Happy Halloween, HR folks.
…So this morning I was reading a great paper from Emir Kamenica at the Booth School of Business. You can read the full paper here, but in summary Kamenica examines the impacts of both monetary incentives and the environment on behavior. He cites a lot of great studies and experiments to support his case, which is essentially that there isn’t a straight line between pay and performance. This idea isn’t in and of itself anything new, but the piece is definitely worth a read on the strength of some of the assumptions it debunks alone (e.g. unlike some recent research on motivation suggests, while introducing a short-term incentive scheme may have a chilling effect on performance once the incentive is taken away, there is no significant evidence to suggest that long-term monetary incentives will adversely impact or otherwise diminish performance ).
With that said, the primary reason I’m sharing this paper is because I wanted to discuss the finding that people seek context from their environment when they are unsure of what to do. From the paper:
The idea behind contextual inference is that people are often unsure about what the best course of action is and consequently seek clues from the environment. This mechanism can explain many of the aforementioned anomalies. For example, if you are unsure whether solving puzzles is fun and someone offers you $5 per puzzle solved, you might reasonably infer that this activity is not enjoyable and thus forgo it, even though you might have tried and enjoyed solving a couple of puzzles in the absence of a monetary incentive (Be´nabou & Tirole 2003a). If an employee is given many investment options, she might not know which ones are suitable for her and therefore may be less likely to invest than if she had only a few options (Kamenica 2008, Iyengar & Kamenica 2010). If she is unsure of the appropriate fraction of income to invest, the default option may be an appealing suggestion (Madrian & Shea 2001). 
…The most well-known HR example I can think of that demonstrates this phenomenon in action is the relatively recent trend in the U.S. of having employees default into their 401(k) plan at ‘X’ percent upon hire. They can choose to change their contributions at any time, but upon receiving their first paycheck the default position is an election of a certain percentage of their salary into the plan. Most employees in this case will choose to stay enrolled in the 401(k) at whatever the default amount is, assuming this is a good idea. If the contribution amounts automatically increase on a year over year basis they will also – as a population – typically lean towards not changing the automatic elections. The cue that they’re getting from the environment is that the election is the right one to make, and furthermore it is the easiest option as it doesn’t require them to change their behavior.
As I shared on Sunday here, most people make a series of sub-optimal decisions everyday; these choices are often made despite the fact that people know they’re acting outside of their best interests. Often times, it’s simply too troublesome to change one’s behavior. As such, the best way to help someone do the right thing is to frame the matter in a context that they are compelled to do so.
…This has all sorts of implications that I’d love to get into, but it’s running late and I’ve got to wrap this up. I’ll revisit this topic in the next week or so, however, and in the interim I (as always) invite you to share your thoughts in the comments section below.
A few weeks ago I wrote a short post sharing my thoughts on meritocracy in the workplace. You can read the full piece here, but one thing I pointed out was that the subjective nature of performance measurement often makes it difficult to put in place a compensation structure that truly rewards performance. Employees and managers alike often chafe at the concept of giving objective, candid feedback… and even when managers and employees want to give/receive that feedback, they often lack the tools to accurately do so.
As it concerns the latter point, Kris Dunn has an article up on The HR Capitalist outlining one reason why it’s so darned hard to measure performance. Dunn points out a truism that I’d never considered the implications of before; namely, he highlights that in smaller, newer companies employees tend to be more equitably compensated for their relative contributions to their organizations. But as an organization begins to see its ranks swell (growing past 100 employees) pay increases stop being true differentiators of performance. Instead, maturing companies implement merit matrices that turn pay increases into entitlements doled more or less evenly out to the lion’s share of the workforce. These increases have negligible impacts, failing to engage or incentivize the workforce while simultaneously squandering precious salary dollars that were previously used to recognize and reward the highest performers.
Dunn closes by suggesting that the solution here might be to shrink the span of control into clusters where it concerns reviews, segmenting merit budgets in a way that gives leaders greater lines of sight into who truly adds value in their organization and the power to allocate the budget accordingly.
…So on the one hand I think this is a really compelling idea – merit increases have long outlived their usefulness as a tool to truly drive performance. Instead merit increases mostly serve as pseudo-cost of living adjustments used to validate often antiquated review processes. With that said, the truth of the matter is that ultra-high performers don’t really view merit increases as the primary vehicles for performance differentiation anyway. This is because true top performers often get their increases from constantly promoting up in (or out of) their companies. And so the employees that are really getting punished by the merit increase system are top quartile (but not quite top 10%) performers that are only 1-2 moves (or less) away from their last promotion. Also punished are ultra-high performers who for one reason or another (mobility, being near the end of their careers, preference etc.) are not climbing any higher. These are really valuable talents (and an organization is better off holding onto them than losing them), but is keeping them happy worth upsetting the apple cart by phasing out the merit increase as an entitlement for the middle of the workforce? I’m not sure…
What do you think? If we start from the place that an organization’s top performers (i.e the top 5%-10% of their workforce) is going to get taken care of no matter what (either by moving up internally or by jumping ship), how do we weigh the relative needs of the upper quartile of high-but-not-quite-top-performers against the median and bottom performers? The former group is being disparately impacted by the merit system, but weighed against the workforce engagement drop-off that an organization might see from shifting those merit dollars away from the center, is the disenfranchisement of upper-quartile performers perhaps a necessary evil?
Just a Tuesday thought stream…
As always, please share your thoughts in the comments section below.
