Month: December 2020

Steps to Build Up HR Strategy

Step 1: Get the ‘big picture’

Understand your business strategy.

• Highlight the key driving forces of your business. What are they? e.g. technology, distribution, competition, the markets.
• What are the implications of the driving forces for the people side of your business?
• What is the fundamental people contribution to bottom line business performance?

Step 2: Develop a Mission Statement or Statement of Intent

That relates to the people side of the business.

Do not be put off by negative reactions to the words or references to idealistic statements it is the actual process of thinking through the issues in a formal and explicit manner that is important.

• What do your people contribute?

Step 3: Conduct a SWOT analysis of the organization

Focus on the internal strengths and weaknesses of the people side of the business.

• Consider the current skill and capability issues.

Vigorously research the external business and market environment. High light the opportunities and threats relating to the people side of the business.

• What impact will/ might they have on business performance?
• Consider skill shortages?
• The impact of new technology on staffing levels?

From this analysis you then need to review the capability of your personnel department. Complete a SWOT analysis of the department consider in detail the department’s current areas of operation, the service levels and competences of your personnel staff.

Step 4: Conduct a detailed human resources analysis

Concentrate on the organization’s COPS (culture, organization, people, HR systems)

• Consider: Where you are now? Where do you want to be?
• What gaps exists between the reality of where you are now and where you want to be?

Exhaust your analysis of the four dimensions.

Step 5: Determine critical people issues

Go back to the business strategy and examine it against your SWOT and COPS Analysis

• Identify the critical people issues namely those people issues that you must address. Those which have a key impact on the delivery of your business strategy.
• Prioritize the critical people issues. What will happen if you fail to address them?

Remember you are trying to identify where you should be focusing your efforts and resources.

Step 6: Develop consequences and solutions

For each critical issue highlight the options for managerial action generate, elaborate and create don’t go for the obvious. This is an important step as frequently people jump for the known rather than challenge existing assumptions about the way things have been done in the past. Think about the consequences of taking various courses of action.

Consider the mix of HR systems needed to address the issues. Do you need to improve communications, training or pay?

What are the implications for the business and the personnel function?

Once you have worked through the process it should then be possible to translate the action plan into broad objectives. These will need to be broken down into the specialist HR Systems areas of:

• Employee training and development
• Management development
• Organization development
• Performance appraisal
• Employee reward
• Employee selection and recruitment
• Manpower planning
• Communication

Develop your action plan around the critical issues. Set targets and dates for the accomplishment of the key objectives.

Step 7: Implementation and evaluation of the action plans

The ultimate purpose of developing a human resource strategy is to ensure that the objectives set are mutually supportive so that the reward and payment systems are integrated with employee training and career development plans.

Steps

• Aligning business and HR needs

The business’ goals that is its strategic imperatives sit at the heart of any HR strategy and in order to align business and HR needs one key question must to be answered, “Can your organisation’s internal capability deliver its business goals?”

This is where HR receives most criticism. The function is frequently accused of failing to fully understand its business, goals and strategy for achieving these goals, and its business model and how it delivers to its customers. For those who already understand the demands of their business, it is easy to identify where the business has strong core competencies and where the business is weakest.

Sometimes these weaknesses are related to essential systems or processes, but more often and significantly for HR these weaknesses relate to the quality of the workforce, its motivation and ability to deliver organisation performance. Taking steps to understand your business and where it has competitive advantage is an essential first step towards determining the key HR interventions that form the basis of an HR strategy.

• Developing your HR strategy

Deeper knowledge and understanding of your business goals and business model can identify potential threats and opportunities in the quantity and quality of human resource required by your organisation. This in turn identifies the key components of your HR strategy and the virtuous circle of providing whatever your organisation needs for success.

It is also critical that the HR team has a high level of expertise in aligning major HR interventions and their relevance to business performance. This calls for expert HR thinking and identifies the requisite interventions and, equally important, how they fit together to leverage organisation performance.

