Leadership’s Role In Workforce Management
CEOs and other executives are responsible for managing the organization… its vision and mission, its business strategy, its objectives, its structure and its workforce management strategies. Although others execute the strategies how they are directed will impact success.? Human resource professionals often face issues that are caused by inadequate direction from executive leadership and/or failure of managers to execute strategies and policies effectively. Some CEOs give significant autonomy to the executives they manage; others maintain closer control. Depending on the culture of the organization either approach can work, but what works is what fits the specific context in the organization at that point in time. HR executives have split roles: operating executive and advisor. How well aligned the CEO and CHRO are will impact effectiveness.
Scenario 1 (CEO Delegation)
Chief Human Resource Office (CHRO): We are being investigated by the EEOC, pursuant to a claim that selection criteria, pay and career progression are significantly influenced by individual characteristics (age; gender; race; ethnicity). The analysis we have done since the notification shows a higher correlation between pay and gender than between pay and performance. Should we bring in outside counsel?
Chief Executive Officer (CEO): How did this happen? We decided on a policy of hiring based on qualifications and paying for competence and performance.
CHRO: We sent out an email to that effect two years ago and asked for any feedback or questions. Maybe the managers did not get the message and/or do not know how to do it.
CEO: Fix it.
Scenario 2 (CEO Engagement)
CHRO: We did an employee attitudes survey and found that people are dissatisfied with their performance ratings and their pay. Exit interviews with people who have left indicate the same pattern. We looked at normative data from the survey organization and it seems this is the typical finding. However, we stress listening to the employees. How should we proceed??
CEO: Is the dissatisfaction expressed by everyone or are their differences across units, occupations, age/longevity, criticality of the respondents or their performance?
CHRO: There are differences, but dissatisfaction is widespread.?
CEO: Are we sure we are competitive with labor market pay rates? And what is the issue with appraisals getting done and having them impact pay actions?
CHRO: We did a compensation study. We are pretty much even with the market, and even ahead in some occupations that are critical and where we have had turnover.?
CEO: Something this critical needs to be addressed using a unified approach. We are going to have an executive session immediately and get everyone onboard with a plan to fix it.
Scenario 3 (CEO Initiation)
CEO: Just got back from a Conference Board meeting for top executives and the subject of dealing with inflation came up. Seems everyone had a different idea about how to respond to employee complaints that their real income was being severely impacted. The ones with collective bargaining contracts that include cost-of-living escalators are seeing their payroll costs skyrocket. How are we dealing with the issue? Our employees must be feeling we are not doing enough, but they also don’t understand the crunch we are experiencing a profit crisis.
CHRO: Inflation had been running at 6-7%, although it has declined. We budgeted 3% for base pay increases this year and employees think we should do another adjustment. They just don’t understand we base our pay levels on the cost of labor in the relevant markets and not on inflation, which we cannot control.
CEO: Should we give them another increase? The problem is that it will increase our payroll and with our revenues fluctuating the way they are the last thing we need is higher fixed costs. Why don’t they understand the cost of labor vs. living distinction… have we taken the initiative to explain why cost of labor is the only economically sound way to manage pay? Have we made any attempt to clarify that to them?
CHRO: We have long let them believe that it was a non-issue, since the last decade has been so stable and there have not been large short-term gaps between income and inflation. We could grant a 2-3% cash award and label it as an inflation offset. This lets us explain why we cannot respond to short inflation surges by increasing fixed costs permanently and yet it acknowledges our concern. Might even give everyone the same amount rather than the same percentage of pay, since lower income people have been impacted the most.
CEO: We must accept the reality we are going to be navigating whitewater rapids due to unpredictable/high impact events. Let’s get the senior management team to brainstorm about whether we should do that. The Board has been told we are paying competitively. Any big budget adder is going to be scrutinized and they are going to be suspicious that more expenditure is unnecessary. Finance will be thrilled.?
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Leaders must develop a management philosophy and leadership style that suits each of those having a role in managing the workforce. They must also align what they do and how they do it with the remainder of the organization. Avoiding direction that is believed to be overly intrusive can lead to inadequate direction. Engaging only as a reaction to an issue that has become critical is ineffective. Conversely, overly limiting the decisions of those more expert in specific disciplines can result in sub-optimal decisions… and may increase turnover among critical managers.?
The lack of a shared understanding and acceptance of objectives and strategies is likely to result in different parts of the organization being misaligned with each other. For example, Finance may view investments in employee training as being certain short-term costs with no certain future benefits. HR may have research evidence that there is a connection between knowledge adequacy and performance. These different perspectives create a dilemma.?
Executive leadership must ensure alignment of all parts of the organization, yet at the same time recognize the different contexts that exist within the organization. Every functional leader competes for resources and how they are allocated will impact effectiveness. As illustrated in the scenarios at the start of this article the CEO can impact that allocation based on the management style used. The focus in this article will be on how an organization defines, measures and rewards performance.
