Bonus and Salary season: Not enough dollars to retain talent?

You are using outdated HR tools

March is round the corner: Salary increases, bonus, and stock season. Worksheets, ERP systems, comp modules are being cranked up. C&B experts, HR leaders and everyone else is talking about ranges and ratings. Tons of modeling is in high gear.

The challenge is same for everyone. Dollars are finite. Talent is scarce. No one wants painful attrition from April onwards. Everyone wants to win the war for talent.

Who will win the war for talent?

The war for talent will be won by companies that deploy smarter models of Talent Economics. Companies using outdated methods such as bell curves and compa-ratio performance grids (merit-market grid/increment grid) are likely to lose the war.  

Why are these models outdated?

What are the smarter ways to deploy a company’s talent dollars?

Current HR tools treat the ‘workforce’ as an aggregation of individual employees. That may have worked in the past. That was when employees did ‘work.’ Now, employees apply their talent. A company’s Talentforce™ is not a simple addition of individual employees. It is a portfolio of capabilities.

A Talentforce™ needs tools that are segmented by capabilities, targeted at teams and are a mirror reflection of business goals

Current HR tools are mostly two-dimensional. They focus on merit and market.  Performance ratings and position in market drive salary differences - through the application of a ‘Compa-Ratio Performance Grid.’  

This two dimensional approach is unsuitable for a Talentforce™ because it falls short in addressing important challenges:

• Unique value to the company:
  Every company has a unique business model. Some teams add more value to it’s business model than others. Talent within these teams may or may not be the highest priced in the market. Conversely, talent that is generally highly priced in the market, may not be so valuable for a particular company.

• Replacement Value:
  The practice of benchmarking salaries to the market ignores the cost of replacing current talent. In theory, you can attract talent if you pay market price, but losing current talent has a significant business cost. Many companies ignore this fact, lose talent that created value for the company, end up paying more for the replacement, while taking on the avoidable probability of a selection error.

• Focus on Teams v Individuals:
  Current models are not designed to retain teams. They are designed to retain individuals. Yet, teams add value to a company. Single individuals don’t. More importantly, the loss of an individual severely impacts the performance of a team and creates a real risk of losing other individuals in the team as a result.

If your Talentforce is a portfolio of capabilities, the best HR Strategy, and the best Rewards Strategy is to pivot to Talent Value Cells.

When allocating talent dollars, organize around TVCs™.

How do you do that?

Step I: Identify those TVCs that create the most value for the company. To learn how to do that, click here. *

Step II: Create Compa-ratio grids per TVC. Position your STAR TVCs at the highest percentile of the market and your HIGH CONCERN TVCs at the lowest percentile of the market.

When this is done, the percentage increase in salary for a good performer in a STAR TVC would be higher than a similar performer in a HIGH CONCERN TVC.

Step III: Create your budgets based on distribution of employees across TVCs. In general, compa-ratio grids for middle value TVCs would be positioned at 50th percentile of the market. (This percentile could be higher or lower depending on the market posture of the company.)

Step IV: Increase target bonus percentages for STAR TVCs. Lower it for High Concern TVCs.

Step V: Enhance the proportion of bonus based on team performance. Minimize bonus paid on individual performance ratings.

Once you allocate talent dollars as per this this model, talent in STAR TVCs will have lower attrition and a greater motivation to continue to create the highest value for the company. This will soon turn into a virtuous circle. HIGH CONCERN TVCs will have higher attrition, will require a different HR strategy called The Talent Flow™ and will become the focus of strategic choices for the business.

Overall company attrition may go up or down. That should not matter because the overall value creation process of the company just got stimulated.

* For a quick start, you could even identify TVCs as per existing teams. This approach will create an additional factor to solve for. Please feel free to connect with me if you want to discuss this approach.