Tuesday, August 11, 2015

A Mathematical Approach to HR?! : Promoting Responsible Use of Numbers in People Management

"If we must apply a Mathematical approach to HR, let us go beyond Arithmetic. Human Resource Management is more like a differential equation that can have multiple solutions!” I heard myself telling the Senior HR Leader. This was my fourth ‘encounter’ with this gentleman (See 'Passion for work and anasakti ‘, 'Appropriate metaphors for organizational commitment ‘ and ‘To name or not to name, that is the question’ for the outcomes of my previous interactions with him). This time, we were discussing the point of view that HR can get the elusive ‘seat at the table’ by being more data-driven, quantitative, objective and mathematical in its approach. Similar to what had happened during my previous encounters with him, this interaction also prompted me to think a bit more deeply about the underlying issues.

Mathematics and logic are immensely useful tools. The five and a half years of engineering education that I have received, my pre-MBA job as an Aerospace Engineer, the Social Research Methods related studies during my MBA and the initial years of my HR career spent in Compensation Consulting & Research Based HR Products  have made me very comfortable with quantitative and mathematical approaches to diagnosis and solution design.  Having practiced Six Sigma, I have experience in the process improvement approach of converting a physical problem into a mathematical problem, finding a mathematical solution and converting the mathematical solution into a physical solution.  I have also used quite a bit of statistics especially during the best practice & benchmarking studies during my five years in HR consulting. However, there was still something that was bothering me regarding my conversation with the Senior HR Leader.

Once I stayed with that feeling of discomfort for a while, things began to crystallize in my mind. The first thing that came to mind was an incident that happened a few years ago when my son was about 5 years old. I had bought him his first calculator and he was very excited.  For the next couple of days he was chasing me saying that “Tell me all your problems; I can solve them”.  It was an interesting task to convince him that most of the problems can’t be expressed in numerical terms and that even those problems that can be expressed in numerical terms can’t always be solved using the functions available in the calculator! When I thought about the matter a bit more, many other aspects came tumbling out:
  • Perfect Logic coupled with Questionable Assumptions : Logic is a great tool for reasoning. The problem is just that any system of logic is only as good as its assumptions. Great logical reasoning skills with wrong assumptions will just lead to a wrong inference faster. While this would hold good for any field, the risk is higher in HR, as the domain has quite a few unsubstantiated assumptions. Yes, over the last couple of decades a significant amount of research has been done in the Human Resources Management (HRM) domain. But the very nature of the domain imposes severe limitations on validating the assumptions underlying  HR related decision-making (See  ‘Research and a three-year old’ and ‘Truths stretched too far’ for a more detailed discussion)
  • Lost in conversion : When we look at applying the Six Sigma approach mentioned above (physical problem - mathematical problem - mathematical solution - physical solution) to HR, the difficulty is in ensuring that while converting the physical problem to mathematical problem the essence of the matter is not lost. Otherwise we might end up solving the quantifiable but peripheral aspects of the problem while the core of the problem (which is difficult to quantify) goes unattended. We must remember that many of the things that really count can’t be counted!
  • Misuse of Mathematical Induction: This occurs when one tries to apply a purely mathematical type of reasoning to a human process where it doesn't apply. I came across an excellent example of this in a HR Shared Service Centre (HRSSC). The Head of this HRSSC was a firm believer of setting 100% accuracy (zero error) as the performance target. His strategy for making this happen included a motivational talk to the employees with the following line of reasoning: "Can't you do one transaction without error? If you can do that what prevents you from repeating the same 12,000 times? This is all that is needed to make an 'error-free' year and meet your performance target”.  While the above approach seemed to be perfectly logical it was completely unrealistic from a performance management point of view. The transactions involved a large amount of manual intervention making it highly error prone. The ‘zero-error target' ended up de-motivating the employees (instead of motivating them) as they were highly unlikely to achieve it. This brings to mind a Zen Proverb - "Water that is too pure has no fish"!
  • Chasing the numbers: A related problem, that comes up especially when we try to quantify (because quantification is required for further processing) things that are difficult to quantify is that of making simplistic or overly optimistic assumptions to enable quantification and even to get the numbers that we want to get. For example, when we try to calculate the time required for doing a particular non-mechanical task (as the first step in estimating the required staffing levels), we often don’t take into account ‘invisible work’.  The invisible work arises from factors like complexity of the situation (that can’t be quantified easily) and the difference between ‘the process map’ and ‘the way things actually get done’. While in the case of the latter, it can be argued that the solution is to fix the process, it might be difficult in a situation when complex interfacing/influencing is required to do the task or in a situation where fixing the process is difficult at the level of the jobholder (as it involves fixing the ‘ecosystem’ around the process in addition to the process). Emerson was not too far off the mark when he said "The results of life are uncalculated and uncalculable. The years teach much which days never know"!
  • Banning complexity and complex motivations : Another problem comes out of a definition of rationality (a mental model) that is too narrow. As Mencken says, "to every complex problem there is an answer that is clear, simple and wrong"! In many areas related to people management, there are deep psychological factors operating that render purely ‘logical’ approaches ineffective.  See ‘Performance ratings and the above average effect’ for an example.  Similarly, when we consider only the (visible) employment contract and ignore the (invisible) psychological contract another set of problems arise (See the series on ‘Salary negotiations and psychological contract’ for more details). Another example could be viewing the interactions with the labour unions (say in the context of arriving at a Long Term Settlement) as a purely economic negotiation exercise. The reality here is that a union is a political entity with a constituency to satisfy. Hence, even if the management offers a ‘competitive deal’ (by industry standards), the union leaders might have (internal) compulsions not to accept it and resort to various pressure tactics (including demonstrations and stoppage of work) - just to convince their constituency (members) that they have done all they can to force the management to offer a better deal (or the best possible deal). 
  • House built on sand : We also have the interesting problem of processing/computing data without paying adequate attention to the ‘level of measurement’ that generated the data.  Typical problems involve taking ‘ordinal’ or ‘interval’ data and apply computing methods that are valid only for ‘ratio’ level data. This could be more of a problem in HR, since many of the HR professionals are not well-versed in quantitative methods. The numbers can give us a false sense of surety and doing Arithmetic operations with those numbers to derive inferences can give us a false sense of confidence on the decisions based on those inferences.  There is a huge difference between being able to calculate something and being able to understand it. If our objective is to influence that 'something', being able to calculate it without being able to understand it can create more harm than good. It often becomes very difficult to convince HR leaders who are ‘too sure of their numbers and calculations’ that HR process maturity takes time or even that ‘It takes 9 months to make a baby regardless of how many couples you put on the job’. This becomes very pertinent especially in those situations where a business leader or the CFO (without any HR background) has been moved into the HR Head role! This brings us to a more fundamental issue. The over-reliance on numbers sometimes indicates a (stated or unstated)  shift in the underlying paradigm for people management in the organization- from a relational paradigm to a transactional one. This is something that we must watch out for (See 'Towards a Philosophy of HR' for more details).   
  • Wishing away the paradoxes and dilemmas : People Management, by its very nature, is a field that is full of paradoxes.  A paradox occurs when there are multiple perspectives/opinions (doxa) that exist alongside (para)- each of which is true - but they appear to contradict/to be in conflict with one another. A paradox can’t be resolved in the same way a problem can be solved. To effectively deal with a paradox, we must wrestle with it till we reach a level of understanding (or wisdom) that enables us to see the paradox in a new light and arrive at the most appropriate solution in that particular context. Often, there are multiple solutions -making HR more like a differential equation (that has multiple solutions) and not like Arithmetic (where there is one right answer)! It can also be argued that dealing with some of the issues HR is even more complex than dealing with differential equations because in some of those paradoxical situations, the choosing from multiple ‘correct’ solutions is a matter of Aesthetics and not Logic! One can develop a keen sense of this 'Aesthetics' only through years of struggle with the paradoxes and dilemmas  in HR(See 'Truth and Beauty : Elegance and Motivations in HR' for more details)

