Creativity & Innovation: How Does An Organization Define It?

Winning in today’s highly competitive and dynamic environment requires being out front of the other organizations offering their value propositions to the same end users. If my software is better or cheaper and/or if I can get it to market before others I can enjoy premium pricing until they turn it into a commodity. But that means I have to have some advantage.

Often innovation is defined as invention… something that has never been now exists. And creativity is needed in order for invention to happen. But there are other forms of innovation. I can improve existing technology or products and that can generate value. Or I can integrate features that already exist but have not yet been combined into a single device. Jobs led the creation of the iPhone and just about everyone would credit him with innovation. But was it in the form of invention, improvement or integration? Was the magic of this product the ability to do so many things on one device? Did it actually do something that could not have been done with any device at that time? As sales skyrocketed not too many Apple folks were concerned about putting a specific label on what made the product possible. What was clear was that creative people innovated and product success was over the top.

Organizations increasingly believe that talent is their most important asset. Although machine learning and other forms of artificial intelligence can be used to solve problems or create a synthesis of existing things (features; ideas; devices) can a determination be made as to what will succeed in the marketplace using technology? Although focus groups and other forms of marketing research can discover what people think they want history has shown that the answer is evident only after the product is in the end users hand being used. So if creative people are the key to innovation will the kind of innovation needed dictate the kind of creative people needed?

Talent management is all about attracting, retaining and motivating the people required to do what the organization needs done. If what is needed is invention what type of talent is needed? If improvement is required does that suggest a different type of talent? And when integration is the objective is yet another type of person required? One way to identify talent needs is to begin with the desired end result and work backwards.

In most for-profit private sector organizations the criteria used to evaluate organizational performance can be expressed using financial, operational and customer measures. Using an instrumentation dashboard based on a balanced scorecard approach the organization can create a report card to evaluate success. So if an investment is made in research and development with the objective of creating an easier way to control software that would appeal to a broad consumer market, resulting in a large revenue stream, each R&D proposal can be evaluated by projecting its success in achieving that result. PARC (Palo Alto Research Center) did that… several times they created something unique. Creative people were innovating at a high rate. Yet because PARC was imbedded in Xerox and the broader organization was unable to commercialize any of the innovations and ended up giving them away the desired end result did not manifest. There certainly was a lot of talent doing a lot of creative things but the organization relied on people focused on innovation and not on selling something. Looking back on this failure what could the organization have done to produce a better result?

If creative people are placed in a pure R&D setting and asked to invent new things they will be motivated to do so. If invention is what is measured and rewarded it is likely to be what people focus on. But if invention is only part of what is required for meeting objectives should the talent pool also include creative people who know how to take an invention to market, whether they are imbedded in the R&D unit or become the internal customer of the invention at the corporate level? It seems so obvious that he full range of talent is needed to get the whole job done. But the Xerox/PARC case is not the only example of invention not leading to success. GM could not learn from NUMI or from Saturn, two successful innovations in the auto industry. How can sophisticated organizations not recognize that the journey from idea to sale must be completed?

Creativity and innovation are the keys to success in this competitive arena. That is not to discount the value of being able to execute strategies that remain the same. Being able to reliably execute an operational excellence strategy may not be accepted as creative by some. But competing based on price is the key to success for many organizations. And putting together a well-functioning global logistics chain can require a lot of creativity, even though it is more of the improvement and integration type. An operational excellence approach to competing needs a different talent management strategy than a product innovation approach. People are wanted who loath waste, drive out variation in processes and execute reliably. A product innovation approach needs different characteristics. So GM and Xerox probably would have realized value from their experiments if that had mapped out all the types of creativity required and ensured the talent pool contained people who could provide it all. Their staffing, development, performance management and rewards management strategies could have been customized to attract, retain and motivate all types of talent required. And the organizational culture could have been evaluated to determine whether it provided a context within which the full range of talent could have peacefully co-existed.

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The Source Of Sherlock Holmes Success

Solving crimes requires both analysis and deduction, as does the decision-making process. Inductive is gathering evidence and analyzing it. Deductive is developing a hypothesis and then testing it with evidence.