If there is a strong need for the organisation to develop its management capability, for instance, should you align your compensation strategy to reinforce this objective? If the organisational structure defines the accountabilities clearly at every level of the organisation, is your HR team selecting and developing against them? This is joined-up HR at work.

Another concern for HR is when it should make strategic interventions. Easy, it either follows your business cycle, or is triggered by other key events such as a merger, an acquisition or a change in business direction.

• Organisational performance

Organisational performance is the process by which business goals and objectives are cascaded and managed across and down an organisation. It provides a link and rationale for all other HR activity and, in addition, the greatest opportunity to directly impact business success, enhancing HR’s reputation and contribution.

HR needs to create and install a robust performance management process that sets out performance objectives for all levels of staff within a business. This is an opportunity to develop line managers’ skills in being able to disseminate and set stretch targets for their business.

A critical part of this process is a robust performance review process, which gives people feedback about what has been achieved what people have done well and not so well.

The third element is a personal development review process where individual strengths and weaknesses are identified for the purposes of assessing and meeting organisational development needs.

• Organisational design and structure

Organisational design is the shape, size and structure of the organisation required to meet customers’ needs. It reflects the management processes that drive the business model and determines organisational agility and flexibility. These processes can be a source of competitive advantage or sources of frustration, unnecessarily absorbing time, cost and resources.

Decisions affecting the shape, size and cost of the organisation will be aligned with the business strategy. It should be relatively easy to see whether an organisation invests in marketing, sales or manufacturing, for instance, and whether the organisation is maximising its work flow capability.

As people experts, the role of HR is to add value to the structure and operation of the business. Structural weaknesses offer an opportunity to revamp any part of the organisation by identifying and making appropriate changes, reductions in size or cost; or improvements to the quality of the operation.

Conversely, structural strengths are a signal to the HR team to reinforce organisational competence.

• Strategic resourcing

Achieving clarity throughout the organisation’s structure is critical in order for resourcing strategies to work well. If the organisation is transparent about its key roles and accountabilities, this will define the skills and knowledge required to undertake the work and determine strategic resourcing requirements.

Deciding on your resourcing strategy means identifying a number of critical components. These range from the processes needed to determine resourcing needs, the processes to attract the right people and the processes for assessing and selecting the right people. HR has a strong traditional involvement in all of the above. In addition, it is essential to ensure each stage of the resourcing activity is aligned and in direct response to the strategic imperatives.

Another important component determining the effectiveness of any resourcing strategy is the need to create a ‘recruitment brand’ how the image (or brand) of the organisation appears to the recruitment market can either support or undermine the success of a resourcing strategy.

• Organisation development

If strategic resourcing is about providing a pipeline for importing external talent, then an organisation’s development strategy is the way in which the HR team decides what changes and improvements need to be made to the current workforce.

Usually, these responses work at three levels the individual, team and organisation and all are geared to achieve high levels of organisational performance. It requires a close examination of the strategic imperatives and clarity about the capabilities to execute it.

Development responses will aim to increase business skills, the application of business skills (sometimes called competencies) and the behavioural elements all of which contribute to an organisation’s effective performance. It is important at an individual level, particularly for senior people, that they feel their development needs are agreed and that they are provided with the skills to do their jobs.

At a team level, it defines individuals’ ability to work with others flexibly and align individual and team skills and activity to business goals all of which ensure that the organisation is equipped to deliver its goals.

• Compensation and benefits

Often called reward strategy, the purpose of compensation and benefits systems is to align the performance of the organisation with the way it rewards its people, providing the necessary incentives and motivation required for an organisation to deliver its goals.

Its components are a combination of base pay, bonuses, profit sharing, share options, and a range of appropriate benefits, usually based on market or competitor norms and the organisation’s ability to pay. Typically, the components of an organisation’s reward strategy will reflect the particular performance culture of a business.

