Strategic Human Resource Management

Delivering Strategic HR Management:

HR function had two goals:
1) to contain cost.
2) To deliver max value to company’s business units realigning HR
leaders as strategic partners with business leaders.
Organization typically view it as a low-risk, low-return function whose
performance they could measure on quantifiable benchmarks like total
compensation, employee turnover, cost per hire and employee
attitudes.
HR practitioners typically reported to line managers and played a
limited role. In mid 50s, GE launched Croton Ville, the first corporate
university.
The first wave of SHRM:
Companies made significant investments in customized-executive
training programs. E.g., Toyota’s corporate university where HR
practitioners act as consultants to discuss problems with heads of
different departments and meet business needs.
The Second wave of SHRM:
ERP systems and Balanced Scorecard were introduced. Role of HR
expanded to new managerial roles and leadership practices. New roles
reflected new titles such as relationship manager, solutions consultant
and change consultant etc. Some firms invited head of HR to direct
report to the CEO. SHRM called for HR actions and outcomes that help
execute firm’s strategy, demonstrate alignment with that strategy
motivate strategic behavior and directly serve the implementation of
firm strategy.
Outsourcing HR:
Companies should consider three things before outsourcing tactical HR.
1) Transactional: Regular employees rather than outsourced labor
2) Social: Employee of firm entails membership to the company and
trustworthy when compare with outsourced employee.
3) Administrative: whether company should outsource and rely solely
on contractor or not.
The SHRM Challenge:
Few managers were yet capable of translating company strategy and
operational goals into actionable and measurable HR goals. The value
of strategic HR is best realized under a leader with deep knowledge of
HR practices. Some companies demonstrated right strategies, systems,
skills and leadership and Help Company maintain their competitive
edge.

21st Century job descriptions:

Jobs are much more fluid, project-oriented and multifaceted. Mergers
and Acquisitions have led to wholesale elimination of job categories.
Many people argued like how well written JD should be.
“If job description is too restrictive and detailed, people can’t think out
of the box.”
“I think you need JD to ground and attach yourself somewhere.
Otherwise, you are liable to lose sight of the job you are supposed to
do.”
“So, JD is imp to build relationship, to know what each side is
expecting.”
JD should describe what results company wants from the employee.
Some key elements to remember when writing a JD:
Consult the entire team: Because each job affects all other relevant
parts of the company.
Distinguish among credentials, skills and traits: Spend some time
figuring out what you need in each area.
Take your time: Make sure you thought through how the position will
help fulfill the company needs and goals.
Make sure you comply with all legal restrictions: Don’t prevent people
with disabilities from getting hired.
Describe your company’s culture: Avoid culture clashes because it can
deteriorate company’s performance.
Write JDs for external not internal audience: Describe JDs in terms
that attract people from outside.
Reveal the salary ranges: It will help attract people and you will know
your company’s worth.
Well written JDs:
1) Shape the beginning of employee relationship
2) Help everyone involved to understand the mission, culture, needs
and goals of the company.
3) Clear performance objectives and measurements.

ABCs of Job interview:

Prepping for the interview:
1) Write out a job profile based on the job description.
2) Your HR dept. can help in determining the most imp characteristics
and otherwise preparing you for an interview.
3) Prepare a written interview guide.
Checklist of items as a basis for an interview guide:
1) Consult resume, application for job, experience, accomplishments
that are most relevant to your job requirements.
2) Plan questions touching on the qualities you are looking for.
3) Prepare a step-by-step scenario of how to present the position.
4) Do the same for your company, division and department.
It will help you stay focused in your questioning, thus ensuring each
applicant a fair shake and preventing you from putting applicants on
the defensive.
Past Performance:
Ask questions that uncover personality characteristics. You are looking
for a particular kind of behavior for every critical requirement you have
listed for the job. What this candidate has done in the past to meet
these requirements.
You cannot assess how well candidates have master HR skills but you
can test people-management skills.
Wrong and Right tacks:
Corporations and executives are being dragged into courts with
dismaying frequency and juries are awarding enormous sums. If a
question is not directly related to job description and relevant then
don’t ask it.
Choosing the right applicants for important management slots is a key
to achieving exceptional results for you and your company.