“It is a capital mistake to theorize before having data. Insensibly one begins to trust facts to suit theories, instead of theories to suit facts.” – Sherlock Holmes

Sherlock formulated theories based on observable facts. This is consistent with the “big data analytics” approach so popular today. Accumulate a body of data and then look for relationships and patterns. But does that not leave one open to error? It has been said that sufficiently tortured data will confess to anything. And academic research begins with a hypothesis and then accumulates and analyzes data to test it. This is to prevent “fishing expeditions” where the researcher first finds correlations and then formulates a theory based on them.

In large databases one can frequently find correlations, but that may not establish causation or in the case of Sherlock “who done it.” Today’s data scientists use artificial intelligence and machine learning to find explanations for things. But do they explain reality or only identify data relationships? If A is correlated with B that may provide little guidance, since both may be caused by C. And if causation is being sought did A cause B or did B cause A? . Meaningless correlations have subjected many to ridicule for failing to provide any rationale for why they might exist. For example, it has been found that executive compensation levels are correlated with company performance, suggesting that paying more might get you more. But equally plausible is that successful organizations can afford to pay more without Board or shareholder rebellions. So what is the truth? Of what value is the correlation in guiding strategy?

Holmes concluded that Dr. Watson should consider acquiring a physician’s practice by using evidence gained through observation. He assumed that the worn steps on the stoop of a Physician’s office suggest an active practice that perhaps Dr. Watson should acquire. But that data alone could be misleading. If there were other tenants in the building they could have generated much of the traffic. And perhaps the wear and tear on the stairs was caused by dragging bodies out after failed treatment. So in order to correctly diagnose Sherlock should have used multiple regression analysis to identify all of the contributing factors and their relative impact on the result. Anyone having done multiple regression analysis lacking a computer can attest to the reality that it would take hours, if not days, to come up with such an explanatory model. And of course computers were not available at the time.

So were his instantaneous conclusions just good guesses or the result of extraordinary intuition? Was he the master of deduction? This is a bigger mystery than he was ever asked to solve. 

Evidence-Based Workforce Management There Is More To It Than Data Analytics

Data analytics is all the rage. That comment is not to suggest that it is not critical for those who develop and execute workforce management strategies to move aggressively into analytics. In September, 2015 I did a LinkedIn post entitled “Evidence-Based Human Resource Management” and it went viral, with a few thousand hits. I realized the topic was not viewed as esoteric and that there were a lot of people that thought it to be important. Since then several of my posts have focused on some of the tools that are available to inform decision-makers when developing workforce management strategies.

Data analytics can find patterns in data, but only can deal with what is/has been, since there is as of yet no data on the future. Regression analysis can project trend lines into the future but for that to be useful the future must be like the present and the past. Machine learning and AI can make predictions based on models that are created, but they too are based on what is/has been. Again, this is not to minimize the usefulness of using data and the tools to analyze it.

Innovation is valued highly in the dynamic, competitive world of today. Most organizations need to leap ahead of others to gain competitive advantage. Creating a product that has never been or features that have not been available relies on innovation and creative design. And at best analyzing present/past data can provide some insight into what has worked in similar situations.

Another form of evidence is the knowledge possessed by those responsible for creation. The brain is capable of synthesizing past experiences into something that has not been, which suggests that using knowledge to augment data can contribute to projection into a unique future. The Toyota production system utilizes the “5 Whys” approach to explaining what has happened. So if an auto production line is producing a particular type of defect (easily identified using real time data) one can look at correlations and regression analysis to identify potential causes. If one factor seems to be perfectly correlated with the defect it is reasonable to suspect causation. Yet correlation does not establish causation. Even though A is correlated with B it may be that both are determined by a yet undiscovered C. Asking a subsequent “why” can divulge the cause of the cause and if that driving factor is not dealt with the problem may not have been resolved. Doing causal path explorations can be the job of a software model. But identifying the full range of possible contributors to the result takes human knowledge and intuition.