Compensation Philosophy: The “North Star”
How equitably, competitively and appropriately performance is defined, measured and rewarded will significantly impact workforce effectiveness. A ‘bottom line” oriented CEO may focus on the cost of the workforce, while a CEO who believes its people really are the organization’s most valuable asset may have a return-on-investment perspective. The latter is more likely to accept a “pay above market” strategy, believing the payback will be greater than the cost.
The CHRO and Compensation Director may also have differing perspectives. If the Compensation Director is a believer in a premium pay strategy while the CHRO believes the funds can be better spent by hiring people at lower rates and investing in training and career development. Few organizations have so much money that they do not have to make choices. Another difference in perspective may occur when one believes richer benefits are a better investment than higher direct pay and the other disagrees. The mix of elements in the rewards package should be aligned with contextual reality. If it behooves the organization to retain employees for long periods things encouraging retention (pension; longevity pay; long-term equity programs) might be appropriately emphasized. If the nature of the business benefits from having a continuous flow of talent in and out so it can adopt the newest technology attraction elements (pay; incentives; stock options) may be a better choice. As with any instance involving differing perspectives it may be CEO who is required to referee.
The level of knowledge in a specialized field (Finance; Legal; Marketing; Operations; HR) someone needs to be effective as an executive varies across levels. The CEO may have less specific knowledge in these disciplines than his/her subordinates do. It is not surprising if a CEO who came through Finance tends to focus more on workforce costs when formulating a compensation philosophy and may be less likely to accept a competitive posture that targets reward levels exceeding prevailing market levels. When your role has been to guard the treasury it is difficult to accept spending more on something that may not produce a return. An HR executive told me that the CEO’s background was an important consideration for her when considering a new employer, since it tends to influence one’s perspective. She also researched past work experience, believing the culture of past employers may influence the type of leadership the CEO will prefer. Finally, she researched the Board and Personnel Committees of the Board, recognizing their perspective would impact CEO and CHRO autonomy.
The increased global mobility of talent has resulted in executive management teams in organizations often looking like a United Nations gathering. People tend to carry the beliefs and values they learned through the socialization process and this can result in differing cultural perspectives that make reaching consensus difficult. Executives who were raised in families and communities that were inclined to be individualistic may view strategies such as pay for individual performance being sound. An executive raised in a more collectivist environment may believe this promotes competitive, rather than cooperative behavior and that organizational and group performance may be a better basis for rewards.?
Although it is not possible to anticipate how the CEO will react to recommendations based solely on that individual’s background, other members of the leadership can at least anticipate the likely reaction to them. The fog is denser when a new CEO enters from the outside but at least some background information can be helpful.
Human Resource Philosophy
Senior level compensation professionals can encounter differences in management perspective even within the HR function. As with the CEO, the CHRO may be influenced by their career path. Although less common today, CHROs often came from different disciplines a few decades ago, being a part of a rotational program. It was also more common for the CHRO to report to the CFO than it is today. As the complexities associated with workforce management dramatically increased it became riskier to entrust the function to someone with limited functional knowledge. It is more common today for a CHRO to advance through one of the HR functions (Staffing; Development; Employee Relations; Labor Relations; Compensation). A Compensation Director whose prior roles were all in Compensation is the prevalent pattern today, although rotational programs can provide individuals with a broader perspective.?
The background and cultural orientation of incumbents in these roles cannot predict the orientation of an individual. Yet one’s perspective will influence decisions that on the surface seem to be technical issues that can be resolved objectively. Diverse perspectives make consensus more challenging in many cases, although will typically cause the decision to be based on a broader perspective. A group of compensation professionals can hold diverse views about whether individual, group or organization-wide incentive programs will be more effective. Their experience and their education, as well as their reading habits, will impact what they view as desirable. A new graduate may be more influenced by the theory learned in school (“that might have worked, but the theory suggests that may be a one-time result”), while a more experienced person may rely on what they have dealt with (“that may work in theory, but will it work in practice?)”?
The Bottom Line
Leadership is responsible for creating a culture that clearly defines beliefs and values that will guide decisions and behaviors. How prescriptive the oversight is will influence how those doing the work and making recommendations will act. The factors that influence who is recruited and selected may differ. What is measured and rewarded will define performance. How the leaders define, measure and reward performance will impact how well the compensation philosophy, the compensation strategy and the execution of the strategy serve the organization.?
About the Author: Robert Greene, PhD, is CEO at Reward $ystems, Inc., a Consulting Principal at Pontifex and a faculty member for DePaul University in their MSHR and MBA programs. Greene?speaks and teaches globally?on human resource management. His consulting practice is focused on helping organizations succeed through people. Greene has written 4 books and hundreds of articles about human resource management throughout his career.