There is evidence that organisations see compensation as a strategic management lever and are increasingly experimenting with new practices – team bonuses, for example, aimed at improving team performance or skills/behaviour payments to upskill the workforce or reinforce culture or behaviour change. A company’s reward policy in particular benefits from clarity about which other elements of the HR strategy it aims to support.

• Organisation culture

Culture is usually described as the “way we do things round here” the way the organisation acts, reacts and interacts. The trend in the last 10 to 15 years has been to align organisational behaviour more strongly with customers’ needs, creating customer-facing units and customer-sensitive behaviours. This has been as a direct result of the increased competition around product, quality, prices and packaging. In re-aligning an organisation’s culture there can be real benefit and competitive advantage through improved service.

HR teams which are closely involved with the organisation’s cultural ambitions can lead these initiatives through their knowledge of organisation psychology such as describing new behaviours and work styles; and through their skills in organisational development and being able to provide development solutions to deliver the improvements.

• Production of the HR strategy

The eight components described here form a generic model of the most commonly used elements of HR strategies. It is important to select those that are most relevant to any particular organisation.

When the key elements are decided, there are a number of simple questions that the HR team should be asking itself as each element of the strategy is considered in turn:

START: What are we not doing yet, that the business needs from us?

STOP: What should we stop doing because it does add not value?

CONTINUE: What are we already doing that supports the business plan?

For the organization to perform better it is important that the employees are comfortable with each other, share a good rapport and work in close coordination towards a common objective. People feel responsible and motivated to do good work and enjoy their work rather than taking it as a burden.

Every individual shares a certain relationship with his colleagues at the workplace. The relationship is either warm, so-so or bad. The relationship can be between any one in the organization – between co workers, between an employee and his superior, between two members in the management and so on. It is important that the employees share a healthy relationship with each other to deliver their best performances.

An individual spends his maximum time at the workplace and his fellow workers are the ones with whom he spends the maximum hours in a day. No way can he afford to fight with his colleagues. Conflicts and misunderstandings only add to tensions and in turn decrease the productivity of the individual. One needs to discuss so many things at work and needs the advice and suggestions of all to reach to a solution which would benefit the individual as well as the organization.

No individual can work alone. He needs the support and guidance of his fellow workers to come out with a brilliant idea and deliver his level best.

Employee relations refer to the relationship shared among the employees in an organization. The employees must be comfortable with each other for a healthy environment at work. It is the prime duty of the superiors and team leaders to discourage conflicts in the team and encourage a healthy relationship among employees.

It is important that the management promotes healthy employee relations at workplace to extract the best out of each individual. Competition is essential but it should not promote negativity or any kind of enmity among the employees.

Let us go through some steps and strategies for a healthy employee relationship in the organization.