Software systems are available that promise to predict the probability of someone with critical talent leaving the organization. And they can be very helpful. But if a key person leaves because of (at least perceived) mistreatment by a manager and that person to that point had no intention of leaving these models are going to be inadequate. A resourceful analyst can begin a search for unique contributors that had not been present when the predictive model was used. And it takes experience with similar occurrences to know that people exit the rational world if a perceived wrong elevates their emotions beyond tolerable levels. To really explain the loss someone has to go the extra mile to do a wide exploration for contributing factors that were not build into the “likely to leave” model.

Organizations use employee surveys to identify dangerous conditions. A commonly asked question deals with employee satisfaction with their pay. If the survey shows that the vast majority of the population is somewhat dissatisfied with their pay it is reasonable to consider raising pay. But if care is not taken to determine whether this is normal the pay adjustments may do no good. If the analyst makes the effort to search for the normative response it may be discovered that this is exactly the result that could have been predicted (most providers of survey systems have databases with which to compare). Neuroscience and Behavioral Economics research into cognitive biases has shown that we all think we are better than we are, which will certainly impact how we feel about how we should be rewarded. That perception may be incorrect but a person’s perception is their reality. If the median performer in a group believes (s)he is in the 75th or 80th percentile (supported by research) there is apt to be dissatisfaction with the relationship of one’s pay increase to those received by peers. So some of the angst over pay rates may be something an organization has to live with.

Another reason a pay adjustment will not resolve the issue could be that someone feels the pay rate is too low compared to what that person should be paid for what (s)he could do, rather than to low for what is being done. If an analyst goes to the next level to identify that this is an under-utilization problem rather than a pay problem there will be a realization that a pay action will not address the issue. Of course the employee may have an inflated sense of capability but again, perception is reality.

So determining causes within complex contexts may require a Sherlock Holmes guiding the investigation. That detective would be wise to use analytics along the way to identify the cause(s) and perhaps the antidote. But when it is suggested that algorithms will replace people

I respond by suggesting that algorithms, AI, machine learning and big data are ideal for extending people’s reach, not replacing human judgment. It may be that with proper programming these systems could do the whole job but it is going to take skilled, knowledgeable people with extensive experience to guide that programming. People should be increasingly acting as Systems Analysts who turn over the programming to machine learning processes. And by the time we get smart enough to do all that we and probably our children are going to have plenty to keep us busy. And our grandchildren are probably going to be safe too… given the rate of change that is unlikely to slow down there will be work for them.

Bottom Line The awesome technology that is developing, when combined with human knowledge, offers the promise of better decision-making. Evidence-based management requires both.

An Organization’s People: It’s Most Important Asset

My favorite Dilbert cartoon has the pointy-head boss stating that he had thought the employees were the most important asset but was mistaken. When asked what their rank was now the response was “eighth… right after carbon paper.” I have experienced a similar mindset in organizations I have worked with, although carbon paper has dropped in criticality in most of them with the advent of new technology.

My book “The Most Important Asset: Valuing Human Capital,” which published in the Fall 2017, strives to make the case that nothing happens without the right workforce… all the money, technology, infrastructure and customer base will not result in organizational success without the people. Lester Thurow has pointed out that a competent and committed workforce is the only sustainable competitive advantage, since competitors can get everything else under similar terms. He also rightfully suggests that such a workforce cannot be purchased… it must be built and its viability sustained.

Some would argue the value of a competent and committed workforce cannot be determined. “The proportion of the market value of S&P 500 companies attributable to intangible assets rose from 20% to 80% in the 40 years from 1975 to 2015: from 4% of U.S. GDP in 1977 to 105 in 2006.” (Mayer, C., 2016, Reinventing the corporation. Journal of the British Academy, 4, 53-72). Not all intangible assets are attributable to workforce effectiveness (brands, intellectual property, patents and reputation count)but increasingly the market is valuing organizations based on things that skeptics think have no measurable value.

If employees do not perform well, individually and in aggregate, the organization will not do well. Obvious? Then why does it seem not to be universally recognized? The strategies and systems related to workforce management are often not viewed as being critical to success. Getting financial capital under the right terms, getting the best and latest technology and acquiring the state of the art infrastructure are all important. But if the strategies that enable an organization to staff and develop the right workforce are not in place organizational performance will suffer.