So where does this leave us?  To me, best approach is that of ‘triangulation’, that combines qualitative methods with quantitative methods to develop a more comprehensive understanding of the reality. We should make an effort to figure out if the particular HR issue that we are dealing with is more like a ‘problem’ or more like a ‘paradox’ and deal with it accordingly (See ‘Making problems disappear’ for details). Data and analysis are very useful. But they are not substitutes for understanding and wisdom. Even when it comes to the matter of strategy making, it has been argued that the core strategy making process is essentially intuitive, with data & analysis being useful as an input/trigger for strategy making and also as tool for doing a reality check on the strategy created.  The same holds in the case of HR strategy also! We must also remember that in the physical world (outside Mathematics) there are 'singularities' where 'normal rules/algorithms' no longer work!

Similarly, benchmarking is definitely a very useful tool. But benchmarking should be done with the context also included (and not just the numbers).  For example, benchmarking a ratio like the ‘ratio of the total number of employees to the number of employees in HR’  can be misleading without the understanding of context specific factors like the mandate/deliverables of the HR function, the HR operating model, the degree of outsourcing, the degree of automation (degree of Employee and Manager Self-Service), profile of the workforce etc. Casual benchmarking, like casual sex, is easy but dangerous!  We must also ensure that HR processes and practices follow from the HR Philosophy of the company and not the other way around (a common problem that arises from the obsession with 'best practice benchmarking'). Yes, we must leverage numbers and the power of numbers in HR. However, let’s use them responsibly - by ensuring that the numbers and the calculations accurately reflect the underlying reality!

Any thoughts/ideas on promoting more responsible use of numbers in people management?

Thursday, September 11, 2014

To name, or not to name, that is the question...

"Do you think that I should have announced my successor?", asked the Senior HR professional. This was my third 'encounter' with this gentleman (See 'Passion for work and anasakti ' & 'Appropriate metaphors for organizational commitment '  for the outcomes of my previous interactions with him). "Well, it depends on what you were trying to achieve", I replied in a 'consultant-like' manner. Similar to what had happened during my previous encounters with him, this interaction also prompted me to think a bit more deeply about the underlying issues.
In this particular case, the situation was something like this: This gentleman had created a structure in which many of his direct reports were at the same level – handling roles of similar size. This ensured that all of them could hope for moving into his role and hence contributed to their engagement & retention. However, this also ensured that when this gentleman moved on to another role, none of his direct reports were ready to takeover from him & hence his role had to be filled with an external candidate. With their illusions broken (and considering the fact that the situation could repeat a few years later), many of the direct reports started looking for jobs outside the company.

Now, there are multiple levels of issues here. The most basic one is the need for succession planning. There should not be too much controversy here, as most of us are likely to agree that succession planning (especially for critical roles) is a worthwhile endeavor (Whether the Head of HR role qualifies as a ‘critical role’ is an interesting issue – but that is another story/blog post!). The second one is the need for a structured approach to develop people who are in the succession plan so that they become ready for the role within a specified time-frame. Here also there should not be much disagreement when it comes to the validity of the need, though the implementation is easier said than done, as it involves quite a bit of investment/focus to ensure that the requisite capability building takes place within the timelines.  

Things get more complicated when we think about whether or not to tell the people who are in the succession plan that they are part of the succession plan. The problem here is that doing this can create high expectations (and even some sort of ‘entitlement mentality’) among the people in the succession plan and also create disengagement (or even attrition) among people who are not in the succession plan. The latter becomes a significant problem if they are very valuable contributors in their current roles, though they did not make it to the succession plan for the next level role. However, not informing those in the succession plan might defeat the very purpose of succession planning.
The purpose of including an employee in the succession plan for a position is to enable him to develop readiness for the position within an accelerated time-frame. It would work much better if the employee is aware of the purpose for which the development is being undertaken. It definitely helps to tell an employee that he is part of a succession plan, so long as the communication is done in the right manner. This would also avoid the risk of developing an employee towards a position that he is not interested in. Again, this would prevent the unfortunate scenario in which such an employee leaves the organization because he thought that he was not being developed for the next level role! 

However, the communication has to be done in the right manner. The communication should mention that the company sees the potential in him to develop towards the particular position and that the company will provide accelerated learning opportunities to enable him to develop readiness for the same. It has to be made clear that no promise is being made that the employee will be moved to the target position within a specified period of time. It should also be mentioned that there could be multiple people in the succession plan for the position and that the actual move to the position will depend on business requirement, vacancy and his relative readiness as compared to other possible candidates for the position. Stretch and discomfort are inherent in accelerated development. If an employee is aware of and is committed to the purpose behind the development, he will be able in a better position to derive meaning from the stretch experience, to learn faster and even to enjoy the ride!
Let us come back to our Senior HR professional. There are no easy answers to his question. However, let me hazard a guess based on our discussion so far. It  would have been better if he had done the succession planning for his role and told the people in the succession plan that they were being developed for his role. Of course, this would require that the identification of people for the succession plan was done in manner that was rigorous and fair (and also seen to fair!). For example, all his direct reports (at least those who were interested in developing towards  his role) could have been put through a well-designed Assessment Centre (see 'Assessment Centres and Leaps of faith' for details). 
Now, let’s look at the matter of deciding the ideal number of people in the succession plan for a particular position. Announcing only one successor (like the senior HR professional was mentioning) would have been a very risky option. It would have made the organization dependent on only one person and/or it could have made the person in the succession plan a bit complacent. Putting too many people in the succession plan also would have been sub-optimal. It would have made the investment required for developing all these people too high and also reduced the chance for any particular individual to succeed in moving to the target role. Hence the best option would have been to identify  a few (say, 2-3) people who were relatively more ready at that point (say, based on the Assessment Centre results) to be on the succession plan and to tell them they were being developed for his role. This would also allow the others direct reports to either make peace with this situation (as a fair process has been followed to identify the people in the succession plan) or to exit the organization gracefully - at a time of their choice (without any hurry and possibly with a very good offer). Yes, this is not a perfect solution. But, it seems to be the best solution available!.
Do you agree?

