Prashant on HR Analytics at Aon Hewitt Best Employer Master Class

Prashant in NASSCOM Seminar 2016 Practitioners' View

Hit The Ball and Place The Goal Post

    Hit The Ball and Place The Goal Post

     Performance Management is the key to strategy  implementation

I was dealing with a power generation company. The company had quoted a very low price of power generated in the Government auction to win a mega power generation project. The company was not able to achieve the efficiencies to be profitable. The Chairman realized that the problem was with performance management of the team. He wanted me to meet the CEO and CHRO to understand the root cause of the problem and find a solution.

Photo by Jeffrey F Lin on Unsplash

The next morning I met Sanjeev, CHRO of the company for breakfast before meeting Srinivas, the CEO. As we sipped the tea, I asked him, “What is the PLF (Plant Load Factor – a measure of plant utilization in power plants)?”

Sanjeev: “It is 60 to 70%. Srinivas will be able to tell you exactly”

ME: “What was the planned PLF when we quoted for the power tariff in the auction?”

Sanjeev: “I don’t know. I am new to the system. We will need to check with Rao, the CFO.”

ME: “What is the target of the plant head?”

Sanjeev: “To run the plant efficiently and meet all O&M (Operations and Maintenance) 

parameters of the plant”

ME: What these parameters are and are they quantified?

Sanjeev: “We trust our top management. They know their job and they work accordingly. How can we give them targets?”

ME: “I completely appreciate your point of view. How do you set the targets for the middle management and front line team?”

Sanjeev: “Please understand it is a process plant and not a sales organization. The plant runs on its own. We have defined jobs of all the individuals. They do their job.”

ME: “How do you assess their performance during appraisal”

Sanjeev: “They do their self appraisal and write down what they have down during the year. It is then assessed by their managers. We have a skip level assessment system to eliminate manager baises.  The skip level manager assesses the performance. The proposed ratings are then reviewed and moderated by the leadership team of the plant. We have a very robust system.”

ME: “Yes. I can see that you have a very robust performance management system. How do you assess the performance of the plant leadership team and the pant head?”

Sanjeev: “The plant leadership team is assessed by the plant. He usually use his judgement and there are no forms filled at this level. We trust his judgment. For the plant head the rating is proposed by the CEO and moderated by the Vice Chairman. I am not involved in this process.”

ME: “Wonderful!!”

By now Srinivas had come to the office. Sanjeev and I walked into his office.

ME: “Hi Srinivas, hope you had a good night sleep. ”

Srinivas: “Boss I left at 1 am. That is usual. How do you expect me to have a good night sleep.”

ME: “Why is that you have to work so late every day?”

Srinivas: “Performance pressures. Our largest plant is not making money and we have multiple reviews and new ideas every day.”

ME: “With all the reviews and ideas what is the PLF that you are able to achieve?”

Srinivas: “We are at 67%.”

ME: “What is the planned PLF at which you will make profits and can sleep well? (Smile) ”

Srinivas: “Planned PLF is 95%.”

ME: “I am sure we have been able to identify what each individual in the plant starting from the plant head to a shift engineer needs to do to achieve 95% PLF.”

Photo by Jeffrey F Lin on Unsplash

Srinivas: “Well! Broadly yes. But if you are asking me that is it quantified and put in the goal sheets of people? Then NO. Despite my repeated insistence Sanjeev and Rajesh (Plant Head) have not done it. But this may still not solve the problem. The best plant in the world has achieved a PLF of 88%. At this price we will never make profits. We need to do something about the price.”

ME: “Well! Can we at least achieve 88% PLF and cut our losses? The rest you may try to bridge with the price negotiation.”

Srinivas: “That sounds like a plan. You think if we do a proper goal setting and we measure people performance against the goals, we will improve our PLF from from 67% to 88%?”

