Looking back on the most recent economic crisis, it seems that the German economy was not as easy to unsettle as it was in previous crises. One moment the Germany economy was busy catching up, the next it was in the fast lane. One unorthodox aspect this time round was that HR departments were to thank for a significant share of the positive developments. Working hours, remuneration and training were kept flexible in the short term, yet sustainable in the long term. This helped firms “make it” this time – or do better than last time, as Dr. Viktor Lau and Prof. Edmund Haupenthal of the Technology - Organization - Human Resources Steinbeis Transfer Center explain.
Nevertheless, the last economic downturn once again exposed genuine inadequacies in HR departments. Of all places, these were in the key areas of people management and staff performance. The term we use for this is HR Performance Management. This includes assessing, paying and developing staff.
Staff appraisals include the assessment of qualifications and skills, potential, performance and achievements, and evaluating the fulfillment of targets. A cardinal error when setting targets and going through performance reviews is when managers deliberately include targets that have long-since been captured in job descriptions or candidate profiles. What personal targets should define is the extra mile that people need to go to receive extra pay (variable compensation). Many consultancies show how this is done. Sadly, too few organizations in other areas follow their example – with disastrous consequences. Because this bad practice results in double payments for something that was only achieved once. In times of crisis, management inevitably loses credibility, simply by trying to maintain course. This becomes all the more exacerbated if companies fail to compensate for the discrepancy between overall company performance and individual target fulfillment – a discrepancy we witness time and again, especially during economic downturns: employees go home with 120% target fulfillments and a bonus to match, while the company creaks under the paradoxical strain of added costs. No management instrument helps in this situation. What’s needed is leadership. Which, obviously, as ever, means uttering unpleasant truths and calling average performance what it is: average.
Misguided appraisal systems fuel illogical salary structures. This applies to the way basic salaries are set – linked to skills or qualifications – as well as the allocation of variable pay, which is dictated by the fulfillment of targets. Many organizations still find it difficult to link salary levels and career levels to meaningful salary brackets. These should define the minimum and maximum pay and have clear, unequivocal boundaries. They should be dictated by the role, tasks, skills and status of a position. They should not have evolved over time from the salary structures of individual employees. Salary systems must be pieced together around roles and tasks, not individuals.
Meaningful salary structures should also tie up with carefully thought-through development programs – HR Performance Management entails an extremely close, often unseen connection between staff salaries and staff development. Pivotal to this is the link between career levels and salary brackets. And a career these days is no longer just about a management career. In today’s knowledge and service economies, a management career is just one career option among other, equally important career paths, such as specialist, project and sales careers. Recently, people have even written about “committee careers.” On top of this, demographic change and productivity improvements are chipping away at classic management careers. Ambitious people find themselves sitting it out on career plateaus filled with people in their late thirties. Adaptive career systems have been proved to defuse this situation with different career paths and levels that are analogous in formal terms and secure staff loyalty and enhance the attractiveness of the employer. Experience shows that this only brings benefits after the crisis, but these are then much more valuable benefits.
To pull through a crisis in HR, a business needs dedicated HR Performance Management, encompassing an integrated appraisal system (which separates regular duties from extra-mile tasks), a role-related remuneration system (with defined entry and exit points within salary brackets), and last but not least, an adaptive development system (which does justice to our “multi-option society”). Ultimately, systems must allow for a multitude of career paths, and not be cast in stone and shackle people to the spot.