Saturday, January 11, 2014

Polarities of leadership

To me, leadership is primarily about achieving the optimal balance between the various polarities in organizational life.

You are a leader if you can find the right balance between polarities like
  1. Being confident & making a vulnerable connection
  2. Providing hope & being realistic
  3. Driving change & maintaining stability
  4. Shaping the organization culture (and the definition of 'good' in the organization) & adjusting to the organization culture
  5. Taking too much risk & taking too little risk
  6. Focusing on the long term & responding to immediate challenges
  7. Taking charge & letting others take charge
  8. Maintaining a broad perspective & developing micro-awareness
  9. Being consistent & being  flexible
  10. Organization building & creative destruction
  11. Acting based on who you are as an organization & acting based on what the environment demands
  12. Holding on & moving on
The ‘right balance’ is highly context specific. It is also a dynamic balance/equilibrium as opposed to a static one(In a state of static equilibrium there is balance, but no change or movement - that exists in the case of dynamic equilibrium.  For example, a chair has static equilibrium while a bicycle in motion has dynamic equilibrium). Again, the equilibrium point is an evolving one - based on the evolution of the leader, followers and the organization.

All in all, it is quite a moving target & that is why it is so difficult to ‘train in’ leadership. While useful inputs/helpful experiences/coaching can be provided, leadership capability emerges in a non-linear fashion in the being of a person based on years of struggle with the polarities mentioned above! Of course, all the organizational issues are not ‘polarities’ and  one of the necessary conditions for leadership to emerge is the ability to differentiate between ‘a polarity to be managed’ & ‘a problem to be solved’!!

So, what do you think? If the 'work of leadership' is conceptualized mainly as 'achieving dynamic balance between polarities in organizational life', what does it mean for (a) leaders, (b) for team members (c) for organizations & (d) leadership development?

Note:  Since we have defined the work of leadership in terms of  'achieving optimal balance between polarities in organizational life', it would be interesting look at this 'optimal balance' in more detail. It is not about 'compromise' between the two poles (like a consistent score of 3 in a 1 to 5 scale-with 1 representing one pole and 5 representing the other). It is more about being a '1', '2', '3', '4' or '5'  based on the situation. Strangely, it also involves  transcending the scale by (as Pirsig says) catching the bull (polarity) by both its horns (poles) & even singing the bull to sleep. It is not about being 'timid' and avoiding strong decisions/behavior. It is about the ability to display a wide spectrum of responses and the courage to choose the appropriate response based on the situation. The courage also involves the willingness to explain why a particular choice was made in a particular situation - so that the behavioral flexibility won't become confusing to the team (i.e. variation in responses has to be accompanied by consistency at the level of underlying principles of choosing particular responses in a particular situations & these principles have to be communicated to the team - otherwise this flexibility will come across as inconsistency). Yes, this also involves taking feedback/admitting one's mistakes and revising one's mental map when required. Deep understanding & trust about the leader (i.e. understanding 'who he is' in terms of the principles governing his actions) - developed over a period of time - will obviate the need to explain everything every time! It is said that 'sometimes, who you are speaks so loudly that people can't hear what you are saying'!

Developing this kind  of behavioral range, that too across the many polarities in organizational life, takes a lot of development (psychological/spiritual growth) on the part of the leader. Please note that displaying a wide range of behaviors can put a lot of pressure on the leader's psyche as it involves  'holding multiple sets of diametrically opposite ideas in the mind at the same time' and constantly adjusting the balance/(as it is about dynamic balance as opposed to static balance). Yes, this development/growth (like all psychological growth) can be taxing as it demands regularly stretching one's boundaries. No -this does not mean that there is no room for the natural self/style of the leader, as it is about expanding the self as opposed to developing towards some (standard) 'ideal self'. Yes - it usually takes significant amount of time. But, we need to keep in mind that this development is a matter of degree & that different people learn at different speeds. So, investing in increasing one' ability to 'derive learning/growth from experience' becomes critical - especially for young leaders!!

Sunday, September 29, 2013

Of Leadership training and Corporate Rain dance

A couple of weeks ago, I came across a report which said that in the current difficult economic scenario, Indian companies are investing more in leadership training programs for their senior managers. The ‘espoused interpretation’ for this was that it will help the senior managers to be better leaders, enabling them to respond more effectively to the challenging scenario. While this was certainly a possibility, it did make me wonder if there are other interpretations possible. That is where rain dance comes in.

Let us begin by taking a closer look at the terms.
Rain dance is a ritual that is intended to invoke rain. The rain dance was common among tribes who lived in regions that received very little rain. Since the little rain they did receive was essential for their survival, they felt compelled to something to invoke rain (to influence their destiny). The result was rain dances. Over a period of time, intricate rain dance rituals were developed (that were supposed to do a better job when it comes to rainmaking). While there is no empirical evidence that rain dances caused rain, they did serve other useful purposes like giving them hope, enabling them to feel that they have some degree of control over their destiny/environment, deepening relationships among the members of the tribe etc.  
Leadership training involves all the training programs (Instructor-Led-Training programs) that employees are sent to with the purpose of making them ‘better leaders’ (whatever that might mean). These can be internal or external training programs (often designed/delivered by consultants/business schools). They are usually conducted off site (away from the pressures and distractions of regular work) and are often very expensive.

Corporate rain dance would mean rituals (events/ceremonies/programs) in corporate life that are designed to achieve an essential business objective (better business results/business survival in difficult times etc.) without sufficient empirical evidence that the ritual actually leads to the intended outcome. Going back to the report on the increased investment in leadership development programs, it made me wonder if they (at least to some extent) constitute some sort of corporate rain dance. Of course, there are other examples of corporate rain dance, including many types of ‘strategic business planning meetings’!
I have nothing against rituals in corporate life. Businesses are run by human beings and rituals have always played an important role in human societies. Please see ‘Accelerated learning and Rites of passage’ for an example of how to leverage the power of rituals in business organizations. It is just that we should be aware of what they can and cannot do when we are investing in them.

