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  • 1. Executive Strategies: Human Capital Management Pay for Performance Link goals, performance and rewards to impact the bottom line
  • 2. This document was created through the collaborative efforts of Softscape Corporation and Ceridian Corporation. It is one of a series of white papers on topics related to Human Capital Management. This document contains information that is proprietary and trade secret to Ceridian Corporation and is intended solely for the use of our customers and prospects in evaluating Ceridian solutions. This document is not to be duplicated or distributed in printed or electronic format without the prior written consent of Ceridian Corporation. © 2005 Ceridian Corporation. All rights reserved. Page 2
  • 3. Overview On an enterprise-wide level, tying compensation directly to employee performance – and to company objectives – that makes sense. Why then is this the exception rather than normal practice? That doesn’t make “sense.” At some companies, a Human Capital Management strategy called Performance Management is strategically integrating compensation and incentives, goals and performance management tools to identify and motivate employees. These standardized processes support employee engagement at all levels of the enterprise. And adopters of Performance Management report an additional benefit: HR is free to become a strategic business contributor. HR executives are finding fresh ways to reduce operational costs and improve A shortage of skilled and competitive advantage. As enterprises reach diminishing returns using layoffs and talented workers is all but relentless cost cutting as operational tactics, they adopt a Human Capital Management approach that is taking their organization to the next level, improving inevitable. The labor business results and keeping their enterprise vital: Performance Management. shortages that plagued high-tech companies in “Labor is most companies’ single largest expenditure,” says Monica Barron of AMR the halcyon days of 1999 Research,(1) “It’s time to invest in processes and technology that helps collect and 2000 will look like a accurate and timely data, to educate HR managers and line managers to use this data minor irritation in to make sound, defensible decisions about compensation and employees.” comparison. - Labor market expert With Performance Management, organizations introduce an integrated approach that Anthony Carnevale makes it easier to find, motive and retain the kind of people who flourish in an environment of change. A sound Performance Management strategy reduces cycle times involved with annual employee reviews and compensation adjustments. Processes become more accurate and consume far less time – and these benefits resound throughout the organization. Early adopters of Performance Management report that top performers are more easily identified – and can then be rewarded in proportion to their contributions. The approach reduces the chance that under-performers will receive rewards despite their deficiencies. Aligning pay with performance is a critical issue, because old methods place organizations at risk from workforce misalignment, reduced morale, productivity loss and the potential of losing top performers. The way people are rewarded in an organization directly affects the quality of their work. It directly affects their attitude, flexibility and behavior towards learning new skills. Page 3
  • 4. Pay-for-performance builds a culture of top performers. Strategic Performance Management represents a fresh perspective for companies that are serious about achieving workforce alignment, driving productivity and retaining the people who create the most value for their organization. The pay-for-performance culture When an organization builds a workforce composed of employees with skill, confidence and drive, everyone gains new energy. When employee compensation is linked directly to organizational objectives, the entire enterprise feels the benefit. The strategic alignment of compensation and performance can have dramatic impact to a company’s bottom line. Give consequence to employee performance The effective Building a performance-oriented culture involves instituting the kind of incentives that communication of clear, truly support desired actions and behaviors. Some organizations are turning to concise milestones leads Performance Management to automate the process and drive organizational success. to higher achievement “Pay for performance” is based on the belief that variable compensation focused on rates. individual performance is one of the best ways of ensuring that employee performance meets organizational goals. Organizations that have embraced this approach report that the effective communication of clear, concise milestones leads to higher achievement rates. The thoughtful linking of compensation and rewards to organizational objectives serves to motivate employees. Individual performance improves. Employees are motivated to make an organizational impact. And companies that take the Performance Management approach are discovering that it does something else: it frees Human Resources to become a strategic business contributor. Tying compensation to performance gives consequence to employee performance. A successful Performance Management strategy helps retain top performers and drives growth and performance of the enterprise. Pay for performance: two models Integrated web-based Human Capital Management (HCM) provides the technology platform to directly link compensation with performance to help organizations budget, allocate, track, and automate the reward process. Automating the process with a centralized system also avoids errors that can result from paper-based compensation processes, and puts the necessary tools in the hands of managers and employees to drive performance. Page 4