When I attempt to convince clients to do workforce planning the reception is often cool. If an organization is to have a respectable chance of successfully competing for top talent in today’s dynamic global labor markets it must utilize tools such as environmental scanning, scenario-base planning and data analytics. But I rarely see that investment being made. And when I contend that how effectively and appropriately an organization defines, measures and rewards performance will directly and significantly impact workforce effectiveness I get agreement in word but often not in deed. Performance management is typically the weakest link in workforce management processes. Today a debate rages about whether an organization should do performance evaluations or continuously measure results and provide feedback to employees. This “either-or” mindset is misguided… the need is for both to be in place. And rewards strategies often motivate destructive behavior. The banks that motivated employees to create and sell products they did not understand almost ordained their doom. Amazingly they paid out huge sums to make sure the employees did what they asked.

There does not need to be a debate to decide which type of capital (financial, operational, technological, customer or human) is most critical. They all are. The title of the book is intended to suggest that human capital should be given its appropriate place among the critical capitals. Success will be unlikely if attention is not paid to all of them. Batting .500 or .750 may put you in the Baseball Hall of Fame but will be inadequate in today’s competitive world when it comes to workforce management strategies. If something is not valued it will not receive adequate investment, and dramatic under-investments in the people that make everything happen are all too common.

Staffing Organizational Units/Functions

You wish to staff the Human Resources function within your organization. It is critical that you have both the depth and breadth of knowledge and skills required. Staffing, Development, Performance Management, Rewards Management and Employee Relations are sub-functions within HR and each has its own body of knowledge and skills. How the function is organized and staffed will determine if what is needed for HR to perform well is in place.
There are two dimensions to the knowledge and skill possessed by the human capital pool in the organization:

  1. breadth and
  2. depth

Specialists tend to have very deep knowledge and skill while Generalists tend to have broader skill and knowledge. Specialists know a lot about a single sub-function while Generalists know a little about multiple sub-functions. So like the person completing a jigsaw puzzle one must know what shape must the pieces have to cover the area. Staffing Compensation with all Specialists ensures incumbents are able to respond appropriately to Compensation problems. But they can be like the person with a tool box containing only a hammer… everything to be “fixed” must be treated as a nail. Generalists may be able to determine what the nature of a problem is, due to a broader range of knowledge, but may also lack the depth to be able to cope with it.

An example of how issues need to be dealt with would be an organization that does an employee attitudes survey and finds that employees feel they are somewhat underpaid. The obvious reflex response is to treat this as a Compensation issue, so the Generalist reviewing the survey results would call that department. But what if a deeper dive into the results is performed by going back to employees and asking them “underpaid for what?” If the response is that they are underpaid for the role they are playing in the organization it still seems like a Compensation issue. But if the response is that they are underpaid for what they are capable of doing the remedy lies outside Compensation’s wheelhouse. Based on the more substantive insight gained by the further exploration the Generalist will probably seek assistance from Specialists responsible for career management and employee utilization. So the Generalist’s breadth, fueled by sound evidence as to the cause of discontent, enables the person to be a traffic manager and to route the intelligence to the right party. But the Specialist role is also critical, since once the nature of an issue is discovered it still needs someone with the expertise to deal with it.

Cross-functional training can be an invaluable remedy for an employee’s knowledge and skill being only narrow or only deep. This does not mean every HR staff member has to have total breadth and total depth. That would take too long, be too expensive and be overkill. So a balance must be achieved. All Generalists would enable HR to diagnose the nature of an issue but lack the expertise to deal with it and all Specialists would result in tunnel vision and an inflated “we can handle any issue” arrogance. But how do the two breeds of practitioner talk to each other, if they lack overlapping knowledge? A third type of person is needed to remedy the Tower Of Babble condition. Perhaps referred to as “Integrators” these staff members have a knowledge and skill base that reaches across and down into multiple sub-functions. Cross-training people in both Compensation and Benefits not only enables them to adopt a total rewards perspective but also enables them to consider strategies that trade off between the two types of rewards and that achieve an optimal balance. Cross-training Staffing professionals and Development professionals enables incumbents to recognize alternative strategies:

  1. hire minimally qualified candidate (who may be less expensive) and invest in development, or
  2. hire fully-qualified candidates (who may be more expensive) but save what development would have cost.