The Risky business of hiring stars:

Star performers’ performance plummets by as much as 20% when new
company hire them. 30% performance derive from individual capability
and 70% from organization’s resources and qualities specific to that
company. Group’s performance slips when they see star performer
being hired at such lucrative salary and benefit. It reduces morale and
productivity. Recruit bright people through disciplined hiring strategies.
Use training and mentoring to develop them. Then strive to retain
them.
Establish Support:
 Systems and Processes: Establish procedures and routines that
fuel individual’s success. Keep up to date their performance.
 Leadership: Even talented employees needs training and
mentoring to excel. They gather nuts and bolts guidance from
their bosses.
 Internal Network: Encourage people to forge relationships across
functions; they will deliver better results.
  Training: Offer programs that accelerate talented employee’s
development.
 Teams: Working with smart colleagues’ spark ideas that stimulate
productivity.
Use Savvy Retention Strategies:
Understand what motivates your high performers, then take steps to
satisfy their interests.

Getting 360-Degree Feedback Right

Peer appraisals exacerbates bureaucracy, heightens political tensions
and consumes enormous number of hours. PA, when conducted
effectively, can bolster the overall impact of 360-degree feedback.
PA can take place without negative effects if executives understand
and manage four inherent paradoxes.
1) The paradoxes of Role: You cannot be both a peer and Judge.
2) The Paradox of group performance: Focusing on individual can
put entire group on risk.
3) The Measurement Paradox: The easier feedback is to gather and
harder it is to apply.
4) The Paradox of Rewards: When peer appraisals count the most
but help the least.
The Paradox of Roles: People can only judge performance of others
when they work together or closely associated. Bosses may not have all
the information for appraisals. Feedback gathered from peers can be
distorted, overly positive and unhelpful to managers. To some
employees’ feedback become perplexing and risky both professionally
and personally evaluating peers. They find it comfortable if isn’t a
matter of record. People are torn between supportive colleagues or
hard nose judge.
The Paradox of Group Performance: A focus on individual doesn’t
address how important is work to all group members. Sometimes
people in groups are asked to compare themselves with other peers in
the group. Peer appraisal can harm close-knit and successful groups. An
example of a group in a bank who performed well but dismissive of
bank’s appraisal system even though the program was well designed.
People in that group has already formed cordial relations with each
other so peer appraisal threatens balance of status and responsibility
they have shared within a group.
The Measurement Paradox: Simple objective and straightforward
rating systems should generate the most useful appraisals especially
letter grades etc. but simple measurements and fewer dimensions will
make evaluation less useful. Simple ratings are just not enough.
Qualitative data is time-consuming and difficult to interpret when pose
personal or highly idiosyncratic comments.
The Paradox of Rewards: People are keenly attuned to PA when it
affects salary reviews and promotions. Ignoring feedbacks and peer
appraisals, people focus more towards rewards. Most people don’t
deliberately ignore peer appraisals feedback, but even the most
confident and successful find it hard to interpret objectively when it is
part of the reward system.
The nature of paradox isn’t easily changed, but the way it is viewed can
be changed easily. The potential benefits may seem obvious at first, but
when the purpose and scope of these peer appraisal aren’t made
explicit, conflict soon takes over.
Purpose: Help individuals improve their performance. Detailed
qualitative feedback from peers accompanied by coaching and
supportive counselling from a manager are essential. If purpose of peer
appraisal is to check if things are going smoothly and to head off major
conflicts, a quick and dirty evaluation using only few members will
suffice. Managers should focus the appraisal effort on the entire group
rather than on particular members. The effects on the paradox of group
performance will be stemmed. It can then fold into reward system thus
decreasing the effects of Reward Paradox.
Scope: Managers need to be selective about using PA and 360-degree
feedback. Giving feedback to all employees isn’t fruitful and company
have to compromise its ability to function. You should keep in mind
that not all jobs are same while evaluating criteria for PA. Keeping
balance between evaluating individuals and acknowledging the
interdependencies and connections within groups will make Group
performance paradox less of an issue. Companies need to develop trust
and confidence to make the most PA without incurring dysfunctional
consequences. Executives should keep themselves open to praise and
criticism from all directions and invite others to do the same. In this
way they can make improvements and change the way employee view
these paradoxes.
Is Your Employee Coachable?
As a Manager you provide some level of coaching to all your direct
reports helping some attain high levels and others improve their
performance. When your direct report isn’t improving despite of your
efforts, you should consider two things in a person that you are
coaching.
1) She needs to demonstrate a commitment to her development.
2) She needs to exhibit capacity to get to the skill level that you want
her to reach.
Check willingness factor in her. Is she punctual? Showing up for
meetings? Is she owning the feedback you are providing her? She may
begin the coaching process enthusiastically but later her motivation can
get wane. If there is any set of misunderstanding, clear it up and talk
more about her progress.
If still she doesn’t seem to be improving or showing incremental
progress, find other ways before calling it quit. Consider alternatives
like third-party training or having someone else on your team who can
coach her better.
Sometimes your mentee needs psychological therapy or counselling,
especially if it’s a general behavior not special skill. You can refer her
therapists etc. so that she can work on her issues.
This kind of intervention depends on kind of relationship you are having
with her. In any case you should confer with your HR department
before bringing up any more sensitive forms of treatment.
If still she doesn’t make progress then you should think whether she is
right person to coach or not or whether she can take responsibility of
her work or not. Only step, then, you can take is to maintain her status
quo and it will save your time as a manager and sometimes it just what
your direct report needs.