  • 5. Although the concept of pay-for-performance is not new, the systems for automating these functions have greatly evolved. There are two primary models for pay-for- performance. One model involves the automation of an organization’s review process for annual bonuses and merit increases so that they are based on individual performance ratings. This model is most common, although effectiveness is often diminished if the system is paper-based. The second model uses goal-driven incentive plans that go beyond the annual review. The nature of the market These incentive plans are tied to the achievement of specific time-based goals or and the makeup of the stretch goals. This model is concerned with motivating and rewarding individuals or workforce are both about teams for overachievement outside the annual review process. Many organizations to change, so forward- that have adopted this approach report that it tangibly influences performance. thinking companies are Rewards may include cash or other incentives and can be applied to any role. Every acting to create an aligned dollar is more wisely spent when the goal is to effect organizational performance and workforce, fully engage growth. With the best managed performance solutions, every employee can be fully employees and reward aware of their goals, knows how to reach them and understands just how their efforts top performers in a way benefit the organization as a whole. that inspires them. Demographics as destiny: how companies stay competitive We are in the midst of a truly staggering demographic revolution - the aging of the workforce. Asia and Western Europe join the United States in this demographic destiny. By 2010 when 76 million U.S. employees start to retire, American business faces a projected labor shortage of nearly 10 million workers. In a 2003 report to the National Association of Manufacturers, labor market expert Anthony Carnevale wrote, “A shortage of skilled and talented workers is all but inevitable. The labor shortages that plagued high-tech companies in the halcyon days of 1999 and 2000 will look like a minor irritation in comparison.” That’s why pay-for-performance and other human capital management strategies are getting so much attention across the country – and around the world. Global competition for workers is becoming a reality. The nature of the market and the makeup of the workforce are both changing, and forward-thinking companies are acting now to integrate compensation, goals, incentives and Performance Management strategies. These processes together are inherently functions of pay-for- performance. Early adopters address the processes that drive these areas because they realize the value: an aligned workforce, fully engaged employees and top performers who are rewarded in a way that inspires them. Organizations that address workforce issues now are saving more than time and money – they’re retaining critical business knowledge. They’re building stronger organizations. They are keeping their competitive edge. Page 5
  • 6. Human Capital Management At the heart of Human Capital Management is the belief that employees are an asset meriting investment – that organizations can see greater financial benefit from a creative, engaged workforce than if they built a new facility or upgraded desktop PCs. A direct link to increased shareholder value “Companies have an opportunity to apply the same lessons they’ve learned about Human Capital managing suppliers and customers when managing their employees,” says Judy Management provides Sweeney of AMR Research.(2) “Human Capital Management is a great way to put solid business process systems and processes in place to understand and manage the substantial support. HCM allows investment you’ve made in your workforce.” multiple methods of access and provides real- HCM drives real value by helping to attract, nurture and motivate an organization’s time analytics. The best most important asset – its people. Human capital is more than simply the latest HCM solution is both politically correct phrase for employees. It is, according to the Society for Human broad and deep. Resources Management (SHRM), “the collective sum of the attributes, life experience, knowledge, inventiveness, energy and enthusiasm that its people choose to invest in their work”. Human capital is an intangible asset that can make or break an organization. Forrester Research reports that “according to a number of research studies, including those of Watson Wyatt, companies with better human capital management practices grow shareholder returns by three times compared to companies that don’t.” (4) In the past 20 years, the ratio of intangible to tangible assets in organizations has more than completely reversed, reports Craig Symons of Forrester Research (3). According to studies by the Brookings Institute, in 1982 tangible assets amounted to 62% of firms’ total assets. By 2002, only 20% of assets were tangible while fully 80% of assets were intangible – most of this is represented by human capital. We have spent decades investing in automation technologies to optimize our use of tangible assets but only recently have companies begun to invest in optimizing human capital. Components of effective HCM suite HCM solutions are critical for every manager in the company – not just the HR department. Fully integrated Human Capital Management systems make it possible for organizations to increase performance. The best results occur when Performance Management aligns fully with operational and individual goals. Integrated HCM makes it possible to link development, training and incentives to help employees excel. Performance Management helps find, motivate, reward and retain employees who possess the skill, confidence and drive to make the enterprise a success. Performance Management frees HR staff from ownership of the review process and unlocks workforce potential. A successful HCM approach is one that is fully integrated. In addition to Performance Management, look for these components: Page 6
