at work), washed dishes, operated machinery, lifted 15 tons of frozen strawberries by hand in a day, baked bread, operated the cash register, plowed a field and milked the goats, programmed stage lights, won a sales contest signing up newspaper customers, won top salesperson among 20 stores selling athletic wear and bought my first car. I had worked in more industries by age 20 than most people do their whole lives.

Work teaches you a lot of things, which I don’t want to go into in this blog. But one thing you learn from work experience is that pay matters. So, now, at age 56, when I see an organization paying people 50% more than others who are doing the same job, with no clear difference in productivity or quality of work, well, it really pisses me off. Whether the higher paid people are highly paid because they are men, because they have been in the job for 17 years, because their dad is on the board.. all I see is “inequity” and my brain is programmed now to fix it, and fix what led to it. What I care about is for every hard worker to get what’s fair.

Let me be clear, I am not pursuing a political agenda here. I have worked with the very best: men, women, white, black, Asian, Latino, straight, gay, disabled… you name it. I have also worked with several pretty useless (in terms of their work) people in these categories.

I accept and support the fact that some make more—even way more—than others and that some people are enormously rich and others earn very little. There is little I can do about this. I believe in the “market”. I do not fully agree with a minimum wage, or pay caps… But if there is nothing I can do about the pay, I can still help an organization determine what to expect from the person earning it. This work can be very satisfying.

Equally satisfying is helping grow others in my profession. Facilitating learning is becoming my best way to impact the world toward better pay practices. I love doing this in Singapore because the whole world is here. ASEAN and more broadly Asia and Middle East is showing a real hunger to learn the principles and practices that attract and retain and reward talent more effectively.

That about sums up why I do what I do.

Take a moment and consider why you do what you do. I hope it inspires you to do your best work ever, today.

Do Incentives Work?

Why do we offer incentive compensation? For most, we do it because we have always done it, so we keep doing it. Besides, —and here is the second reason— everyone else does. We are conditioned to do what is prevalent. Hey, no one ever got in trouble for doing what is market practice..

No one ever got in trouble for doing what is market practice.

What if variable pay (performance bonuses, annual incentives, profit sharing, etc.) was not market prevalent? Would it be a good idea to use incentives? Now the question becomes “do incentives work?” Do incentives succeed in achieving their stated objectives? A typical incentive scheme will have a stated objective such as “to encourage and reward performance improvement on an individual, unit or group level.” Has your organisation’s performance improved as a result of your incentive practices, or would you have achieved the same performance without incentives?

Performance does not automatically improve by simply having an incentive.

On Thursday, 14 September, Dr. Fermin Diez will share his doctoral research on Pay for Performance, and explain his findings on what works and what doesn’t, when it comes to incentives. He will break down team versus individual approaches, short- versus long-term, and various team approaches. Join us after work at the beautiful Royal Plaza on Scotts hotel, in the brand new Scotts Suite on level 2, for an evening of professional development and networking. Find out how to drive better company performance through smarter incentives.

Following Fermin’s presentation, Tom Farmer will present emerging alternatives to traditional merit pay, sharing a new salary increase matrix that directs larger increases to employees based on both performance and retention value.

Mastering Pay for Performance panel

We will end with a panel discussion, inviting two leading HR practitioners with extensive background in rewards—Lynette Ng of Sanofi, and Shiau Fei Lee of Mapletree. Dr. Diez will join the panel. Come, and bring your toughest questions for the experts!

Click here for event information on Mastering Pay for Performance. Register by 6 September (midnight) to receive a free copy of The Remuneration Handbook—International Edition, by Dr. Fermin Diez  and Dr. Mark Bussin, a $50 value.

Implementing Flexible Work Arrangements

Do you know what freedom feels like? You do if you have support from your employer to work at home or on a flexible schedule or reduced load. Is physical presence more important than delivering? Can people do their work on an alternate schedule or work remotely once in a while? For white-collar jobs and many others, yes!

The true question is around trust and having some common sense policies. It takes trust on the part of managers, but when employee is trusted, they will most likely respond by proving they are worthy of that trust.

Smart policies help. Not all jobs can be done remotely. Minimum service requirements with a satisfactory rating are necessary for eligibility. From there, the department manager should screen the request and if they agree, it should no be permanent, lest the employee later claim it as an entitlement. Use your leave management system to apply, approve and track FWA’s.