Why Mentoring matters in a Hypercompetitive World

PSF= Professional Services Firms
Hyper competition has forced PSF partners to focus so much on
satisfying clients that they have lost the art of developing talent.
Associates leave firms taking vital knowledge and leaving behind empty
desk that will be costly to fill. You need to have mentoring strategy
tailored to today’s young professionals.
Don’t just mentor your star performers, include your B players as well
because they make up most of your workforce, and your firm’s success
rests on them.
Make Mentoring Personal:
To mentor PSFs, go out of your way to acknowledge appreciation for
their contributions and demonstrate your investment in their success.
Include your B players:
B players bring form of value to your firm. They stay on staff longer,
accumulate institutional knowledge that’s especially value bale during
major transitions such as mergers and acquisitions. They put
organizational goals over personal goals because they value stability for
themselves and the company.
Assign projects judiciously:
1) Let Associate shadow you on assignments where you share your
insights and expertise with them.
2) Give them projects that aren’t client related Research projects
etc.
3) Let them do worthy, high-profile pro bono work that give your
firm good PR and keeps associate stimulated.
Encourage Associates to find Mentors:
Encourage them to keep an eye out for professionals at all levels who
are particularly gifted at mentoring.

Reinventing Performance Management

Redesigning Performance management system at Deloitte.
A different yet simple design for managing people’s performance. Its
hallmarks speed, agility, one-size-fits-one, and constant learning and a
reliable way of collecting data.
The Problem: The HR departments are now questioning the
conventional wisdom of performance management.
The Goal: Some companies have ditched the rankings and review
system and have opted even better systems than that.
The Solution: Deloitte’s new approach separates compensation
decisions from day-to-day performance management.
An organization was spending 2 million hours yearly on performance
management and most of the hours were eaten up by the leader’s
discussions behind closed doors about the outcomes of the process.
The Science of ratings:
We cannot assess skills like strategic thinking on ratings as it will
produce inconsistent data. Thus, rating reveals more about the rater
than about the ratee. Individual performance can only be judge by its
team leader but now how can one judge team leader’s own evaluation.
How Deloitte builds a radically simple performance measure:
The criteria:
We looked for measures that met three criteria. To neutralize the
idiosyncratic rater effect, we wanted to raters to rate their own actions.
To generate the necessary range, questions had to be phrased in the
extreme. We chose one about pay, one about teamwork, one about
poor performance and one about promotion.
The Rater:
We were looking for someone with vivid experience of the individual’s
performance and subjective judgement. We could have included ratees’
peers but we wanted to start with clarity and simplicity.
Testing:
We then tested if our question is producing useful data. Validity testing
focusses on their difficulty and the range of responses.
Frequency:
As people work in projects so it makes sense to produce performance
snapshots at the end of every project. Quarterly performance
snapshots for long term projects. As we try to keep balance between
tying evaluation as tightly as possible to the experience of the
performance.
Transparency:
We want our snapshots to reveal the real time truth of what our team
leaders think, but if employees know that everybody can see data so
they will try to sugarcoat the results to avoid difficult conversations. We
want to share aggregate snapshot scores not for only client work but
also for internal projects along with performance metrics so we can
provide richest possible view of where our employee stands.
When Salaries aren’t secret
RightNow hire young energetic employees with hot skills from outside
and pay them 25% more than older, more loyal and longer-standing
employees within the same department. A vindictive employee exposes
everyone’s salary that sparked outrage among workers.
1) Stop using pay as a primary weapon.
 Emphasis non-monetary advantages of working for your
company – growth fun etc.
 Recruit individuals who are ready for the job but not yet been
promoted to an equivalent level in their own firms.
2) Create a more collegial, open system with some salary
transparency
 Create and publish salary ranges for all jobs. Involve employees
in developing this system. Set criteria for merit with them.
  Create enough variations within each range to absorb labor
market and individual performance differences.
 Post job salaries but without attaching individual’s names. It
protects employee’s privacy and keep competitors away from
poaching your employees.
3) Create a rigorous performance-based pay system
 Define objectives and tie rewards to meeting them. Negotiate
employees pay project by project in order boost productivity.
 Eliminate your HR department and let managers and
employees set salaries.