  • 7. Goals Management automatically cascades corporate goals to each division, department and person. Unites employees around a company’s future, its vision and its strategic goals. Increases workforce trust, productivity, retention. Multi-Source Feedback gives every employee their own competency-based development plan. Plans are built on 360-degree assessments from internal and external customers, peers, subordinates and supervisors. Supports a more performance-driven organization. Learning Management augments and enhances the training of employees at all levels of an organization. Very cost-effective. Increases productivity and improves competitive advantage. Compensation Management manages compensation and incentive planning enterprise-wide. HR manages compensation plans, rather than administering them. Saves time, improves budgeting, delivers feedback quickly. Competency Management helps identify competency strengths and gaps. Aligns individual development plans with the hard and soft skills that support corporate business strategies. Drives competitive advantage. Learning Content Management develops, stores and manipulates corporate knowledge. Augments corporate training and measures its impact. Manages and publishes content. Strengthens expertise and keeps the organization competitive. Succession Planning allows organizations to plan for changes when key players leave. Helps anticipate necessary skills, ties individual development plans to gaps in the organization’s talent pool. Incentive Management ensures that goal-driven incentive plans are tied to achievement of specific goals. Motivates employees, administrates financial rewards, calculates and manages reward processes. Drives organizational growth. What makes a truly effective HCM solution? An effective HCM system should meet the following requirements: Fully Integrated Companies with superior human HCM solutions should offer both the breadth and depth of functionality, while being capital practices can create fully integrated within a single database system. At the same time, a fully integrated more than double the shareholder value than system from a single vendor is a key to success, because your organization is free companies with average human from the need to interface with multiple vendors and multiple system integrations. capital practices. Rapid Deployment Watson-Wyatt Rapid deployment means implementation that takes weeks, not months or years. HR departments can not afford the time to dedicate 18 months to implement a workable Human Capital management solution. Successful implementation can range anywhere from 6-18 weeks. Highly Configurable HCM systems should be able to configure to existing processes and workflows; the best are able to customize to the look and feel of the organization. Ask about custom report templates and input forms. Page 7
  • 8. Scalable HCM solutions should be scalable to any size organization. It is reasonable to demand maintenance of high performance even with 500,000 concurrent users. Role-based The best HCM systems are role-based. They can support workflow responsibilities and executive reporting, including separate workflows for job type, department or division. Intuitive The system should be intuitive to users and very easy to use. If employees find the system complicated or cumbersome, it’s a system that won’t get used to full advantage. Open Standards The system must be based on open standards. It must be flexible enough to interface with existing HR systems or ERP applications. Learning content must be AICC, ADL SCORM, IMS and IEEE standards compliant. Comprehensive Reporting The system should offer robust ad-hoc and delivered reporting that captures both individual details as well as at the department, division, or enterprise-wide levels. Find the right outsourcing partner Managing the value of human capital is the most complex exercise an organization can undertake. Look for an outsourcing partner that can provide demonstrated experience at producing the hard dollar returns that your organization deserves. Seek out an outsourcing partner that can help you identify metrics that hold real meaning for your enterprise. Making the outsourcing decision The best HCM solution When an organization moves to an outsourced Human Capital Management solution, providers will be quick to it’s because they see a direct link to reduced operational costs, healthier business show you exactly how you performance, and improved competitive advantages. Only the most comprehensive can make money, save and integrated solutions will be able to deliver on the promise of solid customer-based money or add value. ROI analysis. Track all aspects of a positive return on investment – people, technology, dollars, organizational productivity and performance. You will see a powerful alignment of assets. Managed HCM solutions can represent a very valuable strategic partnership. The best outsource partners will understand your business, your strategy and your areas of pain. The best will be quick to show your enterprise ways to make money, save money or add value. Page 8
  • 9. Measurable financial results According to Watson Wyatt's 1999-2001 Human Capital Index survey of more than 750 international companies, organizations that show a significant improvement in 43 HCM best practices can expect to achieve a 47 percent increase in shareholder value. That’s because this integrated approach to workforce Performance Management links corporate strategy with individual goals, aligning energy throughout the organization. Goals can be linked against performance, and performance aligned with compensation and reward systems. When HCM strategies are used to full advantage, an organization’s chances of success are improved. Employee satisfaction rises, which keeps turnover low. Because it improves business results, HCM holds value within the organization. For any organization considering an investment in Human Capital Management solutions, saving real money is number one. Too many corporate investments are made to avoid costs that never come to pass, so any new relationships must be based on measurements that hold real meaning for your enterprise. Process improvement is very important; look for ways that cycle times can be reduced. CFOs are particularly interested to learn about improved controls. With change, controls are lost, resulting in a higher-cost process. The best HCM solutions come