I am excited to be facilitating a class for 35 HR and business leaders on this topic through SAPPHIRE offered by SNEF. We will run this class again soon due to demand! Contact Veena Tharmaseelan at SNEF at veena@snef.org.sg for more information.

Pay for Performance is Good but Not Enough

Most of us have recently finished annual salary reviews and are now busy working on our KPIs. I am guessing about half of your organisations are taking a look at your performance management and pay for performance practices. I hope the following thoughts are therefore timely and helpful.

Let’s start with the word “performance”. This term is almost as worn out as “love” or “our greatest asset” or “passionate.” We badly need a refresh. So here’s my suggestion:

Don’t think performance… think value, contribution, impact.

Wherever you use the term performance in your management or HR conversations, consider what you mean by “performance”. Are you thinking of achievement against KPIs? Are looking back at the last review period? Or are you looking at the present or the future in terms of a person’s contribution to business performance?

I like the term contribution… like a retail or F&B company, the term “contribution” is often used to refer to branch/store profit, i.e. its contribution to the profit of the region or district or brand profit. A person’s performance is ultimately their contribution to organisational performance. If we forget that, we have lost sight of the purpose behind performance management.

Talent Value

Two large multinationals I have spoken with recently—one based in Tokyo and one based in Manila, Philippines—are using the term “talent value” in place of, or in addition to, performance. Talent value is a good term, as it gets outside the box of KPI achievement in the past. If you ask an investor which investments have had the best past returns, they can easily tell you. But ask them which are their favorite investments today, and you will get a different list. Missing from the “favorite today” list will be investments that had great past returns but have gone into decline or have inflated PE ratios (price to earnings, i.e. they cost too much for what they give you). Their favorite investments today, however, would include some lesser-known companies with low PE ratios (good returns compared to their cost.) In speaking with the HR leaders using the concept of Talent Value, they are thinking of people much the same way as the investor would talk about their favorite current investments.

Finally, do we pay for performance, or do we pay to retain high performers? We should consider whether our reward philosophies are “pay for performance” when we are actually paying to retain people with needed talent value, part of which is performance.

And what is the best predictor of talent value, or contribution? Yes, past performance against KPIs is an important part of it (so to that extent, I don’t mind continued use of ratings..) but going forward it is competence that makes a person valuable over the span of a career. Competence is what a person brings to your organisation and it’s there whether KPIs are easy or difficult, or whether the manager review is fair or unfair. Competence–relevant to the work to be done, the problems to be solved–is what best represents value.

Let’s continue to train managers to manage performance. But let’s also teach managers to define needed talent value in terms of relevant competencies – what the role requires in terms of knowledge, skills and attitudes and traits. Yes, this gets into industrial psychology, and competency frameworks take a lot of work. But we must, in my opinion, make the term “competency” just as common as “performance” in our business vocabulary.

Business performance is ultimately measured in dollars. Talent value, however, starts with competency and ends with individual performance, i.e. individual contribution to organisation performance. We in HR are in the business of creating business value through talent value. Managing performance is the manager’s job, as the manager is accountable for his/her area’s results. But in HR we are on point to acquire, develop and retain competency, and to equip managers to develop it and turn it into performance.

Let’s also teach managers to be coaches. Outside coaches are really helpful for top leaders, but too expensive for the mid-levels. We therefore must equip all management to lead and coach others.

As for HR, let’s select and promote on competence. If we can identify, for a role, the necessary competencies and then ensure goals and performance are being managed for accountability, then we are getting close to managing talent value.

Pay for Performance

So what do we do with our merit matrix? It is a beautiful creation, perfectly allocating scarce salary budgets to the right people. Do we seriously need to question use of a salary increase guideline with performance rating down the left side and range position (compa-ratio) across the top? Should we abandon these fantastic tools with percentages managers are advised to give their employees, to help ensure a strong link between pay and performance, and to improve what we call internal equity? My answer: Yes, if we can create something designed for retaining talent value.

When expanding the pay philosophy to pay for “talent value” or past/present/future value or contribution or impact.. we must rethink the traditional performance matrix, or rather get beyond it. It could be as simple as using the merit matrix (backward looking performance) as step one, then advising managers to apply a forward looking lens to determine talent value. Instead of rating, I suggest the following scale:

Top – business/mission critical talent. Must retain. Business would be negatively impacted without this person. These roles tend to be higher level, single-incumbent roles, but could also be members of small but highly important teams.