The overall cost may be the same so the strategy should be based on the most expedient and effective approach.

Conclusion

Using a Human Resources function was been for illustrative purposes. The same principles apply to all functions. And for most organizations these principles apply across functions. Project Managers that supervise specialists from multiple disciplines must have an understanding of how to integrate the work of the staff. A Project Manager can be an accomplished Engineer and participate in deciding technical issues or a knowledgeable Administrator that leaves technical details to the Engineers and focuses on other issues. But to be successful there must be an adequate understanding of both technical and administrative issues. Often technical specialists want to make a product as good as it can possibly be, even though that makes it overly expensive in order to enjoy commercial success. But the financial folks may stop short of adequacy in pursuit of cost control. Obviously CEOs cannot know everything about everything so at this level it is obvious that integrating the work of Specialists across functions/units is a critical competence of management personnel. And within functions/units there must also be adequate perspective when identifying issues and dealing with them. You need enough breadth and depth within the talent pool but you also need to invest in the capacity to integrate knowledge. Cross-training is like Education… if you think it is expensive try costing out the alternatives.

Competency Models For Human Resource Management Professionals. Business, Technical and Personal Competencies

To request a copy of Dr. Greene’s competency models, email rewardsystems@yahoo.com

BUSINESS COMPETENCIES

BUSINESS COMPETENCIES EMERGING PRACTITIONER ACCOMPLISHED PRACTITIONER SENIOR/LEAD PRACTITIONER
STRATEGIC PERSPECTIVE: analyzes trends and synthesizes information from all relevant sources; develops vision and works with others to realize; has long-term perspective Knows mission and strategy of organization; looks for ways to meet objectives; understands the need to frame decisions and actions in broad context Understands how HR strategy and programs fit into organization strategy; designs HR programs to support strategy; evaluates effectiveness of programs in facilitating success Assists in formulating HR strategy and plans; projects future objectives for programs and plans to replace or revise them so they will fit the objectives as they change
ORGANIZATIONAL KNOWLEDGE: knows the organization; (context, products, customers and financials); has understanding of functional roles; selects strategies/ plans based on clear objectives and their expected impact on organizational results Knows about organizational context, its culture and how it is organized; works to understand roles of functions and business units and their needs; learns about internal and external customers and suppliers and how HR strategies and programs impact them Understands how economic realities impact performance of the businesses and the overall organization; designs and administers HR programs in a manner that contributes to business success Assists in assessing the culture and the organization structure and in reshaping them to fit organizational needs and realities; evaluates the extent to which HR programs support the HR strategy and assists in modifying the strategy to be effective given external and internal realities
BUSINESS KNOWLEDGE: knows about industry and related industries; understands economic/ competitive forces; knows what is required for success; knows what knowledge/skills are critical and labor market realities for them Knows about the economics of the organization and its businesses; works to understand the human capital needs of the organization and the realities of the external environment/ labor markets Understands how economic realities impact performance of the businesses and the overall organization; designs and administers HR programs in a manner that contributes to business success Assists in evaluating HR strategies and programs to determine their business impact; ensures programs are cost-effective and based on sound business principles; evaluates strategy and programs continually to anticipate the need for change
CUSTOMER/SUPPLIER KNOWLEDGE: knows key customers (internal & external) and suppliers and understands their needs/ priorities; adopts strategies to meet their needs and uses programs and processes to meet them Knows about the needs of internal and external customers and how HR programs impact them; develops relationships with customers and works to understand how HR can make them more effective Understands what HR strategies/programs can do to satisfy customers and make them effective; designs and administers HR programs that satisfy customer needs while ensure they are cost-effective Assists in developing an HR service model that identifies needs of customers, suppliers and venture partners and that utilizes cost-effective processes; monitors HR’s performance; adjusts programs as required; recommends modifications to improve service
TECHNOLOGICAL KNOWLEDGE/SKILL: knows about what is available and adopts appropriate tools; searches for new applications of technology based on their probable fit to context and their cost-benefit balance Understands the commonly used tools and is proficient in using them; works to develop knowledge of emerging technologies and how they can be applied in HR Understands how technology impacts HR service levels and cost effectiveness; assists in recommending technology to improve service and/or lower costs Assists in planning the acquisition/ application of technology to increase HR effectiveness; directs implementation and evaluates the impact on service levels and costs