ME: “Yes definitely! (Smile). As long as Rajesh and you know what should you do to reach a PLF of  88%. Considering that Rajesh, Rao, and other leaders along with you had visitied the Chinese plant achieving 88% PLF, I believe that knowledge exists.”

Srinivas: “Yes! (Smiles)”

Photo by Vlad Kutepov on Unsplash

We concluded the discussion and moved out of his office.

I thought this business was hitting the ball in any direction and placing the goal post around the point the ball crossed the boundary and called it a goal. So they achieved what could be achieved with some random motion. No wonder they were making such hefty losses and the CEO, Vice Chairman and Chairman are having sleepless nights.

I worked with Sanjeev, Rajesh and Rao to set the goals and cascade them to the last mile. Eventually Rao took over as the CEO of the plant and introduced a monthly review process.

In India at least 50% organizations do not have goal setting. It exists only in manuals. People are encouraged to perform their jobs. At the end of the year the achievements of people become goals leading to significantly lower performance. Everyone is rated as high performer and paid out near equal increments and bonuses. This encourages people to do less in the following year and still be rated as high performer, as there is no incentive to out-perform.

© Prashant Srivastava. All rights reserved.

Engage Employees Part 5: Pay fairly and engage employees

I wrote: Pay More and Disengage Pay More and Disengage Employees. sometime back. Does this mean we should pay less or we should not pay more? NO, please consider the following:

1. Pay Enough:Dan Pink says that while money or monetary rewards did not result in engagement or in high performance, businesses should pay enough to get the pay discussion off the table and help people to focus on performance.

2. Pay More and Engage: One of the largest companies in social media pays the highest salary in the industry. The employees are highly engaged. However, they do not want people to join them for money. They want people to join them for freedom to innovate, empowerment and freedom to perform. They take care of their employees by providing best of the facilities at work, to the extent that the employees do not miss their homes.

3. Pay as Per Promise: Organizations need to set expectations and pay as per promise. If the organization does not keep its promise it will surely disengage its employees.

4. Pay Fairly:Organizations must ensure fairness in compensation both internally and externally. Within the organization compensation should be fairly paid based on performance of an individual and her contribution to organization’s success. Both the performance management and the compensation management should be as transparent as possible. If we have a robust performance management system driven by business, it would be easy to be fair and transparent.  In the absence of organizational transparency grapevine takes over. 

In a socially connected world, the compensation should be benchmarked with companies from where the organization hires talent and with the companies to whom it loses talent. This should also be transparent to the extent possible.  Transparency will ensure that people understand the fact that they are paid well and in line with the organizational promise, which will minimize the impact of misguidance by social network.

5. Take Recourse to Total Rewards: The software company that paid less and retained and engaged employees in the example above, ensured that they took good care of their employees and avoided retrenching them during down turn. That is not to say that the non performers were not asked to leave, after giving them a fair chance to change. The total perceived rewards, therefore, were higher than those due to higher salary paid by competitors.

Therefore, pay enough, pay fairly and migrate to total rewards. And yes, fulfil your promise. This will ensure that you do not disengage employees. 

Engage Employees Part 4: Is PMS Rating a Tool to Engage and Retain People?

Photo: Courtesy eremedia.com

In one of the earlier posts “Is Socialism at Work Killing business?”, I saw several comments why this was good in theory and how in practice when there was a war for talent it was almost impossible to differentiate. This reminded me of several situations when my clients wanted to be liberal with ratings in order to engage employees and retain them.

Let us examine some facts and situations:

1. Positive Impact of PMS Rating on Engagement

In several client organizations we had observed that performance ratings had a positive (or negative) impact for 6 to 8 weeks only. After this period people were back to the same level of engagement (or disengagement) as that before the ratings. The attrition was postponed by a few months or at best by a year. If the latter happened, HR achieved its goals of lowering attrition and so did the line mangers. But were these people productive? No, they were not productive. From a shareholders perspective and from a customer perspective they did not deliver as well as they ought to have delivered.