Mid – Important or enabling talent. Individuals could be replaced but not easily. Loss of these individuals would be disruptive but have little or no long-term effect on the business overall.

Low – These people are useful, steady workers in enabling roles that could be outsourced or performed by contractors, or are otherwise non-essential to business success. Talent value focuses on short-term productivity, quality of work and general attitudes.

The above ratings are not performance ratings, but are in terms of importance to the business and impact of separation, i.e. importance of retention. Pay and retention are directly linked. Higher pay retains talent, all other factors being equal. Paying at a higher market level such as 90th percentile means that other employers cannot match their salary, and the incumbent would need to take on a much bigger role elsewhere to make the same money he or she is currently making.

Put simply, let’s replace “pay for performance” with pay for talent value, or pay for retention, at least in our pay system designs. As for labels and optics, pay for performance still sounds good and sends the right message. But the reality is that we need to consider more than performance.

For more, see my other blogs on this topic, and check my Training Calendar about my classes on Transforming Performance Management or Managing Performance Without Ratings.

It’s about management, not performance management

If an organization has a vision, a mission, a strategy and a business plan, then the 1st priority of all those employed is to help fulfill these. The leaders’ role (as many leaders as there may be) is to keep everyone—including the growing number of part-timers, FTCs (fixed term contracts), vendors and partners—moving in the same direction, and devoting their hearts and minds to organisational success.

I am coming to some conclusions concerning “modern” performance management, i.e. mutually-agreed SMART goals and KPIs/objectives, and annual performance reviews involving forced distributions/curves and calibration meetings.

Conclusion #1: Managing performance is the job of every line manager. If a line manager received a promotion, more money, for taking the job of manager, but does not effectively manage team performance, the manager should not receive a higher rating than his/her team. In fact, if the team is not performing, the manager is not performing. It’s that simple. If the manager was promoted due to being a top performer in a non-management role, shame on HR for failing to match the person to the job of manager.

Conclusion #2: HR should help managers do their job. It is not the job of HR to handhold managers, personally making sure every individual has KPIs, a midyear review, does a self-assessment and gets a manager review that is calibrated and “fair.” This not what employees want! Accenture surveyed their roughly 250,000 millennials and they said they wanted real time feedback (read about it here.) Employees want a real manager who will help them see the big picture, identify their strengths and coach them on an ongoing basis to solve their own problems, stretching them to grow and succeed. We must let (and help) managers do their job, and help their managers hold them accountable for it. But we must stop doing the managers’ jobs for them indirectly by orchestrating the “annual PM process.”

Conclusion #3: Following the herd is not adding value. HR, I am speaking to you. If 80% of companies decide to continue using performance ratings, conduct calibration meetings, etc., this is not to be used as an excuse to ignore the headlines and comfort yourselves. Movement away from ratings is not the point. Dropping the use of ratings is a wake-up call for all of us. What is happening is a movement back to managers managing their people. Back to the way it is supposed to be. If the majority of employers think it’s ok for HR to do the manager’s job (deciding on what salary increases should be given and giving them the talking points to ensure they say the right things and not the wrong things,) that does not mean you should do the same.

Movement away from ratings is not the point. Dropping the use of ratings is a wake-up call for all of us.

Conclusion #4: The best contribution HR can make to performance management is better selection and development of managers. If you have the wrong managers, or if your managers have not been developed into good people managers, our role in HR is not to mainly to be a safety net to make sure everyone gets a fair review. Our main role is to help poor managers become good managers, and if they cannot, to replace them. If we wish to add value, let’s help create good management through good selection and development. Let’s not assume working ourselves ragged in Q1 means we are adding sufficient value. Better if all the managers do their jobs year round. Then, when it’s salary review time, they will know what to do with their budgets.

And more importantly, managers will manage performance. It’s their job as managers.

Agree?

Horseless Carriages are “Cars.” Ratingless Performance Management is now…

So much talk about performance management and doing away with ratings. When cars were invented, they were called “horseless carriages” because the absence of horses was so shocking at the time. Wifi was first called “wireless LAN” since LAN cables were no longer needed. Telephones were called telephones until wireless phones appeared, which were called cordless or wireless at first, then they were cell phones, then smart phones. Today, we just call them phones, because smartphones are the norm.