Leadership training is a Multi-Billion-Dollar industry. There is also a huge amount of literature on ‘leadership’. I have no intention to get into a detailed discussion on ‘leadership’ here. (Please see ‘Of leaders and battle-scars’, ‘The leadership sandwich’ & ‘Reasons, Rationalizations & Collective Delusions’ for some of my thoughts). For the purpose of this post, I will just raise the top five questions that have been bothering me("The best fool can ask more than the wisest man can tell" J).
  1. If ‘learning’ is defined as ‘sustained change in behavior’ how much empirical evidence exists that ‘learning’ results from leadership training programs?
  2. There are many people in top management positions who speak eloquently about the great leadership training programs their companies have. However, I have rarely heard anyone of them talking about a particular leadership training program they have attended that made them (or played a big part in making them) who they are now.
  3.  If ‘leadership development’ goes much beyond ‘leadership training’ (and if leadership is supposed to be learned ‘on the job’ supported by coaching) then why is most of the money/effort is concentrated on ‘offsite’ leadership training? 
  4. To what extent are the designs of leadership training programs based on a deep understanding of the concept of leadership? If the design is based on a particular leadership model/theory, has enough effort been made to check the empirical validity of the theory/model?
  5. If the underlying model of leadership goes beyond the traits and leadership style of the leader, to focus on the relationship between the leader and the followers, then why emphasis is only on training the leaders? Can any form of leadership (including thought leadership) exist without followers? 
Now, let us look at another type of ‘corporate rain dance’ that happens frequently in the domain of leadership development : redesigning leadership competency frameworks & then redesigning all the leadership training programs based  on the new competency framework. Here also the underlying belief (that leads to the rain dance) is that by changing the leadership competency framework we can build better leaders and thereby improve business performance. Sometimes, this can also be a case of 'Training the Victim'. A few years ago, I heard (from reliable sources) about a global company, that changed its leadership competency framework because the new CEO said something like ‘Leaders should Lead’ in a meeting with the HR Leadership team. In response to that statement from the CEO, the HR Head ordered redesign of the leadership competency framework & all the leadership training programs based on the same, spending Millions of Dollars. It also ensured that HR people at the global corporate office (who were under the threat of losing their jobs) kept their jobs and (as the company was a global giant) it contributed to the GDP of many countries in terms of spend on downstream work like ‘Train the Trainer programs’, reprinting of program material & of course putting the leaders through the newly developed training programs.

I am not saying that one should not redesign leadership competency frameworks. It is very easy to find fault with any leadership competency framework and hence no one can argue against the need to redesign the same. The trouble is just that the new framework might also have an equal number of (but possibly different) problems. Hence, unless there is a very clear difference between the new and the old leadership competency framework (that too very clearly aligned to a key strategic priority), the Return On Investment is unlikely to be positive. I also think that ‘competency frameworks are only an intermediate stage’ and that one needs to go beyond them..
Now, let us come back to leadership training programs. What exactly am I trying to say?

One does pick up useful insights, ideas and concepts from these programs. They provide a welcome break from the unpleasant realities of work. They can also act as some kind of signalling mechanism - to communicate (to the participants & to the significant others around them) that some people have been identified as leaders.

Like rain dance, they provide an opportunity connect more deeply with colleagues, provide new hope to the participants & provide satisfaction to the business head that something is being done to improve the business situation. The participants might also see them as recognition/reward– especially if the program is offered only to a select few/if the program is considered to be a prestigious one/if the program is an expensive one (remember, it is tax efficient also - for both the employer and the employee!) . The program might even have some placebo effect on leadership behaviors!J 

Going back to another beneficial dimension of rituals, leadership training programs can also act as 'rites of passage'/'initiation rites' to leadership-  especially if they (like initiation rites in tribal societies) involve doing 'dangerous things'; this danger can be either psychological (like doing something silly in front of a group) or physical (like what happens in some of the outbound training programs) - as they help in transitioning to a new self!! Hence, just as rain dance served a useful purpose in tribal societies for many centuries, leadership training programs can also serve a useful purpose in business organizations – even if that purpose is not the same as the espoused purpose!

If, the rain dance (leadership training program) is not leading to rain (developing better leaders), the organization should seriously consider whether to invest more in 'making the dance better' (e.g. by adding more modules to the leadership training program) or to explore other ways for rainmaking. Improving the dance can add to its value as a ritual up to a point (but not beyond that). Of course, it is possible that some of the other popular ways of rainmaking (e.g. 360 degree feedback) might also turn out to be 'rain dances'! But some of them (e.g. putting people through roles designed to provide a higher learning potential & helping them to derive meaning from their experience in those roles through coaching) might actually work!!!   

Any comments/ideas?  

Sunday, July 28, 2013

Sight, Insight and Foresight method for managing non-performance

This post was triggered by an interaction on Twitter that I have had with a senior HR professional on 'addressing non-performance'. We agreed that the focus should be on 'getting rid of non-performance in non-performers' as opposed to 'getting rid of non-performers'. Then, he asked me how exactly would I accomplish this. This put me in a fix; how will I say something worthwhile in 140 characters in response to such a fundamental question considering that our senior HR professional would have read (and even created) tons of material on performance management? That is when I came up with this 'Sight, Insight and Foresight method for managing non-performance'.

Though I was only 'semi-serious' when I came up with the above 'method', later I felt that it might not be such a bad idea to detail it out a bit. To be honest, there is nothing particularly new in this - it is 'old wine in new bottles'. It is also more of a 'perspective' than a 'method'. However, I feel that as the product (basic principles of performance management) is good & the need it addresses is real (still relevant), the requirement is just to ensure that remains attractive (appealing) to the customers by means of new packaging (positioning)! Also, I am convinced that when it comes to the basics of life and work, our problem is more to do with 'inaction' and not 'ignorance'! Hence, if new packaging can increase the probability of a good concept getting the attention it deserves, it is definitely worth the effort. So, here we go!

What do the various elements of the 'Sight, Insight and Foresight method for managing non-performance' mean?

'Sight' is about developing a shared understanding among the stakeholders (especially between the employee and the manager) regarding what exactly are the performance objectives, how will success be measured and how well one is doing against those objectives & targets at any point of time. This is not trivial, as there can be a disconnect between the manager and the employee on 'On what good looks like'  especially in the case of non-routine and rapidly evolving jobs. While SMART (Specific, Measurable, Agreed, Relevant, Time bound) objectives can help to some extent (especially if they can be made to remain SMART over the entire performance period - no easy task, I must say!), there are deep psychological factors that might lead to a situation where the employee disagrees with with the organization's/manager's assessment of his/her performance ( See Performance ratings and the 'above average effect' for details). 

'Insight' is about generating understanding through performance coaching about the factors that lead to non-performance and how to address  them. While this would involve providing developmental inputs/opportunities where required, we must ensure that the root causes of non-performance are correctly identified. Often, problems at the structure, process, policy, work planning & leadership levels get wrongly (and conveniently!) interpreted as 'non-performance' at individual employee level and hence get diagnosed as  'individual capability issues' (see 'Training the victim' for more details). By the way, if the diagnosis leads to the conclusion that the root cause of non-performance is 'lack of organizational commitment' on the part of the employee, we must check if we are using 'Appropriate metaphors for organization commitment'! Hence, the 'insight' we are talking about here is for both the employee and the organization!!

'Foresight' is about predicting possible impediments to good performance and dealing with them proactively. These impediments usually become apparent in hindsight*; but, by then, the performance window would have closed and the employee would have already been labeled as a 'non-performer'! It is also about identifying and addressing non-performance early enough - before it becomes a full-blown issue. If the performance standards are very high and 'non-performance' means 'anything other than outstanding performance', then deeper aspects related to person-job fit, employee engagement (See Employee engagement and the story of the Sky Maiden) , culture (See Of reasons, rationalizations & collective delusions) & meaning (See Architects of meaning) also need to be considered!

*Note: It is interesting to note that foresight and hindsight are represented by Prometheus and his brother Epimetheus in Greek mythology. Prometheus means 'he who thinks before' and Epimetheus means 'he who thinks after'. 

Any comments/ideas?