• Involve your team members: They should feel important and indispensable for the organization. An individual must be assigned responsibilities according to their interests and responsibilities. Don’t impose work on them. Let them willingly accept challenges. They must enjoy whatever they do otherwise they would end up fighting with their superiors and fellow workers.
• Encourage individuals to share their work with each other: This way people tend to talk with each other more, discuss things among themselves and thus the comfort level increases. Let them work together and take decisions on their own. A team leader should intervene only in extreme cases of conflicts and severe misunderstandings.
• Assign them targets and ask all your team members to contribute equally and achieve the target within the desired time frame. Motivate them to work in groups. This way employees have no other choice than to trust their fellow workers and take each other’s help as well. An employee must have the liberty to express his ideas and all of them should sit together to decide on something which would be beneficial to all.
• One should try his level best that all the employees must have their lunch together at the same time. Half an hour to fourty five minutes must be dedicated to lunch and one should not discuss work during lunch time. There are other topics as well. Discuss movies, sports, shopping or any other thing under the sun. There will be no harm if the employees go out together once in a while for get togethers, picnics or shopping. Ask them to bring their family members as well.
• Encourage effective communication among the team members. It has been observed that poor communication leads to confusions and misunderstandings. The communication has to be precise and relevant. One should not play with words and be very specific about his expectations from his fellow workers as well as the organization. If you are not very happy with your colleague’s proposal, don’t keep things to yourself. Voice your opinion and do express your displeasure. It will definitely prevent a conflict among employees later and improve the relations among them. Be straightforward. Don’t pretend things just to please your boss. If you find anything unacceptable, discuss with your superior but in a polite way.
• Written modes of communication must be promoted among the employees for better transparency. Verbal communication is not as reliable as written communication. The agendas, minutes of the meeting, important issues must be circulated among all through emails. Make sure that all the related employees are in the loop. Don’t communicate individually with any of the employees as the other one might feel neglected and left out.
• Morning meeting is another effective way to improve the relation among the employees. Let everyone come together on a common platform and discuss whatever issues they have. The meetings must not be too formal. Allow the team members to bring their cups of coffee. Start your day with a positive mind. Greet everyone with a warm smile. Exchange greetings and compliments. If any of your team member is not in a pleasant mood, do take the initiative and ask what is wrong with him. Try your level best to provide him a solution.
• Organize birthday parties, Christmas parties, New Year parties etc. at the workplace. These small initiatives actually go a long way in strengthening the bond among the employees. Ask all of them to decorate the office, their work stations and make all the necessary arrangements themselves. You will actually be surprised to find out that everyone would be ready with some thing or the other. Employees would actually take the initiative and organize things on their own. Let them enjoy with each other and have fun.
• Praise the individual if he has done something exceptionally well. Reward him suitably. The names of the top performers must be displayed on the notice boards for others to draw inspiration from them. Encourage everyone to perform well to live up to the expectations of the superiors as well as the management.

A healthy relation among employees promotes a positive ambience at the work place and employees feel happy and satisfied at work. They look forward to going to office daily and also work hard to realize their team’s as well as organization’s goals.

Adopt a Conducive Workplace Culture

Employees want to feel good about what they do and where they do it. Decide with your team what values represent your company and then promote them transparently. Articulate them to every person in the organization; they will drive expected behaviors. It should go without saying that leadership must live the cultural platform.

Involve Your Team Members

Employees should feel important to your company. Let them willingly accept new responsibilities and challenges. But, make sure they enjoy whatever they do. Encourage employees to share their work with each other. This way people tend to talk with each other more, discuss things among themselves and thus the comfort level increases. Let them work together and make some decisions on their own. A team leader should intervene only if necessary.

Insist Upon Proper Communication

Employees need to know what’s going on.Encourage effective communication among team members. They can’t work in a vacuum and they need an avenue for articulating needs, wishes, complaints and goals. Poor communication leads to confusion and misunderstandings. The communication has to be precise and relevant. Be very specific about expectations. Be straightforward. Written modes of communication must be promoted among the employees for better transparency. Don’t just communicate to employees; ensure there are flexible ways for employees to communicate back.

Recognition

Praise the individual for exceptional results and provide suitable rewards. Encourage everyone to perform well to live up to the expectations of the management team. Put measures in place so people can be recognized and applauded when they live up to those values.

Regular Team Meetings

Let everyone come together on a common platform and discuss whatever issues on their mind. The meetings must not be too formal. Leaders should start and end the meeting with a positive tone, provide updates and get the group involved.

Events

Celebrate birthdays, holiday parties, and other occasions at the workplace. These small initiatives actually go a long way in strengthening the bond among the employees. Allow them to decorate the office, their work stations and make all the necessary arrangements themselves. Employees will actually take the initiative and organize things on their own. Let them enjoy each other and have fun.

Strong and effective employee relations generally lead to a better performing organization. Employees want a culture where they are comfortable with each other, share a good rapport and work in close coordination towards a common objective. A healthy relation among employees promotes a positive workplace and employees feel happy and satisfied at work. They look forward to going to work and contributing to the mission, vision and goals of their employer.