Today, we talk about driverless cars. What will they be called in 10 years if driverless becomes the new norm? We will probably call them cars, no longer referring to what is missing (drivers and horses.)

So in 5 years, what will we call performance management without ratings?
Will it become simply “performance management” again, with no reference to what is missing?

Maybe. It would be useful to find a new label, to break the associations hired-wired in our brains from 3 decades of practice. Come on now, admit it: when we think of “performance management,” our brains immediately associate it with goal setting (which 30% of our managers suck at), ongoing coaching (which at least 70% of managers suck at), and “pay for performance” which triggers thoughts of SMART goals and KPI achievement the last 12 months, self-ratings, manager ratings, calibration sessions and a forced distribution curve, resulting in a merit matrix and bonus formulas that work because ratings can be used in Excel formulas.

Neuroscience research* shows we cannot unwire our brains…we cannot unlearn what we have done for 10 or 20 years or more, like some kung fu movie where the student is asked by his new master to unlearn his bad karate. It is hard-wired. So how do we change our performance management mindset and still call it by the same name?

My suggestion: let’s talk less about performance management, and instead break it down into its components, which do not require HR to “manage performance.” Here are the four components I feel need to be unbundled and re-positioned as separate disciplines:

  1. Accountability – employees are accountable to their managers to perform their jobs to get results. Managers should not depend on HR to help them with this. Long before we had expensive software, managers were accountable for team performance and ensuring everyone knows their part. Let’s “make managers great again” and get out of their way. I truly believe managers will figure this out on their own, if we in HR stop telling them what forms they must fill out by the deadline.
  2. Development – managers, with help from HR, must learn to develop talent to maximize team performance. Here is where the L&D folks can shine. Let’s make learning happen for the sake of building organisational capability and capacity.
  3. Retention – managers, with help from HR, must know whom to retain, and how. Rewards help a lot, but we need to build manager skills and leadership ability to keep the best people.
  4. Rewards – We have been wasting a lot of money on merit pay thinking it is good behavioural psychology. We permanently reward people into the future for their KPI achievement the past 12 months. Merit pay is better than not differentiating, but let’s be clear that our merit matrices are rewarding past performance into the future. No one “earns” a raise anymore like it’s their right. Pay is (or should be) about individual retention and internal equity. Incentives are about alignment with overall objectives, not achievement of prior year KPIs.

Our merit matrices are rewarding past performance into the future.

Let’s end “Pay for Performance”

The merit matrix has served its purpose, nudging the numbers in the right direction. Unfortunately, the numbers are not getting where they’re supposed to be fast enough. Well paid average performers should get no increase if there are top performers paid low v market. Taking 1% from the former and giving it to the latter is better than giving both the same %, but it is far short of what is needed to retain key talent. Instead, managers must be trained how to allocate scarce salary budgets with the objective of retaining key talent and maintaining internal equity.

So, here’s my verdict on the term “performance management”. The concept is not the problem, the term itself is not the problem. Even ratings are not the problem. It’s ok to keep using the term performance management as long as we see accountability, development, retention and rewards as separate disciplines which depend on managers, not HR, for their alignment.

I believe the term for this already exists. It’s called “management.”

What if you allowed the term “performance management” to fall out of use? In my opinion, if you equip managers well enough to hold people accountable, develop talent to perform better, be a good boss and then leverage rewards to help you retain the best talent, no one will miss the term performance management.

And what about ratings and SMART goals and KPIs and calibration and curves? In my opinion, if you focus on management capability, and managers can coach and have crucial conversations, and can allocate rewards wisely and fairly… you can make the above practices optional, up to each business or function head to keep or stop doing. Let it go, folks. See what happens. As long as you are equipping your managers well, you can make all those rituals optional. Let each business decide.

If your managers are not ready to do their job without hand-holding from HR, then I believe you are stuck with those practices for a while. And if your culture is one of mistrust toward your managers—a belief that only those at the very top can make people decisions fairly, you are doomed to the first quarter fire drill for years to come. For some industries, achieving sufficient managerial talent may be more challenging, perhaps unattainable, given the practice of promoting from within and giving promotions to your best technical experts. In such cases, my advice is to retain ownership for performance management within HR and stick with the current practices.

Agree? I’d love to get your view!

*Read David Rock’s books on neuroleadership and how to help employees think and perform better.