By Dr Malcolm Johnson FAIM
Time flies. Halfway through the financial year and performance targets have become a near and present reality. It’s here we ask, what can you change now to gain beneficial outcomes at the start of the new calendar year?
As we approach Christmas, some employees will be looking forward to performance bonuses. Others do not have this as part of their remuneration package. Within a single workforce, such disparity can set a discordant tone if remuneration arrangements are seen to lack fairness in terms of dollars (distributive justice) or organisational processes (procedural justice). Any resulting dissatisfaction with pay can lead to a decline in job performance and withdrawal behaviours such as absenteeism and voluntary turnover.
Remuneration has been described as a hygiene factor and knowing the staying rating and going rate (also known as the ‘market’ rate) plays an important part in that. But as we all know, it is human nature to quickly habituate to the prevailing rate of pay so that it ceases to have an enduring influence. Powering up performance depends on what you are trying to achieve. Do you want to boost efficiency or effectiveness?
A lot of this relies on a multifaceted approach which you may already be doing in whole or part. Recruiting the right people and training them extensively is foundational to performance. Research shows that this is considered a hotspot as 10 per cent of people will leave if they have inadequate training and are unable to fully use their skills and experience in their new role. This is an inclining figure.
Motivating people is the second approach that typically focuses on competitive compensation, incentives, and benefits (the market rate). There are other aspects that also come into play including developmental performance management, promotion and career development, and offering job security. Extracts from the Australian Institute of Management’s Career Crossroads research shows that delivering on these aspects encourages people to remain in their organisation.
The third string to the performance bow relates to human resource practices that empower employees to use their skills and motivation to achieve organisational objectives. These include flexible work design, work teams, employee involvement, and information sharing.
Investment in this multifaceted approach to creating a high-performance work environment is epitomised in the findings of AIM’s Middle Management research. Employees see such initiatives as a way of employers investing in their employees for the long-term which results in them working harder to reciprocate.
Human Capital is another aspect that emphasises the composition of employee skills, knowledge and abilities. It is the key driver of performance, but which of these three approaches is going to you best performance outcomes? All three performance enhancing practices have significant and positive effects on human capital in the following order:
- Skill enhancing practices explain 48% of the variation in human capital performance
- Motivation enhancing practices explain 36% of the variation in human capital performance
- Opportunity enhancing practices explain 16%
In terms of motivation, all three human resource practices again have significant and positive effects but performance outcomes are influenced differentially:
- Motivation enhancing practices explain 45% of variation performance outcomes
- Opportunity enhancing practices explain 38% of motivation performance
- Skill enhancing practices explain only 17%
Ultimately, it comes down to what organisational objectives you are trying to achieve through your people. If it is about ramping up your competitive advantage through human capital your best returns will come from focusing first and foremost on the employee skills, knowledge and abilities. Supporting this will be motivation enhancing practices backed by opportunity enhancing practices through job design and related initiatives.
If you want to attract and retain capable people who are motivated to seek out new opportunities to grow the business then you might change your emphasis in the New Year to programs that highlight motivation enhancing practices. These would include promotion and career development, developmental performance, competitive compensation, incentives and rewards, and job security. You can back this focus by rethinking how your people can work more effectively through flexible job design, work teams, employee involvement, and information sharing.
Powering up performance requires clarity about the outcomes being sought and then being intentional about the degree of emphasis to be placed on each of the three human resource practices. One thing is clear, enhancing the acquisition of skill, boosting motivation, and encouraging opportunity seeking behaviours will boost financial outcomes. The latest research confirms that this uplifts financial outcomes by 27 per cent; surely a good way to start the New Year.
Johnson, M. (2014). Career Crossroads, AIM.
Jiang, K., Lepak, D.P., Hu, J., Baer, J.C. (2012). How Does Human Resource Management Influence Organizational Outcomes? A Meta-analytic Investigation of Mediating Mechanisms. Academy of Management Journal, 55, 6, 1264-1294.
State of the Service Report 2014
Dr Malcolm Johnson FAIM is National Director, Research and Thought Leadership at the Australian Institute of Management. Malcolm’s contribution to enhanced management practices has been recognised through coverage in publications ranging from BRW, Asset, InFinance and Money Management to the Australian Financial Review and The Australian.