Performance and Compensation Management at the Core of Human Capital Management?

While decades have been spent investing in automation technologies for better use of tangible assets, only recently have enterprises begun to invest in optimizing human capital. Tactical and administrative human resources (HR) management is morphing into strategic human capital management (HCM).

Part Three of the series Thou Shalt Manage Human Capital Better.

Some might argue that HCM revolves around better performance management and employee compensation. As the economy continues to rebound and talent wars intensify, companies have been increasingly leveraging traditionally elusive "pay-for-performance" technologies that successfully automate and link compensation planning with business and employee performance. Practically every organization regularly reviews the performance of its employees, which most managers confess to be a chore that is ironically the centerpiece of their existence. In other words, most managers hate personnel reviews, and many procrastinate until the HR department or the employees "scream." Since no employees can get a pay raise until they get a review, HR departments implement systems to automate and force the review process as a means to address this.

The aim of performance management systems is to both automate the employee review process and link reviews to organizational performance. The aim is to ascertain whether employees are taking definitive steps to achieve their determined performance goals; whether there are succession plans in place for top managers; what kinds of skills the organization will need in the next few years; and so on. Those are the kinds of questions (and hopefully appropriate answers) that performance management systems should put on the desktops of both managers and employees.

Performance management systems often include or feed into compensation (sometimes also called employee incentive management [EIM]) systems in order to more justly distribute merit-based pay increases. Before deploying such a system, managers would customarily review employees annually around their date of hiring, often with the result that well-deserving employees would not get the increase they deserved simply because the pool of available money had already been spent by the time they received their reviews. Surprising or not, compensation represents more than 60 percent of total corporate expenditures, yet most Global 2000 firms are still not properly rewarding their highest-performing workers. The aim is now to complete employee reviews at the end of the fiscal year, and also manage the merit expense budget by reviewing all performance scores before distributing the pay increases. Additionally, such systems are useful for obtaining a twelve-month view of employee performance, versus focusing too closely on the period that immediately precedes the review. The customary "defeat the purpose of performance review" experience of many managers has been that the company would set the parameters for pay raises and salary ranges at "budget time," and then expect managers to predict the percentage raises individuals would receive, so that the money would be in the budget when time came to review the employee.

More comprehensive performance management systems nowadays include a stronger link to upstream business goals and objectives, as well as a tighter connection to rewards, including merit pay, short-term variable incentives such as bonus or commission awards, and longer-term incentives such as stock grants. Some vendors offer succession-planning software that builds on performance and training systems to identify likely candidates for jobs further up the food chain. Again, the aim is to turn people into a competitive advantage and to ensure that there are programs that pay for performance and reward people for achieving goals that move the enterprise forward. These outlined capabilities should help users not only hire a higher-quality employee, but also better track that employee's performance, and establish a stronger link between the employee's performance and compensation. Enterprises want to be able to raise the bar for high performers while placing low performers on a performance improvement plan.

One illustration could be at an apparel retailer that often fell short of expectations with the launch of a new line of jeans, which prompted it to decide to test market jeans fitters who had been trained through e-learning about the products, how to fit jeans on women, and how to give the best advice. The project purportedly returned a 75 percent increase in revenue, since the fitters began receiving an incentive every time a pair of jeans was sold. There was a performance management solution in the background telling them how they were doing according to their goals, whereby learning, performance, and incentives were all tied together in an integrated way to drive corporate revenue and performance.

For background information see in Thou Shalt Manage Human Capital Better and Tactical Human Resources Evolves into Strategic Human Capital Management.

Leading Vendors

Leading vendors in this space include Authoria (which recently acquired Advanced Information Management [AIM], a provider of compensation management), SuccessFactors, Halogen Software, Workscape (including recently acquired Performaworks), FirstDoor.com, Callidus Software, Centive, Ceridian, HRsmart, Kadiri, ProAlt Technologies (now both part of Workstream Software), Softscape, Kenexa, and enterprise resource planning (ERP) giants SAP, Oracle, and Lawson Software.

In July, Lawson announced the acquisition of Competency Assessment Solutions (CAS), a provider of performance management solutions for the health care industry to comply with reporting standards set by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO). Compensation management aligned with individual performance management creates a true pay-for-performance environment, and leaders in this realm are tying the workforce to organizational goals and productivity, such as revenue per full-time equivalent employee (FTE). Developing competency models for each work position can be time-consuming and costly, but once conducted, these models can be leveraged across the entire HCM realm to improve the quality of new hires, compel desired employee performance, facilitate employee development, and assist in the development of succession plans. In other words, the entire employee life cycle (acquiring, developing, managing, and measuring performance) can be facilitated.