2. PMS Rating and Attrition

In another analysis we found that the attrition had no correlation with the undeserved high ratings. If people were disengaged and had a better opportunity with another organization, they would leave even if they were given a rating higher than that they deserved. However, if they were mediocre and could not find a job they would continue with the business. If they were people managers, they epitomized felicitation of non-performance leading to disengagement and mediocrity in the team.

3. PMS Rating, Performance and Attrition – A Case Study

In one of the consulting firms, PMS rating was rampantly used as a lever to engage employees and retain them. This led to a culture of work avoidance leading to an inefficient, non-responsive and loss making firm, despite having the best of the talent in the industry. There was no incentive to perform. In fact they reached a situation where team members, who were fresh from institutes and those with up to 5 years of experience, worked the hardest. Most of the Project Managers, Directors and even Partners were busy managing their managers rather than managing their performance or adding value to their clients or to their teams.   There was a profound belief amongst people that they needed to work hard for the first 3-5 years till they were promoted to Project Manager level. They felt after becoming a Project Manager life was “cool” and there was no need to work.

Any business in any industry and in almost any country had to work really hard to make losses in 2005-07 period.  This firm made it happen despite the best talent they employed and a great brand name they had. This is the far reaching consequence of using performance rating as a tool to solve the problems in the short term.

Did they manage to engage and retain employees with all the frivolous ratings that they came handed out? I understand that their engagement scores were in bottom quartile and their attrition was the highest in the industry.

With reducing lives of leaders and HR professionals in any organization, the focus on solving the problems in the short term is significantly high. Taking tough calls, even if we lose some good talent, becomes difficult if the long term orientation is missing. We can’t blame our fellow leaders in the industry and our HR fraternity as short term-ism is a global phenomenon. But the benefit of an undeserved performance rating is just too short to merit a consideration even in this world of short term-ism.

Now, if pay (Post: Pay More and Disengage Employees), promotion (Post: Promote and Part), and performance ratings do not lead to engagement, what engages employees? 

Let us discuss "what engages employees?" next week.

Engage Employees Part 3: Promote and Part

In the last post we discussed about “pay more and disengage”. Now, let us consider can we use promotion as a tool to engage employees?

Let us consider the following:

1. Promote and Disengage Employees:

A Communication and technology client during my consulting days positioned careers as a differentiator. While the company was growing at a rapid stride, it was easy to promote people and provide larger roles. As the growth slowed down, promotions led to change in designation and compensation without a material change in role. We observed that all those promoted without a role change demonstrated an increase in engagement for a year and then the engagement dipped even below the level of engagement before the promotion.

2. Promote beyond the level of Incompetence

This was more than a decade ago. One of my team members was very high performer and was a high potential. But we strongly felt that he was not ready for the next role. However, he threatened to resign and we did not want to lose him. We promoted him. In about a year’s time he resigned. When I called him to discuss the reasons, he said that he resigned because he was promoted. I insisted that he told me more. He said that a year ago he felt wanted by the firm, loved by the team members and respected by the clients. With the promotion the expectations from all the three stakeholders changed dramatically and he found it difficult to meet the new set of expectations. Therefore, he felt that none of the stakeholders respected him any longer. He felt he was in a fix as he could not request us to demote him. After that episode I preferred to lose people rather than promote them, as that would eventually lead to a loss in any case.

3. Promote and Sack People

As in example 1 above, another client promoted people leading to higher salaries and better designation, without a role change. This did not give people an opportunity to increase their value add to the organization. In turn, they did not add value to themselves. When the market stagnated as these employees did not add value concomitant to their hierarchy and the compensation they received they were the first ones to be asked to go. As they did not add value to themselves, they did not find an appropriate job in the market. They had to settle for less, impacting their self esteem.

So, those who thought that they can use promotion as a tool to engage and retain employees could be up for a rude shock. You may end up disengaging employees, exiting them and impacting their self esteem for a long time.