During times of economic hardship or when a company adopts more efficient processes, a business can find itself with workers who do not have enough work to do. Called a labor surplus, this circumstance of having too many available worker hours is not ideal. It is costly when a business has idle employees to whom they must pay salaries and benefits. Handling a labor surplus is tricky, but some solutions can help in the short and long term.

Labor Surplus Basics

While a labor shortage is a challenging problem, a labor surplus can be equally difficult to manage. Perhaps your business recently implemented new policies or processes that made work more efficient, and now your company employs too many workers for the jobs you need to have done. In this situation, laying off your skilled workers is not your only option. Available alternatives are worth considering, particularly if your business plans to branch out and accelerate growth in other areas.

Perhaps business has dried up due to an economic downturn or changing trends that affect your industry. In this situation, where the prospects of profitability for your company are dim, you might choose to handle your labor surplus differently from the first scenario. If it doesn’t seem like work is coming back anytime soon, it isn’t prudent to keep on employees who don’t have enough work to do and can’t drive profits.

Ways to Handle a Labor Surplus

The path your business chooses to handle a labor surplus depends on your current financial situation and corporate goals. If you have succeeded in implementing efficient processes or production techniques and no longer need all your factory staff, you can shift the responsibilities of some workers to a similar area to help your company grow vertically or horizontally. Layoffs are not your only option.

However, if you are struggling to make payroll and there is no sign that business is going to pick up in the near future, it is probably best to let some of your staff go. This way, your workers can collect unemployment benefits and search for new jobs to further their careers, while you maintain some profitability for the business.

In any situation involving a labor surplus, don’t hire new workers. A hiring freeze is a necessary step while your company’s management team determines the best path forward. In addition, you should end contracts with outsourced talent and transfer those tasks to internal labor instead.

Additional Labor Surplus Techniques

Other ways to deal with a labor surplus include pay cuts and reduced working hours for your staff. It’s better to avoid these strategies when possible because they can lead to problems with employee morale or reduced effort by disenchanted staff.

You might also consider encouraging older employees to take early retirement. Older employees are often the highest-paid workers in a company. If early retirement is handled properly, this strategy can free up a great deal of money for your company while reducing the excess labor capabilities you have.

Shortage

Labour Market Shortages in the Domestic Context

While the above examples refer to labour shortages in the international context, there are instances where there such shortages have been met from the domestic labour pool. For instance, India has long suffered a chronic shortage in the jobs related to IT and other services sector despite having a sizeable graduate population which is among the world’s largest labour pool. The reasons for the shortage of skilled workers in IT and other allied sectors was because many of the professionals were emigrating to the West and in addition, the domestic labour pool was unemployable in the sense that though the Technical institutions such as the Engineering colleges were churning out graduates in large numbers, many of them were simply unemployable meaning that despite having a degree, they did not have the skills necessary to work in the IT firms.

Labour Market Shortages in the International Context

Labour market shortages are created whenever there is a gap between demand and supply for a particular skills, job, role, or occupation. For instance, in the 1980s, there was a shortage of skilled workers in the Persian Gulf countries because of which the governments in those countries took steps to address the shortage by opening their doors to immigrants from other countries. Similarly, there was a shortage of IT (Information Technology) professionals in the United States in the 1990s and the last decade. The answer again was to pursue to an immigrant friendly policy and to encourage the large-scale migration of IT workers from India and other countries to the United States and other Western countries.

Strategies to Overcome Labour Market Shortages

The answer to this labours shortage in India was to expand the recruitment base by including non-Computer Science and IT graduates in the eligible pool of workers. For instance, many Indian IT firms resorted to recruiting graduates from all branches and then training them so that they have the required skills for the jobs. While this is a far from ideal situation and the solution was stopgap, it went a long way in addressing the chronic shortage of workers in the IT sector. Indeed, the numbers of graduates from other disciplines who were recruited into the IT firms was so huge that the joke, Trespassers will be recruited began to be identified with the Indian IT sector. The point to note here is that this is a simple demand and supply equation wherein whenever there is excess demand, companies tend to look for all available alternatives to address the demand.

