Talent Value Proposition & Compensation Modeling

Introduction

In today’s competitive knowledge-based economy, the capacity and capability of an organization’s talent increasingly determines its success in the marketplace. At the same time, attracting and retaining great talent is becoming more difficult, as demand for highly skilled people outstrips supply. We have progressed from the Industrial age to the Information age. The value of tangible assets has declined relative to the value of an organization’s intangible assets, such as intellectual capital, knowledge base and innovative ideas. Underpinning all of these intangibles is “talent”. And better talent is what separates the winning organizations from the rest. Having strong talent in key positions creates huge improvements in performance.

Types of Talent

Talent can be categorized as, 1) Super-keepers 2) Keepers 3) Solid Citizens and 4) Misfits. The super-keepers are the ideators, the visionaries who propel the organization towards its vision and achievement of the goals. The solid citizens are the implementers; they are focused on getting things done. The keepers are a mix of the characteristics of super-keepers and solid citizens, but to a balanced degree. The fourth type of talent, Misfits, as the name suggests are those who are completely disengaged from the organization, its vision & values and don’t fit into the overall structure. They have rather negative contribution towards the organizational existence and its goals, and hence are best done away with.

Demand & Supply of Talent

The market for talent is very competitive. Demand for business leaders and other highly skilled workers has been growing rapidly in response to the unprecedented opportunities and challenges coming up in accordance with the ever dynamic innovation-based economy. At the same time, the supply of talent is constrained. Many traditional organizations have been relying heavily on the older generation executives to fill up the management ranks, but with retirement of these executives, organizations are increasingly finding their management ranks very thin. What is troubling is that most organizations are ill-prepared to meet these challenges. Regardless of size or industry, most organizations are yet to pinpoint the formula that will make their organization more attractive to talented people. High performers are likely to leave organizations where they feel underdeveloped, undervalued and underpaid.

Even high performing and successful organizations have considerable room to improve their talent management practices. Although transforming the way an organization manages talent requires enormous effort and a great deal of behavioral change. A great deal of courage and focus is required to effectively implement such practices in order to create a positive sustainable impact on the future prospects of the organization. The HR fraternity in the organization has the onus to lead the way and create a talent mindset i.e. the belief that building a strong talent pool is imperative to organizational success. The top management as well as the line managers have the responsibility to ensure effective cascading and implementation of such practices.

Value Proposition & Managing Talent

It is also equally important to create a winning Employee Value Proposition (EVP) that brings niche talent through the doors and keeps them there. The top performers have to be rewarded with opportunities and recognition, the mid-performers have to be developed and nurtured and the low performers have to be helped to enable them to raise their performance.

Whilst there are many levers that the HR uses to manage talent, an important interlinked pillar of managing employee performance (Performance Management System) is Compensation and Benefits (C&B) management. The C&B management in any organization is a very challenging assignment, since maintaining parity and equality of salaries and other remuneration is a must for an organization to keep their employees’ trust. Employees should trust the organization’s Compensation policy whether it is about the increment or about the variable pay being given to a person.

The ground rule of employee expectations is fairness, even before transparency. Fair compensation policy needs a clear definition of job descriptions and job profiles in the organization. The value of each job must be evaluated and the organization must develop a clear system of jobs within the organization.

Compensation Modeling

Compensation decisions should be based on a set of consistent and well-articulated factors. It should be clear to anyone reviewing the policy what factors and metrics are used in compensation decisions. If these factors and metrics cannot be easily identified, the policy itself should be revisited to ensure that compensation decisions are based on tangible, measurable criteria and are not arbitrary or completely discretionary. Transparent compensation policy is about very clear communication of the rules, background and workings of the compensation policy to the employees. When the employees have a chance to understand the principles of the compensation policy and they accept them as fair to them, the organization can be termed successful in the implementation of a transparent compensation policy. Needless to say, it requires tremendous effort to implement the same and ensure full acceptance by employees.

Total Rewards

While dealing with compensation, most of the organizations tend to focus only on the basic tenet of compensation like wages, base pay, variable pay and certain perks and benefits. What the organizations fail to leverage is something termed as ‘Total Rewards Model’. The total rewards strategy looks beyond the basic framework of pay and encompasses multiple levers, viz. 1) Compensation 2) Benefits 3) Work-Life 4) Performance and Recognition 5) Development and Career opportunities. Leveraging these factors can enable an organization considerably to attract, motivate and retain talent. High performance organizations have increasingly felt the power of total rewards programs in allowing them to excel in new ways. Designing a total rewards strategy takes into view various elements like the business strategy, organizational culture, external influences, geography etc.

Compensation refers to the pay provided by an employer to an employee for services rendered (i.e. time, effort and skill). It includes both fixed pay and variable pay, which is tied to levels of performance.

Benefits refer to the programs an employer uses to supplement the cash compensation that employees receive. These include health, income protection, savings and retirement programs that provide security for employees and their families.

Work-Life refers to a specific set of organizational practices, policies and programs, plus a philosophy, which actively supports efforts to help employees achieve success at both work and home.

Performance refers to the alignment of organizational, team and individual efforts toward the achievement of business goals and organizational success. It includes establishing expectations, skill demonstration, assessment, feedback and continuous improvement.

Recognition refers to acknowledging or giving special attention to employee actions, efforts, behavior or performance. It meets an intrinsic psychological need for appreciation of one’s efforts and can support business strategy by reinforcing certain behaviors (e.g., extraordinary accomplishments) that contribute to organizational success. Whether formal or informal, recognition programs acknowledge employee contributions immediately, usually without predetermined goals or performance levels that the employees are expected to achieve. Awards can be cash or noncash (e.g., verbal recognition, trophies, certificates, dinners, tickets etc.)

Development refers to a set of learning experiences designed to enhance employees’ applied skills and competencies. Development engages employees to perform better and engages leaders to advance their organizations’ strategies.

Career Opportunities involve the plan for employees to advance their career goals. They may include advancement into a more responsible position in an organization; ensuring talented employees are deployed in positions that enable them to deliver their greatest value to the organization.

An organization should leverage these factors to offer and align a value proposition that creates value for both the organization and the employee. An effective total rewards strategy results in satisfied, engaged and productive employees, who in turn create desired business performance and results.

Effect of Diminishing Marginal Utility

While designing the total rewards strategy of the organization, the HR team, top management and leaders should keep in perspective, the effect of what is termed as the ‘Law of diminishing marginal utility’ in Economics. The law of diminishing marginal utility states that as a person increases consumption of a product while keeping consumption of other products constant, there is a decline in the marginal utility that person derives from consuming each additional unit of that product. The inference that can be drawn here is that the same set of rewards over a period of time will lose the sheen and the employees will tend to look for something new, something more. Hence, the rewards strategy and modeling should also build in a dynamic approach and a vision to innovate the structure from time to time. Only then can the strategy contribute towards organizational success and peak performance in a sustainable manner.

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