Saturday, April 27, 2013

Of Rewards, OD and passing the buck

Compensation decisions are based entirely on the market and business situations. Our objective is to achieve the right balance between ‘need to pay’ which is based on the market scenario and the ‘ability to pay’ which is based on the company scenario”, said the Rewards Manager. “Wouldn’t that make the Rewards function very transactional? Shouldn’t you look at the ‘want to pay’ aspect which is based on the overall people management philosophy of the organization, in addition to the ‘need to pay’ and ‘ability to pay’ aspects that you have mentioned?”, asked the Organization Development(OD) Manager. “We can’t create competitive advantage through compensation strategy as it can easily be copied. Hence, the compensation function has to be transactional and business oriented.While I agree that 'Total Rewards' is our approach, I am only the 'Rewards Manager'. Executing parts of the Total Rewards framework that are not related to compensation and benefits should be the job of the OD function as it is the mandate of the OD function to build a deeper engagement with the employees.”, replied the Rewards Manager. “OD function is also business aligned – it is not about charity and feel good initiatives. Creating deeper engagement with the organization requires a multi-pronged approach and that includes Rewards related dimensions also. Rewards is a very important tool to shape employee behavior. If our Rewards strategy is only about ‘paying the employees the lowest compensation that we can get away with’, we are not only not leveraging the full potential of Rewards, but also creating irreparable damage to the psychological contract between the employee and the employer. Managing the psychological contract is key to building deeper engagement with the employees”, said the OD Manager.

During the first few years of my career, I did a lot of HR consulting work related to Rewards – benchmarking, policies, benefits, compensation structuring, variable pay schemes, employee stock option plans, voluntary retirement schemes, job evaluation etc. Apart from developing functional expertise in the Rewards domain, I also developed an affinity/feel for compensation related numbers. When I look at a data sheet with a lot of compensation related information it (say the compensation data from various companies/units), the figures 'talk to me' (i.e. the patterns in the data and the actionable inferences based on the same automatically pop up in my mind). Later in my career, I gravitated towards OD, though I did get involved in Reward related matters when I have handled HR Business Partner roles. Anyway, Rewards has remained close to my heart though I have been making a living mostly out of OD for the last ten years. Of late, I have been making an attempt to stand at the intersection of Rewards and OD (Please see the six posts in the series on 'Salary negotiations and Psychological contract' for details). Also, I don’t miss any opportunity to interact with fellow Rewards and OD Managers. The conversation at the beginning of this post is derived from those interactions.

My opinion is that both the Rewards and OD Managers here are 'correct' - from the point of view of their respective sub-functions. They are just articulating the mandates given to them. However, while being 'technically correct' they are also missing the essential point here! Please note that one can be 'completely correct' and 'completely irrelevant' at the same time!

During the last 15 years, in the context of organizations that I am familiar with, I have seen ‘Compensation & Benefits’ evolving into ‘Rewards’ and then into ‘Total Rewards’. Similarly, I have seen OD evolving from ‘Process OD’, to ‘Process and Structural OD’ and then to ‘Organization Effectiveness’. That is where the 'trouble' begins. You see, when Reward Managers were just looking after compensation and benefits (providing 'money and goodies') and OD Managers were just doing OD interventions (the kind where you get people into a room and facilitate collaboration, better decision making or creation of a shared vision) these domains did not have much in common and they required very different skill sets. Now if we look at the ‘Total Reward Frameworks’ of many of the organizations, they will have dimensions like culture, learning opportunities, career development, empowerment, work environment etc. Similarly, Organization Effectiveness (OE) is essentially about enabling the organization to achieve its goals by ensuring alignment between the various dimensions/components of the organization and by facilitating positive change. This makes OE/OD more business aligned. This also calls for structural interventions (interventions at the structure, norms, policy & work process levels) in addition to interventions at the human process level. This creates an overlap between the Reward and OD domains, especially when it comes to policies and reinforcement mechanisms to encourage and institutionalize particular actions/behaviors/changes.

When there is an overlap, there are three basic possibilities. The first is that the parties find a way to work together effectively and help each other in the areas of overlap. Obviously, this leads to the best possible outcome. The second possibility is that there is a war over territory and the winning party captures some or all of the overlapping area. While this is often a wasteful process, things usually get done (i.e. they don’t fall through the cracks). The third possibility is that none of the parties take ownership for the overlapping area (and things fall through the cracks). Unfortunately, when it comes to the overlap between Rewards and OD, the third possibility is the one that often actualizes! May be, Rewards and OD Managers are basically ‘nice’ people who don’t want to step on the toes of others! So this creates a situation where the overlapping areas exist in the ‘Frameworks’ and Power Point Presentations of both the parties but nothing much gets done!!! This is what leads to the ‘passing the buck’ phenomenon that this post talks about.

So, what should be done? The important thing here (apart from seeing to it that things don’t fall through the cracks) is to ensure that there is alignment between what Rewards is driving and what OD is driving.

For example, if OD is working on creating an emotional connect between the employer and the employee (that goes beyond rational commitment) and the Rewards approach is that ‘compensation is purely a matter of supply and demand’, then it will send conflicting signals to the employees and also create a violation of the ‘psychological contract’.

Let us look at this in a bit more detail. The situation here can be traced back to fundamentals of the compensation philosophy of the organization – does the organization pay the employees based on what they deserve (within the constraints of what the organization can afford) or does the organization pay the employees as little as it can get away with? This comes into play in a situation where there is an industry downturn (making it difficult for the employees to change jobs) but the particular organization is doing well (growing reasonably fast with healthy profits). In such a scenario, the organization can afford to give the employees good salary hikes. But it can choose not to do so (or choose to give a very low salary hike) because even without the salary hike it can retain the employees. This certainly provides short term gains. It can also be explained away in terms of salaries being market benchmarked. However, this will violate the psychological contract and will lead to a situation in which the employees (especially very valuable employees) leave the organization as soon as the job market improves (Going by the same logic that the organization had used, the employees should leave the organization when the market will pay more!!). A similar situation occurs in the case of hiring also. When the company hires a person (internal or external hire) into a job what salary will be offered? Will the company offer the lowest salary that the candidate will accept or will it offer the salary corresponding to the worth of the job in the company? These are the situations where the 'want to pay' aspect comes in. If the company drives a hard bargain because the employee was not in position to negotiate at that time, no amount of talk later about ‘employees being the biggest asset’ and ‘building a great organization together’ will undo the damage that happened earlier because of the  loss of trust. Some of the IT organizations in India have learned this lesson the hard way!

At the core, people management (of which Rewards and OD are parts) is about understanding, predicting and influencing human behavior. Now, 'human motivation' is a complex phenomenon (See 'The power of carrot and stick' for a detailed discussion). Complex phenomena are usually 'over determined' - that is they have multiple (interrelated) causal/input factors. Some of these factors are in the OD domain and some of the factors are in the Rewards domain. Hence an integrated approach combining Rewards and OD is required. For example, the recent research findings in behavioral economics have created serious doubts on whether many of the performance linked pay schemes have any positive impact on performance. Hence, a combined effort from Rewards and OD is required to ensure a positive return on investment (in monetary and non-monetary terms) from such schemes. Otherwise, such schemes will just be 'tools to match the payout with the ability to pay' - without any useful impact on performance levels.
In a way, our problem (Rewards and OD working in silos) has similarities with ‘Multiple Personality Disorder’ (see ‘HR Professionals and Multiple Personality Disorder’ for details). The most important thing in such a scenario is to get the two parts of the personality (Rewards and OD in this case) to talk to each other. This is not something that can be accomplished in one big meeting. This involves a different way of looking at things and joint exploration and solution design.