To recap, HCM has evolved beyond the simple automation of business tasks to the more complex streamlining of traditional HR processes and increasing of efficiencies in the broad management of human capital. Strategic HCM solutions can help organizations transform their people into a competitive advantage by aligning managers and employees with corporate goals of driving business value. Authoria reportedly recently spoke to more than 200 senior HR executives and asked them about their top "pain points." Leading this list was aligning employee goals and corporate goals, paying for performance, and developing top talent. Trying to accomplish these important objectives in a pedestrian way has proven to be equal to finding the fountain of youth or the holy grail. Conversely, well-devised HCM strategies and methods should help execute these priorities and make these initiatives successful.

Moreover, Genesys recently released the results of its HCM trends survey. The vendor's web-based suite PeopleComeFirst streamlines HR, benefit administration and payments, payroll processing, self-service, competency-based learning management, performance management, recruitment, and time and attendance (T&A), and it can be implemented as either human resources outsourcing (HRO) services or as licensed software. According to respondents of the survey, the top HCM priorities for 2006 included talent and leadership development, combined with talent acquisition and retention (45 percent), performance management (21 percent), and streamlining processes (18 percent). In addition, 18 percent of respondents also indicated that aligning people and business goals would be an important priority in the coming year, which shows that the attention of HR departments is increasingly centered upon becoming process experts and improving business processes, focusing on talent acquisitions and subsequent management, and providing better data for decision making. Moreover, 38 percent of respondents indicated that budget expectations over the next 12 months for HR technology and outsourced solutions would increase, by as much as 9 percent in some cases, thereby enabling funding of the services and tools required to support these top priorities.

Evidence of a Shift in HR Applications

Each year, the CedarCrestone HCM survey also provides the latest data on workforce technologies and service delivery approaches worldwide. The early-2006 survey found that there is now a statistical and causal relationship among key HCM applications and operating income growth. Those four applications are workforce planning, competency management, learning management, and an HR-oriented help desk (call center). However, succession planning shows opportunities for improvement, and this is the area that users cite they would like more help on from IT solutions. Logically, the processes and people that are seen as part of strategic core competencies and competitive differentiators are retained in-house. Conversely, non-core and non-strategic services like payroll, US 401(k), pensions, and benefits administrations are frequently outsourced, as well as hardware technology components.

Consequently, there are many indications that strategic HCM applications have moved to the forefront of enterprise application priorities, replacing the prior focus on core transactional systems and employee self-service. Waking up to the realization that their workforce is one of the most critical, yet perhaps one of the most unexploited sources of competitive advantage, and the recognition of the need to align business and individual performance goals (along with better tools to accomplish this) has been driving HCM investments in many companies.

Again, this increase in demand is a result of a shift from a compliance-driven human resource community to an emphasis on human resource management as a strategic differentiator for organizations. In the modern global economy, success (or even survival) depends on critical human factors such as recruiting and retaining the best talents; successfully leveraging skills, knowledge, and competencies; and adapting to change (for instance, by anticipating and planning new positions, job requirements, training, careers, and succession). To this end, HCM software packages should equip organizations with the means to analyze the workforce and strategically manage the company's human capital. They should at the same time serve as a conduit for information to employees, with comprehensive access to their HR information (meaning the ability to view and update such data as address, dependents, benefits, payroll information, and education) and corporate HR information (such as job openings and training enrollment).

When no clear enterprise HCM strategy is in place, managers often formulate their own departmental plans and adopt the technologies they feel they need to support individual and group responsibilities for enterprise performance. Such a situation, where managers bypass the remiss corporate HR organization to define and implement their own technologies and practices to support HCM, was termed HR disintermediation by Gartner.
SOURCE:http://www.technologyevaluation.com/research/articles/performance-and-compensation-management-at-the-core-of-human-capital-management-18740/

People or Resources: The Financial Sector in a Crossroads

Ten years ago, in the mid-nineties, the financial sector faced four main challenges: market globalization, financial freedom, non-intermediation, and the importance of new technologies in business practices. Today, the first three challenges have been met, while the fourth is still being grappled with.

The fourth challenge, technology, is the main obstacle facing every financial entity—from banks, savings banks, and rural banks, to credit unions, insurance companies, and other financial intermediaries. How technology can be harnessed in the case of human resources is particularly challenging. Specifically, how can human resources be efficiently managed through knowledge-supporting technical tools.

Generally speaking, technology solutions must be used by organizations seeking to maximize human resources. Moreover management has also become more complex, or, at least larger due to the growing number of people that comprise an organization. The old concept of personnel cards, for example, has paved the road for "people management" tools. They have become necessary, particularly in an environment such as the financial sector, where resources have become global, and more complex management methods are needed to administer people.