Temporary and Permanent Labour Market Shortages

Labour market shortages can be temporary or permanent. An example of a temporary shortage is the kind that was discussed about the Gulf region earlier wherein a shortage of skilled and semiskilled workers was addressed by bringing in guest workers for the shorter term. After the jobs were done, most of these workers had to return home or be replaced by other workers since those countries did not really want to have workers for the longer terms in the occupations that were hired for. Further, this model was extended to the whole world wherein temporary shortages for workers were met by simply bringing in workers from high population countries such as India, Philippines, and other Asian countries. The rationale for the continuous replacement of workers was that in sectors such as construction and heavy industry, there was always a demand and a churn which meant that workers were needed for shorter term durations.

On the other hand, longer term labour market shortages such as the ones experienced by the West and the United States in particular meant that their strategy was to create and nourish a pool of professionals in high skill and high value jobs such as IT for the longer term since these jobs created value as the professionals progressed. The economics of addressing labour shortages are indeed driven by purely commercial considerations as whenever there were a need for low skill and low value jobs, workers were brought in for the shorter term, and whenever there was a need to invest in social capital and build a workforce that added value with time, such professionals were accorded permanent residency and were paid handsomely so that all parties benefit.

Criticism of the Present Strategies

However, there has been much criticism about these strategies and especially the ones such as the Indian IT firms hiring non-IT graduates to tide over the labour market shortage. For instance, the common refrain that is heard is that if all engineers work in IT, who will build the bridges and who will work in the manufacturing sector that is so crucial to the success of these countries. In addition, such strategies have also been criticized because they introduce distortions in the labour market wherein policies put in place by the governments to train engineers to work in industry fail because these engineers have been employed in the IT sector. In other words, addressing supply shortages in one sector can lead to problems for other sectors.

Conclusion

Therefore, the clear insight that we gain from the discussion so far is that unless all stakeholders come together and create longer term strategies to address labour market shortages, the end result would be that the labour market is going to be skewed in favour of one sector or the other. Moreover, the strategies discussed in this article would result in the semi-skilled and unskilled workers losing out in the longer term once the need for them is over. In conclusion, addressing labour market shortages is a vast topic and this article touched upon some salient aspects of the topic.

A total rewards strategy is a system implemented by a business that provides monetary, beneficial and developmental rewards to employees who achieve specific business goals. The strategy combines compensation and benefits with personal growth opportunities inside a motivated work environment.

Designing and implementing a total rewards strategy requires a large-scale approach that drives organizational change. Top executive and management buy-in are critical for the success of a total rewards strategy. Your project team should be made up of decision-makers as well as front-line employees to ensure that your approach is well-rounded and fits the needs of everyone at the table. If you operate in a union environment, it is important to understand that collective bargaining may affect the implementation of your strategy.

Developing a total rewards strategy is a four-step process consisting of:

Assessment: A project team assesses your current benefits and compensation system and determines the effectiveness of those systems in helping your company reach their goals. Activities that take place during the assessment phase of the process include surveying your employees on their opinions and beliefs regarding their pay, benefits and opportunities for growth and development as well as examining your current policies and practices. The most important outcome of the assessment phase is the project team assessment report, which includes your recommendations for the new total rewards system. The assessment report should include suggested solutions to questions such as:

• Who should be eligible for the rewards?
• What kinds of behaviors or values are to be rewarded?
• What type of rewards will work best?
• How will the company fund this?

