Trench HR: Closing the Credibility and Impact Gap?

Posted on November 1, 2011 by William Gould

I recently conducted an informal, unreliable, and not-too-scientific study. The kind of study that many of us do to support our hunches.

I went to a couple of websites for HR associations and pulled up the agendas for their most recent annual conferences; I read the speaker bios for the keynotes and breakout sessions. I then went to the monthly magazines for a few HR and benefits associations to which I belong, and I flipped through a few of the most recent editions to read the articles’ author bios.

The question I had was this: “How many of the conference sessions and article contributions were from Trench HR practitioners?” What I found was that roughly 85% of the conference speakers at these events were professional speakers, consultants and vendors. The article submissions, except for one, were from staff writers, consultants and vendors. While the voice of the HR practitioner is growing in the non-traditional media spaces (e.g., blogs, websites, etc.), it seems to be largely absent from the more traditional “media” venues.

So What?

I had the opportunity to attend the Health Care Social Media Summit at Mayo Clinic a couple of weeks ago. One of the many interesting stories that I heard was from a social media pioneer named Dave deBronkart (@ePatientDave), who delivered one of the best keynotes I’ve ever experienced, in which he explained how he used social media in his fight to beat stage IV kidney cancer. In his keynote address, Dave demonstrated how new media (e.g., blogs) gives us freedom of the press, but that it is still the traditional media that gives us credibility and impact. In other words, we may have the ability to share our Trench HR wisdom more freely through the new media platforms, but we will not have mainstream credibility, or impact, until our message is published through traditional media.

Even if you don’t necessarily agree with the gap that I am proposing, Trench HR pros still seem to be largely voiceless on the conference platforms, and in our own professional publications. To me, that speaks volumes about the perceived gap in our credibility. If the traditional media theory is true, I can’t help but notice that it is easily remedied.

What do you think? Why aren’t more Trench HR practitioners speaking and publishing?

Performance-Based Compensation – Challenging the Status Quo

Posted on January 10, 2011 by William Gould

HR Soot Theory: Many of the “HR” programs in existence today were developed by consultants and attorneys for the benefit of said consultants and attorneys.

We Assume Performance-Based Compensation Works

If you don’t spend a lot (or any) of your working time in the world of compensation, let me suggest to you that designing and administering compensation programs is complex work. There is no shortage of strategies, programs, theories or approaches to performance-based compensation (PBC) plans, and new programs are being developed continuously.

To illustrate the range and complexity of PBC plans, just a few higher-level approaches may include: merit-based increases; gain-sharing plans; short-term incentives; long-term incentives; individual incentives; team incentives; deferred compensation; stock options; and, the list goes on. One thing that I know from HR experience is that many of the compensation consultants and labor attorneys who design and advise companies on these arrangements charge a mint. I also suspect that very few business people ever challenge the effectiveness of PBC strategies – it is largely accepted as relevant and effective, without consideration or debate.

Agency Theory

PBC systems are largely based on Agency Theory. Larkin, Pierce and Gino describe it in the working paper, The Psychological Costs of Pay-for-Performance: Implications for Strategic Compensation:

At its core, agency theory posits that compensation is strategic due to differences between firms and employees in two crucial areas: objectives and information. The differences lead to two sources of potential inefficiency for firms: an employee may not put out maximum effort (or effort may be misdirected in an inefficient manner), and the firm may pay workers more than they are worth (i.e. their expected marginal product) (Larkin, Pierce, & Gino, 2010).

In a simple sense, the theory suggests that the right strategic pay is that amount which motivates people to do their best work (not withholding effort), without paying them more than the organization has to pay them to get it – it goes to profitability. It also assumes that employees will generally withhold their best efforts if the pay does not match the perceived effort necessary to do their jobs well. Larken, et. al opine that “while agency theory provides a useful framework to analyze strategic compensation, it fails to consider a host of psychological factors that affect employee motivation and attraction” (Larken, 2010).

