Blog Post

Compression: It Has Its place and HR Isn't It

Mike Carden

Vice President Small Business Operations

Congrats! You're a 3

The late nights and weekends, the big deals closed, the mentoring, the treats you baked for the team...how did all that become a 3?

In complex systems theory there is a concept called compressibility - a measure of how easy it is to summarize something. Some things in business are very compressible; financial performance can be easily summarized into metrics like profit or earnings growth.

Some things in business are not compressible however. When you try to summarize something as complex as human endeavor you have to be very careful that you don’t end up just removing the very information you’re trying to summarize.

Think of It This Way

You could choose between two divisions to invest in by using just a handful of financial metrics (because financial performance is compressible).

Now do this one: You know two candidates for a role both scored 3s, so who do you promote?

In so many cases a desire to build metrics in HR actually just ends up removing information from the organization (and demoralizing people along the way).

HR Does Silly Things with Metrics

  • OVERSIMPLIFICATION. Trying to compress something that can’t be easily summarized (like giving someone a "promotability" rating out of 5)
  • SUBSTITUTION. Reporting on something that isn’t easily measured by substituting something that can be measured (like using absenteeism rates as a proxy for staff engagement).
  • OBFUSCATION. Failing to produce any real metrics useful for decision making, hiding behind the excuse "we are dealing with people". After all, everyone is special...
  • NORMALIZATION. Using parlor statistics to create a false air of respectability. Like trying to normalize staff performance under a bell curve - eliminating information and variability and also ignoring the fact that things change over time.

This last one seems to be peculiar to HR. Nobody ever says: "What profit did we make this year? Same as last year - once we normalized it!"

Why do we do these things? Because in order to make predictions, HR has been forced to try and report the way finance does - using simple topline metrics. But finance can create these metrics because most of their system is compressible. HR’s isn’t.

Should We All Give Up and Go Home Then?

It’s not that bad, really. Why do we want metrics? So we can make better decisions. Which means that it’s not about metrics at all; it’s about modeling and predictability.

The weather is a complex system, but it can be predicted (to an extent!) Just as the weather has recurring patterns that emerge out of the chaos, so too does the behavior of people in an organization.

And the good news is there is a model for this in business already. Marketing. Go and talk to those folks - they’re also dealing with human complexity and they’re pretty good at finding predictable patterns in a chaotic market (they don’t get paid otherwise!)

Two Simple Things You Can Do

  1. Make sure that you record all the good stuff - interactions and context - as part of your performance reviews
  2. Roll all of that information up in a way that you can use to identify patterns over time and make predictions. You’ll need a killer performance management system for that!

After all, even if a system is complex, you can still make predictions.

Photo: Creative Commons

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A New Poseidon Adventure: Flipping Succession Planning Upside Down

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The Hidden Costs of Ignoring Your Talent Management Strategy

Building and maintaining a successful company hinges on having the right people to execute projects and drive results. People, we hear time and again, are your company's most valuable asset. But their success — and HR's ability to recruit, engage and retain them — depends on HR pros who are strategic decision-makers, armed with the proper tools to let them excel at their jobs. Modern HR professionals manage much more than payroll and benefits. But their technology tools, in many cases, haven't evolved past basic productivity software like email or Microsoft Word. HR simply can't be strategic with old-school tools that reduce people to statistics and give little insight into what the numbers mean. Emails and spreadsheets were not designed to deliver meaningful insights into people's performance, suggest when employees should be promoted or highlight skills gaps in a company. For that, HR needs a broader, more strategic set of talent management tools, which lets professionals manage every aspect of the workforce, from training and performance reviews to collaboration and succession planning. Yet, research shows that less than 25% of companies use a unified, holistic approach to their talent management. The Real Costs of "Doing Nothing" As a Talent Management Strategy The critical relationship between business strategy and HR strategy too often gets overlooked by senior leadership. While it may seem like the company is saving money by managing recruiting, training, performance and succession via manual and paper-based processes, in reality it’s costing your business more than you know. For example: Without a talent management strategy, a company with 2,000 employees is losing almost $2 million every year in preventable turnover alone. Businesses that don’t invest in learning suffer from decreased employee performance and engagement to such a degree that they can expect to realize less than half the median revenue per employee. That’s a direct impact on the business. In employee performance management, organizations without a focused strategy waste up to 34 days each year managing underperformers and realize lower net income. To learn more about the business impact of talent management and how to start building out your strategy, check out the eBook Why Your Nonexistent Talent Management Strategy is Costing You Money (And How to Fix It) and register for the March 19th webinar, Building the Business Case for Talent Management.

The Return of the Moderate Merit Budget – Wreaking Havoc on Pay for Performance

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The Return of the Moderate Merit Budget – Wreaking Havoc on Pay for Performance

With the economy now on steadier ground, most organizations have returned to administering a merit budget to the pre-recession levels of 3 to 3.5%. In the years immediately following the economic downturn, many merit budgets were eliminated entirely or were reduced significantly and reserved for a select segment of the employee population. Pay for performance has become a necessity for many organizations that are expected to accomplish more with fewer resources. I often get asked: "How can I truly award my top performers with such a limited budget? Should I do so at the expense of my ’Meets Expectations’ performers? What if I need to retain my ’Meets Expectations’ performers and giving them 0% to 2% increase puts me at great risk for turnover? But if I don’t recognize my top performers, don’t I risk losing them...?" These are difficult questions to answer, however you can determine the best solution for your organization by considering the following: Are your employees paid at market pay levels? Is your organization’s performance management process mature? Does your organization have other compensation programs in place to reward top performers (e.g. variable pay)? Market Pay If turnover is a concern, and your organization needs to maintain ’bench strength’ in order to achieve its strategic objectives, your biggest priority should be to ensure that you are paying your employees at market pay levels. Why? Historically, as the labor market strengthens, organizations become vulnerable in terms of losing people. Hiring and onboarding replacement talent is not only costly to the organization, but can also cause dissension among existing employees since new hires may be getting paid more. Be sure to stay abreast of market pay levels and trends, and use the merit budget to correct disparities. Performance Management Process Organizations vary significantly in terms of the maturity of their performance management process. Closely examine your organization’s process and look for ways to improve it. If there is a perception that one management team is an ’easier grader’ than the others, the process is inherently flawed and any pay for performance program will not be viewed as credible and fair by employees. A good place to start is to get a calibration process in place and communicate broad guidelines on expected distribution ratings. Variable Pay Programs Variable pay programs (e.g. bonuses) have become increasingly more popular across all industries and career levels. These programs provide the opportunity for employees to share in the organization’s success while not adding to fixed payroll costs. Some plans have an individual performance component which can be a very effective means to recognize top performers. However, in order for this type of program to be successful, individual goals and targets must be well documented and communicated. Again, this is largely based on the maturity of the organization’s performance management process which takes time to evolve. What are the best steps to avoid wreaking havoc on your pay for performance process? First ensure your pay levels are keeping pace with the market Continue to evolve your performance programs with calibration among managers and a rigorous goal setting process Promote variable pay plans to reward high performers without adding to fixed pay roll costs It’s not always an easy journey but, in the end, it’s best to use a measured approach that is based on business needs and a realistic assessment of your current programs and processes.

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