TECHNICAL COMPETENCIES

TECHNICAL COMPETENCIES EMERGING PRACTITIONER ACCOMPLISHED PRACTITIONER SENIOR/LEAD PRACTITIONER
STAFFING: Recruiting; selection; placement; workplace/role design; workforce planning Understands staffing concepts, techniques and processes and develops competence in applying them in program design/ administration Administers staffing programs; makes recommendations on program revisions to improve effectiveness Evaluates effectiveness of staffing strategies/ programs; refines existing programs and develops new ones; directs implementation, communication and training
DEVELOPMENT: Human capital assessment; career planning/management; training; education Understands HRD concepts, techniques and processes and develops competence in applying them in program design/ administration Administers HRD programs; makes recommendations on program revisions to improve effectiveness Evaluates effectiveness of HRD strategies/programs; refines existing programs and develops new ones; directs implementation, communication and training
PERFORMANCE MANAGEMENT: Performance models at all levels; performance planning, measurement, feedback, development and contribution review (appraisal) Understands concepts, techniques and processes and develops competence in applying them in performance management program design/ administration Administers performance management programs; makes recommendations on program revisions to improve effectiveness Evaluates effectiveness of performance management strategies/ programs; refines existing programs and develops new ones; directs implementation, communication and training
REWARDS MANAGEMENT: Direct compensation ; employee benefits; recognition/non-financial rewards; employee ownership Understands rewards concepts, techniques and processes and develops competence in applying them in program design/ administration Administers rewards programs; makes recommendations on program revisions to improve effectiveness Evaluates effectiveness of rewards strategies/ programs; refines existing programs and develops new ones; directs implementation, communication and training
EMPLOYEE/LABOR RELATIONS: Employment policies; health, safety & security; ethics; communication; leadership; legal/ regulatory compliance Understands E/LR concepts, techniques and processes and develops competence in applying them in HR program design/ administration Administers E/LR programs; makes recommendations on program revisions to improve effectiveness Evaluates effectiveness of E/LR strategies/ programs; refines existing programs and develops new ones; directs implementation, communication and training

PERSONAL COMPETENCIES

PERSONAL COMPETENCIES EMERGING PRACTITIONER ACCOMPLISHED PRACTITIONER SENIOR/LEAD PRACTITIONER
LEARNING AGILITY/CREATIVITY: Open to new concepts; observes, listens and absorbs new ideas; creates new approaches; adapts to new conditions Develops knowledge of ideas and concepts to create varied repertoire; is flexible in realizing, accepting and adapting to change Actively seeks new ideas and techniques; tries new approaches; accepts contextual change and attempts to adapt to new requirements Scans external sources for new ideas; leads others in search for better ways to design and administer programs.
CULTURAL UNDERSTANDING: Understands the similarities/differences between values and beliefs; open to different approaches; leverages benefits of diversity Develops knowledge of the perspectives of others; actively works to accommodate and respect differences when performing job Evaluates policies and programs to ensure they respect cultural differences; makes recommendations for changes Takes initiative to find approaches to work that will fit the beliefs and styles of others; evaluates policies to ensure they appropriately consider the impact on different cultures
FLEXIBILITY/ADAPTABILITY: Willing to consider new/ conflicting ideas; adjusts to different contexts and requirements; does not resist needed change Open to new ideas; adapts behavior to fit changes Open to new models; searches for behaviors and approaches that will better fit changes in context Open to new paradigms; anticipates need for change and proactively initiates actions to make necessary changes
INTEGRITY/HONEST: Represents beliefs, values and ideas candidly; shapes actions based on laws and principles rather than on expediency Adheres to legal and regulatory requirements and to values/policies; reports violations of laws/ regulations and of organizational values and policies Ensures programs are administered in a manner that is compatible with organizational values; identifies violations and takes appropriate action Acts as role model; helps others develop behaviors that enable them to maintain integrity; takes appropriate action when violations of laws, values
COMMUNICATION EFFECTIVENESS/ABILITY TO INFLUENCE OTHERS: Able to convey information in manner fitting audience; able to influence others to consider alternatives and to accept recommendations Effectively expresses self in manner understandable to target audience; receptive to views of others and exerts appropriate influence Evaluates how well programs have been communicated and recommends how employee acceptance and understanding can be improved Effectively dialogues with all internal and external parties; exerts influence on policies and strategies; develops communication strategies for new programs

