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.”
- 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
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
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
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.
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-
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.
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:
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
Learning Management augments and enhances the training of employees at all
levels of an organization. Very cost-effective. Increases productivity and improves
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:
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.
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.
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.
HCM solutions should be scalable to any size organization. It is reasonable to
demand maintenance of high performance even with 500,000 concurrent users.
The best HCM systems are role-based. They can support workflow responsibilities
and executive reporting, including separate workflows for job type, department or
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
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.
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
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.
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.”
Ceridian Talent Acquisition & Management Solutions
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.
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