One approach to make this happen is to get the Rewards and OD teams to work together in crystallizing, articulating and delivering (in terms of specific HR processes and initiatives) the ‘Employee Value Proposition’ (EVP) of the organization. EVPs (that specifies the total employee deal offered by the organization) usually have both Rewards and OD related components and the EVP should inform both the OD and Rewards strategy of the organization. Also, jointly thinking through the implementation details of the various initiatives to deliver the EVP will help professionals in the Rewards and OD sub-functions to develop a better appreciation of challenges the other sub-function is facing. For example, it is very easy for OD managers to talk about 'correcting the salaries' or about 'standardizing benefits'. Similarly, it is very easy for Rewards managers to talk about 'changing the culture' or about 'creating intrinsic motivation by providing employees opportunities for self-actualization'. However, to make these happen in a reasonably short time period within the constraints of the organization is incredibly difficult.

May be, it would also be a good idea to integrate Rewards and OD domains more tightly in terms of the structure of the HR function.

There is also a larger issue here. As I had mentioned in ‘Paradox of business orientation of HR’, while there is no doubt that the HR function (and hence the Rewards and OD sub-functions) exists to support the business, the exact nature of the ‘business orientation’ that is required to support the business most effectively is a complex one. This becomes especially important, if HRM has to mean something more than ‘making people do more work without paying them too much and without risking disruptions to the business operations’. Please note that this problem is not confined to the Rewards domain. For example, if the OD/OE function goes about actively deskilling the jobs so as to manage the process risk and to reduce skill requirement (and hence the time and investment required in hiring/training and of course the salaries that need to be paid), it would take away from the richness and hence the motivation and learning potential of the jobs. In the specialist functions like Rewards and OD we should also be careful to ensure that in our obsession with tools and techniques (see 'Daydreams of an OD mechanic') we don’t miss the broader picture – that is alignment with the core values and the basic people management philosophy (see ‘Towards a philosophy of HR') of the organization.

Any comments/thoughts?

Monday, April 15, 2013

Of salary negotiations and psychological contract: Part 6 (the big picture)

In this series of posts we have examined the impact of salary negotiations on the formation and evolution of the psychological contract. In the first post in the series (see Part 1: dramatis personae) , we looked at the concept of psychological contract, outlined the stages at which salary negotiations take place and also looked at some basic principles in the domain. In the second, third and fourth posts we examined the salary negotiations between the employee and the employer before joining (see Part 2), after joining (see Part 3) and after submitting the resignation (see Part 4) and examined how interactions influence and are influenced by the psychological contract. In the fifth post we looked at a special phenomenon in this domain – ‘batch mentality’ (see Part 5).

In this post, we will look at some broader aspects related to psychological contract and its workplace implications – over and above those related to salary negotiations.

Let us start with the concept of psychological contract. In the previous posts in this series, we looked at the psychological contract in the context of the 'employer – employee' relationship. However, psychological contract operates in any sort of relationship – not just that between the employer and the employee. This is because psychological contract is essentially about the mutual expectations people have about one another in a relationship, how those expectations shape the behavior of the people in the relationship and how those expectations evolve. It has even been argued that psychological contract between God and man is the basis of many of the major world religions (at least those religions that believe in a ‘personal God’).

If we look at the ‘content’ of the psychological contract in the context of business organizations, there are many other dimensions in addition those related to ‘Rewards’ (that we had covered in the previous posts). These include expectations related to the ‘relative seniority’ (where does my job in the new organization fit in the organization hierarchy of the new organization as compared to that in my previous organization), congruence between individual values and organization values, pace of career growth, degree of empowerment, amount of training/development opportunities provided, amount of support available, physical infrastructure, behavior of superiors/peers/subordinates, organization climate, how the organization will treat its employees when the organization and/or the industry is going through a downturn etc. In all these dimensions, the discrepancy between what a person encounters on the job and what he/she expected to encounter can lead to a violation of the psychological contract.

Now, let us take a look at the consequences of perceived violations in the psychological contract. Employees often respond to perceived violations in the psychological contract with withdrawal, reduced engagement levels, negativism, dissatisfaction, lowered job performance, turnover intention and actual turnover. As we have mentioned earlier, when it comes to the psychological contract, the employer is ‘represented’ by its agents/representatives like the managers of the employee. It has been observed that employees with ‘positive supervision experiences’ are less likely to perceive breaches of psychological contract. Also, even if they perceive a possible violation of the psychological contract, they are likely to deal with it in a constructive manner – like discussing the same with the supervisor and trying to find ways to mend the damages to the psychological contract.

We have mentioned that psychological contract (unlike the employment contract) is usually unwritten. However, Employee Value Proposition (EVP) statements often contain aspects (related to what the employer offers to the employees) that are not mentioned in the employment contract. This would mean that the Employee Value Proposition can be leveraged to actively shape and manage the psychological contract. EVP is usually worded in broad terms and is often expressed as a ‘statement of intent’ (and not a legal commitment). Hence it offers more flexibility to the employer and it can be used to actively shape the psychological contract and drive employee behavior. However, one needs to understand the difference between ‘management’ and ’manipulation’. If the employer communicates the EVP and fails to deliver the same (in terms of the employee experience/employee perception), this is likely to result in the violation of the psychological contract!

This implies that if an organization crafts an EVP based on what it can deliver consistently to its employees (ideally, what it can deliver better than that the other organizations can) and emphasizes the same in the various phases of the employee life cycle, it can have a very positive impact on employee engagement. Yes, there is material that can get into the psychological contract that can’t get into the EVP. Remember - EVP is common for all the employees – but psychological contract is individual specific – though there can be a lot of commonality of the content in the psychological contracts in the minds of the employees. At the recruitment stage, it makes eminent sense to communicate the EVP to the prospective employees. This will help in attracting those candidates who are likely to be a better fit to the organization (as they are motivated by factors that the organization is good in delivering to its employees) and also in ‘repelling’ those candidates who are unlikely to fit in. Yes, as the psychological contract is individual specific (and as it is likely to have material that is not covered in the EVP), the organization should take special effort in ensuring that all the interactions with the prospective candidates are carefully handled so that the candidates gets the ‘right hints’ on what it would be like to work in that particular organization in that particular job.

As the organization evolves/changes what it expects from the employees also changes. Again, as an employee goes through the various stages in his/her life, his/her expectations from the employer also changes. This ‘natural evaluation’ has to be kept in mind (and managed), in addition to the changes in the psychological contract that happens based on the interactions between the employer and the employee. With the accelerating pace of change in the organizations, the importance of psychological contracts (to shape employee behavior) and the importance of managing psychological contracts (to facilitate employee engagement) have increased significantly.