with real controls, real metrics and tangible ways to show your organization how it can avoid cost and expand its business. Process improvement and hard savings can’t be ignored. Neither can trust and credibility; the best outsourcing partners will bring all this and a “can-do” attitude that takes your organization to new heights. For one large manufacturing company that implemented Human Capital Management, the impact was immediate and measurable. A return on investment of $228,000 was achieved within the first year after implementing an HCM system across one 6,000- employee division. More important, these are recurring returns; they represent an annual savings. The HCM approach also enabled employees and managers to clearly map individual goals that aligned with corporate objectives, from corporate headquarters to the manufacturing floor. “All HCM solutions are not created equal. So ask the hard questions. Ask Human Capital Management suppliers if their solutions are fully integrated. Do they manage the entire employee lifecycle from background screening to hiring, compensation, performance evaluation, learning and succession planning? Does their solution link individual employee performance plans with key company goals? Investigate, document and challenge any potential HCM partner in order to confirm that their technology is strong, their processes proven, and their people fully committed to your organization’s success. The right Human Capital Management partner can be key in an increasingly competitive marketplace. The right partner can help your enterprise flourish.” Craig Julien Vice President Ceridian Talent Acquisition & Management Solutions Page 9
  • 10. Conclusion Some organizations are identifying and motivating top employees, standardizing processes and supporting engagement at all levels of their enterprise using a Human Capital Management strategy called Performance Management. This fresh approach links goals, performance and rewards throughout the enterprise. And adopters of this approach report an additional benefit: HR is free to become a strategic business contributor. Impact the bottom line. Drive organizational growth. Use Performance Management to keep your organization competitive. When companies apply the success strategies of dynamic Web-based solutions like Performance Management, individuals, teams, executives and salespeople are encouraged to highest-level performance. Performance Management motivates. It communicates. It saves time and creates clarity at every level of your company. Everyone can make better decisions – faster. When organizations clarify their goals, employee morale improves. Productivity soars. With a system that makes pay-for-performance a reality, everyone is free to concentrate on building the business. There is renewed focus on success. Human Capital Management solutions like Performance Management represent a new perspective in organizational development, making it possible for HR to become a full strategic partner and help drive growth. Successful enterprise-wide performance depends on alignment between individual goals and overall corporate strategy. By further aligning corporate rewards with individual performance, every employee understands how their efforts contribute to the success of the enterprise. Keep your employees engaged, motivated and focused on what keeps your company successful. Resources Because it’s powered by Softscape, Ceridian’s Human Capital Management solutions can directly link results to reduced operational costs, healthier business performance, and improved competitive advantages. Ceridian Human Capital Management powered by Softscape delivers on its promise of solid customer-based ROI analysis. Track all aspects of a positive return on investment – people, technology, dollars, organizational productivity and performance. Managing the value of human capital is the most complex exercise an organization can undertake. As leaders in managed business solutions, Ceridian and Softscape possess the depth of experience you need to Page 10
  • 11. determine and document the hard dollar returns on your investment. We help you identify metrics that hold meaning for your enterprise. To learn more about HCM visit www.myceridian.com Ceridian is changing the world of work by enabling companies to be free to succeed in their core business through its suite of innovative managed human resource solutions that include payroll and compensation, staffing, compliance, HR administration and employee effectiveness. Ceridian Corporation (NYSE: CEN) is an information services company serving businesses and employees in the United States, Canada and Europe. For more information about Ceridian's comprehensive array of human resource solutions, visit www.myceridian.com or call (800) 729-7655. Softscape (www.softscape.com) provides integrated people management solutions to enterprises and government agencies. With over a million global users in 27 countries, Softscape’s award winning web-based technology and proven strategic services, offer customers comprehensive solutions to better manage strategic HR functions and government case management. Softscape continues to advance the market with the broadest and most complete set of fully integrated enterprise software modules with unprecedented flexibility, rapid deployment, and lower total cost of ownership. Embodying a unique approach to people-centric systems that is redefining the standard for operational effectiveness, Softscape solutions are focused on enhancing productivity, facilitating long-term planning, reducing operational costs, and driving organizational performance. (1) AMR Research Inc. HCM Resolutions for 2004, Jan 2004 (2) AMR Research, Inc. Strategic Applications Fuel HCM Growth, August 2004 (3) Forrester Research Inc., Human Capital Mgmt: expect further consolidation, June 2004 (4) Forrester Research Inc., Human Capital Mgmt: expect further consolidation, June 2004 CERIDIAN 3311 E. Old Shakopee Road Minneapolis, MN 55425 800-729-7655 www.myceridian.com ©2005 Ceridian Corporation. All rights reserved. Printed in the USA 07/04 USA-C-KH Page 11