Design: The senior management team identifies and analyzes various reward strategies to determine what would work best in their workplace. It decides what will be rewarded and what rewards will be offered to employees for those achievements. In a total rewards strategy, pay rewards for achievement of goals will not be the only consideration. HR strategists will also determine additional benefits (flexible work schedule, additional time off) or personal development opportunities (training or promotional) that employees will receive as a result of meeting the established company objectives.

Execution: The HR department implements the new rewards system. It circulates materials that communicate the new strategy to employees. Training also commences so that managers and decision-makers are able to effectively measure the achievement and employees are able to understand what they need to obtain to receive the rewards.

Evaluation: The effectiveness of the new plan must be measured and the results communicated to company decision-makers. Based on this, modifications can be proposed to the strategy for future implementation.

A total reward approach looks at what your organisation is trying to achieve, what your people want, what is affordable and the structures needed in place to achieve this. The four areas covered are:

• Cash compensation

Every organisation must pay its employees for the services that they provide (i.e. time, effort and skills). This includes both fixed (salary and allowances) and variable (bonus and incentives) pay. The cash compensation provided to employees increases over time and can be linked to a number of different factors such as performance or career development.

• Benefits

Organisations use benefits to supplement the cash compensation they provide to employees. These vary depending on the size of the organisation and affordability but can provide security and comfort to the employees and their families. The benefits include holidays, medical cover, income protection and pension schemes.

• Personal Growth

Providing personal and professional growth opportunities to employees is an essential part of any reward strategy. These can be skills acquired on the job as well as formal training programmes valued by the employees that also serve the organisations strategic needs. Alongside this development, however, is the need to manage expectations, assessing performance and constantly striving to improve.

• Work Environment

A positive work environment can often be the defining factor in retaining key talent in an increasingly competitive market. Ultimately, we all want to work in an environment where there is genuine feeling of team spirit and togetherness. With a leader that inspires and supports us to achieve success at both work and home.

The competitive advantage is a necessary component for the modern organization. The competitive advantage has to be in products, services, internal and external processes and in Human Resources Management. The employees are the assets of the organization and the competitive advantage in Human Resources Policies can generate a huge impact into the net profits and overall performance and profitability of the organization. The competitive advantage in compensation area usually generates a huge portion of the overall competitive advantage in HR Management.

The competitive advantage in the compensation area is not about beating the pay market by paying higher salaries and bonuses to all employees. The managers tend to think, the better the pay of employees, the more competitive the organization is. It is not true, the organization has to carry the higher personnel expenses and during the crisis or the recession, it can be a huge competitive disadvantage in the compensation and the compensation strategy has to be redesigned quickly as the organization can continue in its operation and it has a destroying influence on the overall employee satisfaction.

The competitive advantage can be built by using two general approaches:

• General competitive position on the pay market
• Competitive pay market position for key job positions

General competitive position on the pay market

Setting the higher position than the median on the pay market is quite common competitive advantage setting in smaller companies, who have to fight for the best talents with the big organizations in the same industry.

It is quite dangerous to set the pay market position too high as the organization has to carry the increased costs and eats more from the margins on the products and services. The organization cannot make quick changes and the recession can be deadly dangerous for the organization as it carries higher costs to keep the processes operating and functional. The competitors have a better and bigger space to decrease the personnel costs in bad times.

The higher competitive position on the pay market can be used in the time, the organization grows dramatically and it needs the best talents from the job market and there is no time to decide about the key job positions in the organization and all employees are treated to be of the same importance.

Keeping the long-term higher pay market position is suitable just for the companies in the modern industries, with high margins and the companies with the excellent brand name being known for employing the best of the best.

Competitive advance through strategic pay market position for key job positions

The competitive advantage in compensation can be set just for the key job positions in the organization. This solution is cheaper as the rest of the population can be kept in line with the median of the pay market or it can be below the median as the whole organization keeps the median in general. But, the organization has to be able to reach the consensus about the key job positions in the organization.