Making functionality more professional

Also, compared to a decade ago, human resources function has become more professional and technical. Old personnel management methods evolved into human resource management and has now emerged as a modern, people management concept. This evolution is due to three decisive factors, present since the mid-nineties: the diminishing number of jobs in the market and the battle for talent; the idea that human resources are the most important asset in a company; and, the need to introduce technology with technical support. Together with the need to organize and manage knowledge about and for people, tools and solutions have been created with varying degrees of success. Most of the solutions use an extensive approach, which can be applied to every functional area in non-specialized organizations or companies. Additionally, only a few of the larger software companies have intensively focused on classical management functionalities.

Technology-based solutions that help companies to efficiently manage their resources are defined by sector. A specific activity sector, such as finances, demands solutions that have a good fit and are customizable. Solutions should be as flexible as the business is, changing with the sector, and adapting to the evolution of an activity's parameters. The financial sector also demands that implementators be responsive, innovative, and creative. In the case of human resource function, it has had to overcome an crucial obstacle: how to create joint value. This is essential for its consolidation as a core part of a business. Human resources has gone from being perceived as a secondary activity, as described by Michael Porter in Competitive Advantage, to becoming a primary activity that needs to improve to avoid being outsourced. Human resource function has reached high efficiency and effectiveness due to its professionalism. It has also been helped greatly by management tools.

The activity's future

The possible future of the human resource function can be defined by seven challenges that it will face in the upcoming decade:

Finding and retaining talent. As intellectual capital becomes more and more important, organizations are paying more attention to finding people that are able to satisfy its organizational needs. Until recently, staff in a company was perceived as a fixed asset instead of a variable asset. To solve this, companies now demand a personalized contract between them and their employees, and try to create an image that is attractive to both their staff and customers. The only way to achieve this is through personalization that uses tools allowing this type of management and "one-to-one" hiring.

Perceiving training and development as keys to the company's success. New formulas are being created to help develop professionals within organizations. Words such as "coaching", "mentoring," and "360 feedback" are constantly used in conversations and to implement them, companies require personalization and efficient tool management. This will allow a company to obtain all the advantages the tools offer and to use them throughout the whole organization.

Expanding the salary criteria. In companies, people do what they are paid to do and not what they are expected to do. However, permanence in a company and talent retention are gaining greater importance. Companies are adopting concepts such as "emotional salary," even if employees are expecting to be paid at the end of the month, or if the job description and corresponding salary were agreed upon when a person was hired. Therefore, salary management is a key factor to compensate employees appropriately.

Perceiving communication as an emerging organizational element. Companies that are becoming larger and more complex require mechanisms that allow efficient communication. The large amount of information and the great volume of knowledge that companies have today need to be managed in some way. The broadening concept of knowledge management applies to the way information is produced in businesses and companies.

The importance of an organizational government. This depends not only on the compliance that a company must meet, but on its employees' desire to belong to a company they can be proud of, or at least a company they are not ashamed of. All the scandals that have occurred in the last few years are indicators that employee loyalty depends greatly on the social role a company plays.

Leadership. This is a revision of an old concept that is currently overseen by a company's human resource team. The development of a company's external leadership in the market requires having leaders in a company. Thus, successful leadership requires creating an internal brand through which a company will develop leaders that represent its core values.

Goals. Maintaining the sustainable commitment of employees is the current goal of the human resource team. Being efficient, decentralized, and sharing information and making management become a partner that helps people in the organization, are key.

Finally, this new horizon involves challenges for the person(s) responsible for human resources. They need to perceive themselves as a "human system architect" and as a "network and relationship designer" instead of a pattern creator. They need to be a solution provider instead of a problem solver.

The future of financial businesses

There are other factors that must be considered in all businesses, sectors, and specializations. In particular, the person responsible for human resources in a financial entity must help answer the challenges that the financial business will have to face. Emilio Botin, president of Grupo Santander, wrote an article last year stating that the three largest challenges facing companies wanting a new, modern beginning are the challenge of dimension, the challenge of responsibility, and the challenge of efficient management. He writes "We, as financial business managers, have a great responsibility to our customers, employees, and shareholders. We must avoid distractions that can disorient us and destroy value."

How the financial sector is investing in human resources

According to the last IDC report about the payroll and human resource management market in Spain, published in 2003, the financial and manufacturing sectors are areas that have made the largest investment in this type of software. Further, the financial sector is not only the main IT investor, but the first sector to request these investments. This area is also notable because, while the customized tools have penetrated between 20 to 30 percent of companies in other sectors, this type of development is almost non-existent in the financial sector.

source:http://www.technologyevaluation.com/research/articles/people-or-resources-the-financial-sector-in-a-crossroads-17925/