Incentives within Organizations

Incentives are virtually always important since purposeful people care
about, and therefore are motivated by, the things that companies
typically must allocate such as promotions, influence, working
conditions and money. All companies have incentive systems,
depending on their design, can drive very desirable or undesirable
behavior. The Question is if incentive system that company have
motivates behavior that leads to value creation or value destruction?
Defining and Locating Incentive Strategy
The organization requires two sub strategies:
1) Business Strategy
2) Organizational strategy.
Business Strategy:
A firm’s business strategy involves mission which refers to
organization’s broad purpose. Business leaders give speeches, create
mission statements, and build culture that communicate and reinforce
the purpose of the organization. After purpose is defined, a firm’s
business strategy requires managers to analyze both internal
capabilities which determines internal strength and weaknesses and
external competitive markets which determines external opportunities
and threats.

Organizational Strategy:
Organizational structure which involves deciding how to organize
managers and workers into work units. Managers must make decision
regarding allocation of rights that is, how the authority to make
decisions is allocated among the managers and workers. Decisions are
made on so many dimensions like pricing, hiring, firing, pay etc. Now
another key element of organizational strategy is to determine the
performance goals and objectives of various units, teams or individuals.
An Organization strategy also requires performance measurement – the
gathering of information in order to determine whether and to what
degree various goals being met. Managers measure performance in
order to motivate the right behavior through incentives – rewards and
punishments.
Managing Incentive Strategy:
Managers and workers always feel underpaid but never felt overpaid.
The bonus plan, when it’s working never seems to drive precisely the
right behavior. Subjective performance evaluations, especially those
tied to rewards and punishments, are dreaded task. There can never be
a purely objective and formula-based system that has no subjective
evaluations. Management of incentives will always require managers to
make difficult trade-offs based on subjective judgement.
The Principal-Agent Problem:
Unlike owners, Managers and workers do not pay the full consequences
of their actions and decisions. This is the incentive problem, also known
as, principal-agent problem. Mitigating the agency problem within firms
requires linking rewards to performance measurement. Solving this
problem completely will require firms to measure precisely the value
creation or destruction of each individual. The incentive problem is
largely a performance-measurement problem.
Human Nature and Monetary Incentive:
A narrow view of human nature is that people care only about money.
In fact, people care about array of things such as food, housing
friendship, prestige and justice. Because people care about more things
than money, incentives are necessarily broader than money. Incentives
are created when organizations allocate anything that people value,
from promotions to influence to money. Thus, incentive strategy is
about aligning performance with the things that people value.
Money is widely used form of incentive for two reasons:
1) Money represent very flexible claim on other valuable
resources. Indeed, its flexibility is why money replaced barter as
a way to transact.
2) Money can be varied with performance easily. But varying other
things that people value with performance is generally difficult
or infeasible.
Objective Performance Measurement:
The Controllability Problem: It is difficult to know whether an outcome
was the result of collectables (effort, wise decisions) or uncollectable
(luck, chance)
The Alignment Problem: When a job requires multiple tasks, it is
typically a case that performance regarding some task is easy to
measure (On-time deliveries) relative to other task (courteous
deliveries). Individual performance measures are incomplete and
therefore not perfectly aligned with value creation.
The interdependency Problem: Value is often created by teams of
individuals. When the given outcome is the result of the joint
performance of many, it is difficult to determine the individual
contributions of any team members.
Subjective Performance Evaluation:
The problem we are trying to solve is how to measure the total
contribution towards value creation of an individual. This not include
tough jobs e.g., “making the numbers” but also other jobs like
mentoring, cooperating, providing leadership and accepting unpleasant
task.
The key virtue of subjective performance evaluation, therefore, is that
managers can flexibly measure value creation and do not have to rely
on narrow measures. The Achilles heel of subjective performance
evaluation is that most people dislike evaluation others especially when
performance is weak hence giving virtually everyone positive
evaluations. Some Managers believe that forced curved are the only
dependable way to create disciplined subjective evaluations. GE’s well
known “Vitality Curve” where all managers are asked to rank their
people into one of their three categories: “Top 20”, “the vital 70” and
“bottom 10”. It’s the heart of GE’s organizational strategy and they use
this system to compensate, promote and weed out the worst
performers.