Trench HR Reality

After many organizations spend large amounts of money designing and implementing these compensation systems, they can also require extraordinary resources to administer; the more complex the systems are, the more resources it requires to measure, monitor, calculate, pay and communicate performance and compensation elements. The theory is that companies will pay for the performance measures that are already tracked and reported; the reality is that often times additional tracking and measurement systems are necessary. How much time and money does your company really spend to complete performance appraisals that tie into merit-based increases? How effective is the system for driving better business results? How do you know?

I understand that some organizations have entire departments devoted to managing PBC systems. Inevitably, it is Human Resources who becomes the compliance police for the timely completion of performance appraisals (including those linked to compensation increases). I’ve even heard of some organizations that have “the timely completion of performance appraisals” as short-term incentives for their managers. How’s that for aligning the right behaviors?

I’m not suggesting that setting goals, measuring results and communicating constantly with employees is a waste of time – I think it is critical to the success of any business. In fact, I think most organizations largely fail at doing this well. The problem lies in the fact that it is often the PBC programs that force the setting of goals instead of the right business objectives and outcomes driving the total reward strategies.

The Research

Over many years, I have asked executives, managers and compensation consultants what the key is to a successful PBC plan. Here is what I most frequently hear: Plans must be clearly aligned with the strategic objectives of the organization such that the rewards will drive the right behaviors. If we take it down a couple of levels (beyond competitive executives and well-paid compensation consultants), here is what some of the academic research suggests about PBC.

Alfie Kohn, in his article Why Incentive Plans Cannot Work suggests that there is a six-point framework to examine the true costs of an incentive program: (1) Pay is not a motivator; (2) rewards punish; (3) rewards rupture relationships; (4) rewards ignore reasons; (5) rewards discourage risk-taking; and, (6) rewards undermine interest. He states, “According to numerous studies in laboratories, workplaces, classrooms, and other settings, rewards typically undermine the very process they are intended to enhance. The findings suggest that the failure of any given incentive program is due less to a glitch in that program than to the inadequacy of the psychological assumptions that ground all such plans” (Kohn, 1993).

Like Larken, et. al., Kohn argues that the key missing element in incentive compensation plans is the consideration of other psychological factors. ”Do rewards work? The answer depends on what we mean by ‘work.’ Research suggest that, by and large, rewards succeed at securing one thing only: temporary compliance” (Kohn, 1993).

Daniel Pink, in his book Drive describes an experiment conducted by Edward Deci for his dissertation on the subject of motivation; he hypothesized that scholars and business people misunderstood the subject. Pink says, “Deci revealed that human motivation seemed to operate by laws that ran counter to what most scientists and citizens believed” (Pink, 2009). He goes on to write:

What Deci found, and then confirmed in two additional studies he conducted shortly thereafter, was almost the opposite. ‘When money is used as an external reward for some activity, the subjects lose intrinsic interest for the activity,’ he wrote. Rewards can deliver a short-term boost – just as a jolt of caffeine can keep you cranking for a few more hours. But the effect wears off – and, worse, can reduce a person’s longer-term motivation to continue the project” (Pink, 2009).

Challenging the Status Quo

PBC is only one of many areas where I believe it is time to challenge the status quo. Businesses adopt, and HR administers a number of programs, systems and processes that have not been challenged rigorously, and have not been updated in far too long.

Agency theory and PBC is 20th century thinking. What does it say about your organization to base your total reward structure on the theory that your employees may be inherently lazy, intentionally withholding their talents, and are only willing to give you their best effort when it is tied directly to compensation?
If you want a top performer then hire a top performer, pay her like a top performer, give her the resources required to be a top performer, and get out of her way. Dangling incentives to motivate her to jump over the obstacles that you’ve probably created is not going to make her more productive.
Clearly aligning the goals and objectives of your leaders and employees with the strategic objectives of the organization does not create a successful PBC system, it creates the environment for a well-lead organization.
We have made things far too complicated with fancy compensation schemes, for which there is questionable objective evidence in support. If we cannot explain compensation to a new employee in five minutes or less, then it is too complicated. If employees don’t understand the system, how can we expect it to motivate their performance?

I am very interested in hearing what you think.

References

Larkin, I., Pierce, L., & Gino, F. (2010). The psychological costs of pay for performance: Implications for strategic compensation. Harvard Business School: working paper.