It is interesting to note that there are basically two types of violation of psychological contract. The first occurs when the employer or the employee knowingly fails to meet an obligation/expectation. The second occurs when there is a lack of shared understanding as to whether the obligation/expectation exists. From an organization development point of view, mapping the psychological contract (that exists in the minds of the employer and the employee in terms of mutual expectations), making it explicit and facilitating a discussion (exploration) on same can be a highly useful intervention – especially when dealing with aspects related to employee engagement and retention in a fast changing organization. Yes, this can also include ‘renegotiation’ of the psychological contract!!

Please let me know if you have any comments/suggestions!

Sunday, March 31, 2013

Of salary negotiations and psychological contract: Part 5 ('batch mentality')

In this series of posts, we are examining the impact of salary negotiations on the formation and evolution of the psychological contract. In the first post in the series (see Part 1: dramatis personae) , we looked at the concept of psychological contract, outlined the stages at which salary negotiations take place and also looked at some basic principles in the domain. In the second, third and fourth posts we examined the salary negotiations between the employee and the employer before joining (see Part 2), after joining (see Part 3) and after submitting the resignation (see Part 4) and examined how these negotiations/interactions influence and are influenced by the psychological contract.

In this post, we will examine a special phenomenon in this domain – ‘batch mentality’. While this phenomenon is typically associated with MBAs, this can apply to engineers and other professionals also.

The dynamics of the phenomenon is simple - MBAs tend to compare their career progress with that of the other MBAs from their batch - even after many years of completing their MBA. This is especially true for MBAs from premier institutes who get hired as Management Trainees in reputed organizations – often at a higher responsibility level and at a higher salary as compared to MBAs from less reputed institutes. Since the salary is often used as an indicator for career progress, batch mentality has implications for our domain here (salary negotiations and psychological contract) – across the various stages of the employee life cycle.

In the hiring phase, the prospective employee might expect to come in at the same or higher salary level as compared to the employees in the organization who are from the same batch/similar batches. Sometimes, they state this upfront. Sometimes, they will just assume/expect that it will be done. That is when the trouble begins.

The batch (or the number of years of post qualification experience) might not be a good indicator of the capability of the employee – especially after a few years of completing the degree. Different individuals could have taken different career paths and this could have resulted in different skills and different experiences. Also the relevance of these skills and experiences vary significantly across organizations. However, in the absence of other measures to compare one’s capability level with that of the employees in the new organization, the batch serves as a useful indicator (or at least as a reality check) for the prospective employee.

In my opinion, the best way to deal with this is to be as open as possible with the prospective employee regarding how his/her experience and capability is being compared with those who are working in the organization. For example, if one is joining a consulting firm after a few years in internal HR roles, he/she might come in at a lower salary/lower responsibility level as compared to those who joined the consulting firm from the campus as management trainees. This happens because consulting experience might be of more value in a consulting firm. In such a scenario, it is much better to state this upfront and let the candidate take an informed decision on whether or not to join the firm. Similarly, if the firm has a practice of pegging the consistently high performing employees who have come in through the management trainee program at a higher salary level as compared to lateral hires with similar years of experience (even if they have studied in comparable institutes), this should also be stated upfront. Again, the candidates should seek specific clarification on these aspects if it is important for them and if the organization hasn't proactively shared those details with them.

Of course, some candidates might decide not to join. However, this is a much better scenario as compared to them joining the firm, feeling cheated, becoming disengaged and possibly leaving the firm fairly quickly. Please note that the organization  has also to guard against the possibility that existing employees (especially the consistent high performers who have come in through the management trainee program) might feel that their psychological contract has been violated if lateral hires (from same/similar batches) come in at the same or higher salary and responsibility level.

Similarly, employees who join the organization as management trainees, might display a tendency to compare (‘benchmark’!)  their career progress with others from the same batch of management trainees – even years after they have moved into different jobs (and different career paths) after completing the management trainee program. As we have discussed earlier, usually, these comparisons are not very valid – especially after a few years of completing the management trainee program. However, this does not prevent them from developing some sort of entitlement mentality (i.e. expecting that their salaries will also be increased/they will also be promoted along with the other management trainees from their batch).
To counteract this, the organization should make it explicit that once they complete the management trainee program, they won’t be treated as a batch and each person’s career (and salary growth) will be dependent on the performance, demonstrated capability, role, potential etc. Hence, it has to be communicated explicitly that no 'batch parity' will be maintained. Of course, a greater amount of transparency around the policy/process for deciding promotions and salary hikes will minimize the chances of the psychological contract being violated.

Please note that the employees will have a greater need to compare their salary and responsibility level with that of others, when they don't have better indicators to figure out how well they are doing in their careers (and to figure out if they are being treated fairly by the organization. Hence making these alternative indicators available (and educating the employees on the same) and also generating confidence in the people management processes governing salary hikes and promotions are critical in addressing the 'batch mentality'.

In the next post in the series, we will look at a some broader considerations related to psychological contract in business organizations.

Please let me know if you have any comments/suggestions at this stage!

Of salary negotiations and psychological contract: Part 4 (after resignation)

In this series of posts, we are examining the impact of salary negotiations on the formation and evolution of the psychological contract. In the first post in the series (see Part 1: dramatis personae) , we looked at the concept of psychological contract, outlined the stages at which salary negotiations take place and also looked at some basic principles in the domain. In the second post (see Part 2: before joining) we examined the interaction between the employer and the employee before the employee joins the company and its impact on psychological contract. In the third post (see Part 3: after joining) we looked at the interaction between the employer and the employee after the employee joins the company and examined how these interactions are influenced by (and influence) the psychological contract.

In this post, we will turn the spotlight on the interaction between the employer and the employee after the employee submits his resignation and explore its impact on psychological contract (and how the psychological contract influences those negotiations).

The salary negotiations that take place during this phase (after the employee submits his resignation) are the most complicated ones. One of the key components of the psychological contract in any relationship is the expectations/assumptions about the continuity of the relationship. Here the expectations/assumptions vary widely – across various employees and across various organizations. Hence there is a very high possibility that the expectations (assumptions) the employee have are very different from the expectations (assumptions) that the employer has.

In some organizations, not questioning the continuity of the employment relationship is a necessary condition for any salary negotiations and hence once the employee submits the resignation, the organization does not negotiate at all. Thus the psychological contract prevents salary negotiations in this case. Other organizations have varying degrees of openness for renegotiating salary/making a counter offer once an employee submits his/her resignation. However, these negotiations throw up many complicated issues – for both the employee and the employer. The act of submitting the resignation (or not preventing the circumstances that lead to the resignation of the employee) often creates irreparable damage to the psychological contract for the employer and the employee (unless both the parties believe that they themselves were at fault - at least in part - for creating the situation).