WHAT YOU NEED TO KNOW ABOUT STOCK OPTIONS

It would be difficult to exaggerate how much the options explosion has
changed corporate America. But has the change been for the better or
for the worse? Certainly, option grants have improved the fortunes of
many individual executives, entrepreneurs, software engineers, and
investors. Their long-term impact on business in general remains much
less clear, however.
General nervousness about options is well warranted. Stock options are
bafflingly complex financial instruments.
They tend to be poorly understood by both those who grant them and
those who receive them. As a result, companies often end up having
option programs that are counterproductive

The Pay-to-Performance Link

The main aim of stock options is to tie pay to performance – to ensure
that the executives’ profit when the company profits, face the
consequences when they do not perform. The link between pay and
performance is much clearer the shift in value of the options is taken
into consideration. During profitable times, executives amass huge
stock options and their value is driven up suggesting an uptick in
performance and the value plummets when there is a drop in
performance of the company (which is reflective of executives’
performance). In one of the studies conducted it was pointed out that
as the number of stock options executives hold increases, the link
between pay and performances strengthens further.
The Downside Risk
Critics claim that options have unlimited upside and no downside.
However, this is completely false.
Example: 2 people, 1 receives stocks, the other receives at-the-money
options (options with share price equal to current market value). If
there is a dip in the stock market by 75%, the one with the stocks will
lose 75% but will still retain 25% of the value. However, the one with
the options will lose entire stock options since that person cannot
exercise the options when the value of the option is below exercise
price.
This downside can be reversed through repricing. If the value of the
stock decreases, the company can lower the exercise price so that the
value of option grants is not wiped away.
Promoting Long View
It is often thought that stock options promote a short view, whereby
the executives are only focused on increasing the stock price so that
they can amass wealth right away. However, studies suggest otherwise.
It is understood that stock price is an indicator of a company’s future,
hence keeping this view in mind, executives work towards their future
in that company. Companies who develop long term strategies don’t
necessarily see their stock price going up too much in the short term.
Executives work towards achieve that long term strategy, and with their
value of stock options on the line, they usually work twice as much, to
keep the company on the track. This promotes a long-term view,
individually as well as collectively.
TYPES OF PLANS
FIXED VALUE PLANS:
With fixed value plans, executives receive options of a predetermined
value every year over the life of the plan.
For example, an executive receiving stock options worth $1 million. The
number of stock options change to keep the value fixed at $1 million. In
this plan, the company keeps on altering the pay structure of
executives in order to reduce the retention risk. There is a possibility
that the entire $1 million value wipes away when stock prices go down.
Hence what a company does is tie the fixed value to a certain % of the
executives’ pay and alters the pay structure annually so that the
executive keeps on received the $1 million, and does not leave the
company.

FIXED VALUE PLANS:

In this plan the number of stock options are fixed, and the value keeps
on changing based on the share price trajectory. For instance, an
organization grants 1000 stock options to an executive at a time when
the stock price is $100, hence the value of stock options is $100,000. In
this plan, the value keeps on changing in order to keep the number of
stock options fixed. The value increases when there is an increase in
share price, and decreases when share price drops. Here, the link
between pay and performance is strong, because the executive has a
greater motivation for working towards increasing the share price,
subsequently increasing the overall value of the options.

MEGAGRANT-PLANS:
A lump-sum grant is given to the executive. Hence, higher the value,
higher the risk. The number of stock options and the exercise price are
fixed beforehand. An increase in the stock price results in a huge
increase in the value and vice versa.