Pay For Individual Performance: Pre-requisites For Success

Pay for performance is a concept that should be embraced by every organization. Research tells us that what you measure and reward you will get more of. But that puts the pressure on those who define performance must be sure it leads to the end result they desire. The banking industry severely damaged the economy with ill-conceived incentives… employees were richly rewarded for nearly destroying their own organizations and the investors who trusted them. Defining performance solely as maximizing physical output can result in shoddy quality. And attempting to use pay for performance to maximize individual motivation may result in employee discontent if their cultural orientation prefers group rewards.

Performance at the individual level can be defined in many ways. Productivity, sales, met objectives, quality and cost control are all measures that can be used to measure and reward performance. And there are some measures that are ill-conceived. The majority of public sector entities had historically used time-based step progression to administer base pay. But that rewarded longevity without ensuring the individual warranted a pay increase. Time-based systems and general increases will tend to drive high performers to other organizations, since they can do better where contribution is measured and rewarded. Paying for time spent sends the message that what is contributed does not matter. As a result many public sector entities have replaced time-based progression with merit pay.

There are pre-requisites for success using pay for performance. Readiness to implement pay for performance should be tested prior to implementation. The following assessment questions should be asked and honestly answered.

Assessment Of Readiness For Pay For Individual Performance

Base Pay

  1. Are jobs documented accurately and does the documentation reflect current duties, responsibilities and qualifications?
  2. Are jobs placed into a grade/classification structure in a manner that reflects internal equity?
  3. Are pay ranges assigned to grades that are competitive with prevailing rates in the relevant labor market(s), and do they reflect the organization’s desired posture relative to the market?
  4. Are performance standards established for jobs (in the form of criteria for assessing performance in the job and/or goals for the current period)? Are the standards reasonable?
  5. Is there a defined performance management policy that defines management’s responsibility to establish expectations at the start of the year, continuously measure performance during the year and appraise performance at the end of the year?
  6. Have managers been adequately trained in performance management?
  7. Have employees been informed of the role of their managers and themselves relative to performance management and do they understand how the process works?
  8. Are there policies mandating that performance appraisals be conducted for all employees annually according to an established schedule?
  9. Are there adequate corrective actions if appraisals are not done on schedule, if they are superficial or if the manager and the employee disagree on the rating?
  10. Is there an understood and agreed to model for linking pay to performance?

Variable Pay

  1. Is there a clear consensus on what constitutes organizational performance?
  2. Are there measurements in place for determining organization performance (including both criteria and standards)?
  3. Has organizational performance been cascaded down through levels?
  4. Are there measures in place for determining unit performance?
  5. Are performance criteria, standards and measures been defined for units?
  6. Have unit performance criteria, standards and measures been aligned with each other, to prevent conflicting objectives?
  7. Has a clear philosophy been agreed on relative to who should be considered for participation in variable pay plans?
  8. Is the organization able to commit to expenditures for variable compensation above and beyond base pay and benefits? Are there circumstances that could render financial commitments unaffordable?
  9. Has executive management committed to do the necessary communication/ training to provide employees with enough information about variable pay plans to determine whether they believe them to be equitable, competitive and appropriate?
  10. Have there been past experiences with variable pay that might make it difficult to gain the trust of employees?

Conclusion

Pay for performance can work. But only if pay is appropriately tied to performance. And implementation and administration should occur only after an organization ensures its readiness. Differentiating between employees can have undesirable results if the context is not right. Culturally diverse workforces are a reality for most organizations and that diversity can result in mixed reactions when rewards are based on performance. Whether cultural differences should be considered is a decision that should be made carefully. Doing the same thing for everyone can be administratively convenient but be viewed by everyone as wrong… there will just be different reasons for different people.