If the employer negotiates with employee who has submitted the resignation and manages to retain him/her by making an offer with a higher salary, it might be perceived as a violation of psychological contract by the other employees. Once it becomes known that it is culturally acceptable to submit the resignation and renegotiate the salary, it might encourage other employees to follow suit creating long term damage to the organization culture. Even the employee who managed to get the salary hike might find it difficult to digest that the organization did not recognize his contribution/value till he put in his papers!

It is interesting to note that there is another psychological contract involved in these situations. Since the employee who managed to get the offer from a new organization would have gone through selection process (that would have involved multiple interactions with the organizational representatives of the new organization) his/her psychological contract with the new organization would also have got formed – at least to some extent. Taking the offer and negotiating with the current employer is usually a violation of that psychological contract!

Another variation of this theme is when an employee resigns from the organization, joins another organization and comes back to the first organization within a short time period with a higher salary and possibly at a higher responsibility level. If this happens in quite a few cases, it can be highly damaging for the psychological contract with the other employees. Hence organizations should have clear norms for rehiring. Keeping all these in mind, my opinion is that salary negotiations after submitting the resignation make sense only under exceptional circumstances.

In the next post in the series, we will look at a special phenomenon in this domain – ‘batch mentality’ and its implications for the psychological contract during the various phases of the employee life cycle.

Please let me know if you have any comments/suggestions at this stage!

Of salary negotiations and psychological contract: Part 3 (after joining)

In this series of posts, we are examining the impact of salary negotiations on the formation and evolution of the psychological contract. In the first post in the series (see Part 1: dramatis personae) we looked at the concept of psychological contract, outlined the stages at which salary negotiations take place and also looked at some basic principles in the domain. In the second post (see Part 2: before joining) we examined the interaction between the employer and the employee before the employee joins the company and its impact on psychological contract. In this post, we will turn the spotlight on the interaction between the employer and the employee after the employee joins the company and examine and how these interactions impact the psychological contract.

The salary negotiations that take place during this phase (after the employee joins the organization) are qualitatively different from those during the previous phase (before the employee joins the organization). This is because of the fact that by now a psychological contract has already been formed. The existing psychological contract will have a big influence on the salary negotiations from now on. Of course, the psychological contract can (and does) get modified by the negotiations at this stage. But the changes to the psychological contract at this stage are incremental changes (evolution). Thus, at this stage, the impact of psychological contract on the salary negotiations is much higher as compared to the impact of the salary negotiations on the psychological contact!

In general, the existing psychological contract makes it difficult for the employee to renegotiate the salary – assuming that there is a regular process for reviewing the salaries that is performance linked and market benchmarked. Most of the negotiations happen at this stage because of the ‘imperfections’ in the previous stage (problems/issues that come up because of the interactions during the phase before the employee joins the organization). For example, if an employee has been promised during the interview stage that that his salary will ‘catch up’ with that of the existing employees, once he proves himself in the organization and if ‘catch up’ never happens (or if it takes too long) the employee might feel that his psychological contract has been violated. Like I had mentioned in part 2 of this series, organizations should be more careful and specific when they are making such promises (and the prospective employee should seek clarifications or specific details - like how long it will take and what would qualify as proving oneself - if the organization does not do so).

There is another type of violation of psychological contract that can occur. This can be traced to fundamentals of the compensation philosophy of the organization – does the organization pay the employees based on what they deserve (within the constraints of what the organization can afford) or does the organization pay the employees as little as it can get away with? This comes into play in a situation where there is an industry downturn (making it difficult for the employees to change jobs) but the particular organization is doing well (growing reasonably fast with healthy profits). In such a scenario the organization can afford to give the employees good salary hikes. But it can choose not to do so (or choose to give a very low salary hike) because even without the salary hike it can retain the employees. This certainly provides short term gains. It can also be explained away in terms of salaries being market benchmarked. However, this will violate the psychological contract and will lead to a situation in which the employees (especially very valuable employees) leave the organization as soon as the job market improves (going by the same logic the organization had used, the employees should leave the organization when the market will pay more). No amount of talk about ‘employees being the biggest asset’ and ‘building a great organization together’ will undo the damage that happened to the loss of trust. Some of the IT organizations in India have learned this lesson the hard way!

Another interesting phenomenon observed during this phase is the so called ‘entitlement mentality’. This happens when an employee (or a group of employees) feels that he (they)  should get a salary hike (or a promotion) because another employee has been given a salary hike or a promotion. While this is usually interpreted as an ‘attitude problem’ on the part of the employee by many of the organizations, there are significant contributing factors to this from the organization’s side. Often, there is no clearly defined promotion policy or policy/process for ‘out of turn’ salary increases. When the employees are not clear as to why somebody has been given a salary hike or a promotion (and why they haven’t been given the same), it is ‘normal’ (in the statistical sense of the term) for them to feel that their psychological contract has been violated. The organization can counteract this to a large extent by having a clearly defined policy for salary hikes and promotions and communicating the same to the employees (and to the prospective employees). Yes, there could be factors related to employee attitudes (e.g. ‘superiority illusion’) that are also operating here and they need to be addressed at that level (Please see ‘Performance ratings and the above average effect' for details).

Somewhat related to this is the situation where new hires join the organization at a salary higher than that of the existing employees at the same responsibility level. In such a situation the existing employees might feel that their psychological contract has been violated. Unless the organization can clearly demonstrate to the existing employees that there is a valid reason for new hires coming in at higher salaries (e.g. they bring in a particular skillset that is not available within the organization and that that skillset enjoys a higher salary level in in the market), this is bound to happen. This situation will also encourage the existing employees (those among the existing employees with skillsets that are highly sought after in the job market) to renegotiate their salaries.   

I am not in favor of frequent renegotiation related to the salary. It puts too much strain on the relationship and on the psychological contract. However, in some of the organizations, it might be culturally acceptable to do so and in those contexts the employee might be able to manage this without damaging the psychological contract too much. I have come across organizations where the best paid person is ‘a great performer who is always on the verge of quitting’. However, my personal opinion is that this kind of brinkmanship creates mistrust and stress and that it is not worth it from a long term perspective.

It has to be noted that existing psychological contract also makes it difficult for the organization (represented by its representative like the managers) to reduce the salary of the employees, to be overly demanding or to terminate the employment. A special situation gets created when there is a change in the manager of the employee as the new manager hasn’t yet formed the psychological contract with the employee. Usually, the new manager does accept at least some part of the existing psychological contract (or at least what the new manager considers to be the existing psychological contract). However, if there is a significant leadership change, with many people in the reporting chain of the employee changing, this might not happen (especially if the new set of managers have been brought in to 'transform the organization' and that transformation involves significant changes to the way people are managed in the organization). Thus, the existing employees might feel hassled as they might feel that their psychological contract has been violated and they don’t have the opportunity to address the violation. On the flip side, this change in managers/leadership also makes it easier of the existing employees to renegotiate their salaries (at least in the case of those employees who are in a position to negotiate)!

In the next post in the series, we will take a closer look at the salary negotiations that take place after the employee submits his/her resignation and explore its impact on psychological contract (and how the psychological contract influences those negotiations).

Please let me know if you have any comments/suggestions at this stage!