Even while they stay, they stay disengaged. They do not help the business.

Should you then not promote? You should definitely promote. Promotions should be based on:

1. Performance and Potential

2. Availability of a bigger role

3. Readiness for the role.

Such promotions will engage employees who are promoted and motivate others to strive harder. This would be good for people and good for business. Therefore, this would be sustainable, even if you lose a few in the bargain. 

If Pay and promotion should not be used as tools to engage and retain employees, should PMS be used as a tool to engage employees? Let us discuss next week.

Engage Employees Part 2: Pay More and Disengage Employees

We hear frequently, from business leaders as well as HR leaders, that we should pay more and we will be able to engage employees. Alternatively we can’t engage employees because we can’t pay enough.

Let us examine the following examples and situations:

1.      Pay More and Disengage employees: A multinational bank paid its employees significantly higher than its peers. But it failed to provide challenging work and consequently could not ensure development and growth.  The employees were disengaged. They could not get jobs with other banks as their compensation could not be matched. This resulted in a pool of frustrated employees who did not service customers well.  Eventually it translated into accelerated non performance of business leading to lack of challenging work and development. So golden hand cuffs created a vicious cycle.

2.      Pay Less and Engage Employees:  One of the largest software services companies in India is known to pay the lowest salary amongst its peers. It always had the lowest attrition and the highest engagement. While in the short run some of the peers did well, over a larger horizon it outperformed its peers.

3.      ESOP a Golden Hand cuff: A well known player in communication and technology had a serious challenge in engaging its leadership team. The CEO asked me if they were so disengaged and that too perennially, why they didn’t leave. The answer was staring at his face – how can they leave such hefty ESOPs and go?  A disengaged leadership team could be disruptive for business.

4.      Can’t afford to pay. So can’t Engage:  The research by almost all consulting firms show that the engagement went up in more than two thirds of the companies in 2008 and 2009, when companies could not pay well.  Employees did understand the predicament of employers and responded positively, wherever leadership was receptive and demonstrated care.

Does this mean we should pay less or we should not pay more? NO, please consider the following:

1.    1.  Pay Enough:Dan Pink says that while money or monetary rewards did not result in engagement or in high performance, pay enough to get the pay discussion off the table and help people to focus on performance.

2.     2. Pay More and Engage: One of the largest companies in social media pays the highest salary in the industry. The employees are highly engaged. However, they do not want people to join them for money. They want people to join them for freedom to innovate, empowerment and freedom to perform. They take care of their employees by providing best of the facilities at work, to the extent that the employees do not miss their homes.

3.  3. Pay as Per Promise: Organizations need to set expectations and pay as per promise. If the organization does not keep its promise it will surely disengage its employees.

4. 4. Pay Fairly:Organizations must ensure fairness in compensation both internally and externally. Within the organization compensation should be fairly paid based on performance of an individual and her contribution to organization’s success. Both the performance management and the compensation management should be as transparent as possible. If we have a robust performance management system driven by business, as discussed in one of the earlier posts, it would be easy to be fair and transparent.  In the absence of organizational transparency grapevine takes over.

In a socially connected world, the compensation should be benchmarked with companies from where the organization hires talent and with the companies to whom it loses talent. This should also be transparent to the extent possible.  Transparency will ensure that people understand the fact that they are paid well and in line with the organizational promise, which will minimize the impact of misguidance by social network. 

5.     5. Take Recourse to Total Rewards: The software company that paid less and retained and engaged employees in the example above, ensured that they took good care of their employees and avoided retrenching them during down turn. The total perceived rewards, therefore, were higher than those due to higher salary paid by competitors.

Therefore, payenough, pay fairly and migrate to total rewards. And yes, fulfil your promise. This will ensure that you do not disengage employees. 

However, you will have to do very different things to ensure engagement. We will discuss how to engage various subsets of employees in subsequent posts over the next few weeks.