Setting the key job positions is the painful procedure for Human Resources getting the consensus from the top management is a bit mission impossible, but HR has to accomplish this procedure successfully as the key job positions are identified and Human Resources can set the right compensation strategy for the key job positions.

The differentiation in the compensation strategy and setting the different pay level for the key job positions is quite usual for the larger organizations as they save the personnel expenses and they are able to protect the key employees. It does not protect the key employees automatically, but it supports the managers and other HR Processes as the employees feel pretty satisfied with their salaries.

The competitive advantage for the key job positions is usually the best pay strategy for the mature organizations, which does not grow aggressively and are purely focused on the product innovations. The key employees bring the innovations and the rest is paid fair enough for their job content.

Strategies to Drive Performance & Satisfaction

In addition to ongoing industry efforts to address the labor shortage including education, technology, and promotion companies must assess their own operations to develop the kind of positive and productive work environments that both attract and retain high-level performers. An effective strategic reward system is fundamental to business performance.

While many executives realize that they need solid performance management and reward strategies and systems, too often they make the common mistake of rewarding one behavior when they actually seek a different outcome. According to Reward Systems: Does Yours Measure Up?, a successful performance system features three primary elements:2

1)  Define desired performance in tangible goals and actionable items.

2)  Measure the right things and use the right measurements.

3)  Reward the right measures with the right rewards.

Define

Rather than maintaining vague or intangible mission statements, management must take a hard look at the activities that drive desired results and, ultimately, economic value. “Unmatched customer service” is a great slogan for a motivational poster, but, “responding to customer complaints within 24 hours 100% of the time,” is a specific, measurable employee expectation.

Goals should be based on the demands of stakeholders – customers, suppliers, owners, and others. The CEO and owner must be kept informed of performance on all goals. To keep employees focused, driven, and not overwhelmed, many experts recommend a limit of 3-5 employee goals. While some organizations have 10-20 critical, actionable goals, these goals should be assigned only to the appropriate people with the responsibility to accomplish them. The CFO might be assigned goals that relate directly to profitability, whereas the controller’s goals may be more operational.

Measure

Ensuring success, both in terms of business growth and employee satisfaction, requires developing metrics that track actions and progress toward goals. The quality of metrics rests heavily on how well strategic performance is defined. As the saying goes, “you can expect what you inspect.” In most situations, the ability to measure outcomes drives results.

Implementing a new performance and reward system that includes tracking performance with hard data can be intimidating at first. One recommendation to help employees move beyond the initial psychological barrier of data-driven performance is to use data for developmental purposes in the beginning of the implementation phase of a new performance system. Metrics are only used in performance evaluations once employees understand the goals and measures that support them.

Beyond the well-known key performance indicators (KPIs) like profit and revenue, construction executives should also measure economic indicators based on employee performance. (See “Key Performance Indicators Are Not Just About Profit” by Shane Brown and Andrew Steger in the March/April 2013 issue.)

Reward

Once goals are defined and measurements are implemented, it is time to consider rewards. Performance rewards can be both financial and nonfinancial, and must reinforce the organization’s performance metrics and measure employee contributions. Companies often have the right long-term goals but mistakenly reward short-term objectives.

The more significant the reward, the more employees will consider how it is measured. In addition to the size/value of a reward, three other elements make rewards impactful:

• Rewards that are highly visible are more powerful than hidden rewards.
• Timing rewards in association with outcomes drives positive behavior. For example, a bonus that comes a month after a goal is achieved will have greater impact on employees than one that occurs months later.
• Finally, staying power impacts reward power.

Bonuses, incentive pay, variable compensation, and compensation-at-risk are good methods for incentivizing positive behavior while preventing it from regressing.

Retooling a company’s performance strategy may seem daunting, but there is good news. It’s likely that competitors’ organization performance plans are not fully developed or implemented. This presents an important opportunity for companies to make a solid performance and reward system a distinctive competency and a competitive advantage. The remainder of this article will explore current tools and how your company can get strategic with its compensation.