…yet everything is accomplished.” – Lao-Tzu
We can thank Chinese philosopher and poet Lao-Tzu for today’s quote. For me, it serves as a reminder that it is better to be thorough than it is to rush. Because ultimately, that which needs to be done is best completed in its own time. And I’m finding that while in the moment expedience can often seem to be the best course of action, over the long run rushing things to completion often leads to more work than would have been created if I’d only had the presence to be patient when I had the chance.
With that said, as we get started this week I want to encourage you let the things you’ve set in motion run their course. For while it may seem that whatever you’re working on cannot wait another moment, if you make a habit of focusing on the completion process instead of completion time, somehow things have a way of working themselves out.
As always, please share your thoughts in the comments section below.
Sunday reading for October 26, 2014:
1. Michael Blanding has a great piece up on Forbes examining why we knowingly act in ways that are contrary to our own self-interests. Blanding introduces readers to the world of behavioral economics, describing how companies can leverage the science to incentivize employees to make better choices. It’s a fantastic read, and I highly recommend checking it out here.
2. It turns out that the focus area of one’s MBA can have a dramatic impact on lifetime earnings. In a well-written article posted on The Atlantic, Bourree Lam shows us where MBA grads can expect the best ROI (Strategy focused MBAs have mid career earnings of $145+k) and the worst (HR MBAs have mid-career earnings of just over 80K). Whether you’re considering getting your MBA or questioning the value of the one you already have, this is a great piece to help you assess your choice.
3. In our last piece of the day, Anita Krohn Traaseth asks us to consider what it means to ‘have it all’. Traaseth points out that – despite policies designed to remove all of the barriers traditionally associated with preventing women from getting ahead – women only make up three percent or Norway’s top business leaders. Traaseth suggests that this might be because of Norwegian women’s unrealistic standards of what defines perfection, causing them to eschew taking risks in favor of less-peril fraught (and potentially rewarding) careers that allow them to find a modicum of success while also raising a family. Traaseth closes by asking women to define what success looks like personally, freeing themselves from societal expectations.
As always, please share your thoughts in the comments below.
What is behavioral economics and how can organizations apply it in employee communications and enrollment processes to increase participation in benefits programs? Steve Wendel, Ph.D., Principal Scientist, Hello Wallet, provides an overview and examples for implementation.
As always, please share your thoughts in the comments section below.
…So the past few weeks I’ve been breaking up my routines a lot. I’m waking up at different times, attacking problems a little differently, and – when I can – exposing myself to novel ways of thinking.
I’ve been doing this in recognition of the fact that although having focused routines can carry numerous positives – such as helping us to be more efficient in our execution of daily tasks and facilitating the development of deep expertise – they can also carry heavy costs, such as robbing us of our creativity and shutting us off from new ideas.
…In HR, I think such costs are too heavy to bear. Because while in technical roles the ability to leverage one’s subject matter expertise to apply established techniques to new problems may (on balance) exceed the value of a fresh (but uninitiated) outlook, in non-technical roles I think that an intellectually curious, creative person with no pre-dispositions about how things should be done can often add more value than a deep subject matter expert that is entrenched into a certain way of doing things. This doesn’t mean that expertise and routine are bad in an HR context, by the way… just that it is one of the functional spaces in which I think a balanced mix is probably more crucial.
Just a Friday thought stream…
Check out this great infographic from Globoforce highlighting the powerful impact that honoring work anniversaries can have on employee’s feelings of well being and commitment to their companies. And as always, if you like this infographic please be sure to follow Globoforce on Twitter here.
Please share your thoughts in the comments section.
…So this morning I stumbled across a piece from way back by Compensation Strategist Laura Schroeder. It’s a really solid read, and you can check it out here. The gist of the piece is essentially that a majority (70ish percent) of talent that employers label as high potential – and subsequently invest in – are poor investments, either because (i) their skills aren’t transferable to the next level or (ii) because they aren’t committed to the Company.
In the case of the former, there has been much written about the subject, including this piece from Korn Ferry which lays out a framework of how to assess if / when a talent should be promoted to the next level. But today I want to talk about the latter group – high potential talent that could be future leaders in your organization… if only they were willing to stay.
Schroeder points out that companies which aren’t leaders in some combination of rewards, development, and culture are at risk of losing their highest potential people because said talent is likely to find the top of the market (or at least a higher point in it) over time. Heavily investing in such talent not only speeds up the timeline in which this process occurs, but it also has the double edged effect of representing a sunk cost to the employer.
…Ergo, if we start from the place that these statements are true at least some of the time, to what extent should they be impacting talent strategy? If I’m a leader in an organization that can’t compete at or near the top of the market on pay or development (and my culture also fails to serve as a talent attractor and/or hook), should I instead be focusing on developing a less conventionally talented segment of my workforce? On one level most organizations adopt such practices in their recruiting efforts already: As an example; most companies don’t recruit at, say, Harvard or Stanford business school precisely because those graduates will by and large join the top 1% of employers which offer the best possible opportunities. In this respect I suppose that it similarly makes sense to assess what sorts of people are staying with your organization once you hire them and to then invest (and recruit) accordingly.
…Still, this approach sort of feels like surrender to me. The best companies are so because they have the best ideas and the best ability to execute on those idea…. both of which require the best people. As such, while investing in someone because they are predisposed to stay with your organization should certainly be a big consideration when assessing who your high potentials are… I also think that if someone is an incredible talent that the smart play is to figure out how to hold onto them… even if that means outsized compensation, development, and/or work considerations. Because in the long run, having the best talent wins.
Or maybe I have this wrong? This is just a Wednesday morning thought stream, so as always please share your thoughts in the comments section below.