Kohn, A. (1993). Why incentive plans cannot work. Harvard Business Review; Sep/Oct 93, 71(5), p 54-63.

Pink, D. (2009). Drive: The surprising truth about what motivates us. New York: Riverhead Books (Kindle Edition).

[Photo Credit: Maggie Smith at Freedigitalphoto.net]

The 7 Principles of Labor Relations Work

Posted on September 21, 2010 by William Gould

I have never worked with a union business agent whom I did not sincerely like as a person. That is not some mushy, HR crap, it is a fact. That does not mean that we have agreed on everything – or at times on anything at all – but, my experience suggests that effective labor-management relationships are possible. And, for HR it is imperative.

1. Unions are businesses. The perception that some business people have of unions is that they are a rabid group of sickle-carrying socialists whose life purpose is to run businesses into the ground. I will withhold political commentary and suggest that no matter what the sociopolitical drivers are for organized labor, they are themselves businesses. They have to look at increasing revenues to offset increasing expenses; they have employees; they have strategic plans; they have corporate mother-ships to whom they are accountable; they have government-mandated reporting requirements (which provides lots of public information for employers, such as Form LM-2); and, they have to provide value to their dues-paying membership. When you plan your strategies for union avoidance or negotiations, assume that unions think like businesses, because they must. (Have you ever wondered how unions negotiate contracts with their own employees? Perhaps a topic for another post).

2. Employees have the right to be represented, so get over it. I’m amazed at how quickly conversation can turn from how businesses are organized by labor unions, to how those businesses can get them decertified. Here are the facts: employees have the right under the law to be represented for purposes of collective bargaining, and they have the right to not be represented for purposes of collective bargaining. Stop wasting time, energy and “planning” around something that is entirely outside of your control! See #4, and respect your employees’ rights.

3. Labor relations is one part show, and two parts substance. Many years ago I got a call from a union business agent prior to a scheduled meeting. We discussed the facts about an issue we were going to debate (um, I mean discuss), and he ultimately agreed that there wasn’t much merit to it. But, he also told me that it was a highly emotional issue for his membership. What he asked me for was my willingness to go into the meeting with his bargaining team, allow him to yell for awhile, beat his chest, and call me names until spit flew from his mouth. After a remarkable performance, the issue died. For those of you without labor relations experience, welcome to the show.

4. Labor relations work is about building “labor relationships.” The typical starting point to these relationships is that business managers (and their representatives) are assumed to be dirty, rotten, lying, cheating, stealing, SOBs – and that’s before they ever personally meet you. It takes real work, professional integrity, and at times thick skin to develop the relationship necessary to actually get work accomplished. Effective labor relationships are those through which HR is able to work effectively to address the substance of collective bargaining issues, without getting sucked into the show. It shouldn’t be your goal to be make the union’s holiday card list, but rather to be able to negotiate agreements and resolutions without the need for outside arbitrators. That’s what your employer is paying you to do.

5. Nothing is personal unless you allow it to be. Labor relations itself is founded on the belief that labor and management have different interests – it is highly adversarial by design. Think of it this way – if union members believed that employers had their best interests in mind, union representation would be unnecessary (HINT: this might be a good union avoidance principle – just saying). Therefore, you as a representative of management will always be characterized as not having your employees’ best interests in mind, regardless of your own behaviors and actions. It’s nothing personal, it’s just the way that organized labor must operate to add value to its dues-paying membership.

6. HR is not going to build bridges between unions and management. When things go well, you will effectively resolve collective bargaining issues between unions and your employer. At other times, you will be the punching bag. At no time will you be able to fully align the interests of labor and management – it is fundamentally contrary to the protectionist role that gives unions a value (either real or perceived) for which members are willing to pay hefty dues.

7. Labor relations work is not going away. Union membership continues to decline in this country. In 2009, only 12.3% of all workers were represented by unions, and only 7.2% of workers in the private sector (Washington Times). But, if you believe that the long term decline of union representation is a sign of the demise of organized labor, you’re not paying attention to what has been happening in Washington.

I’m interested in reading what other HR-Labor pros have to say about labor relations work.