Performance and Rewards In The Future of Work

There’s no question we’re going to spend a lot of time in 2020 talking about the Future of Work, I’m getting asked about it constantly. 

As I get ready to publish our prescriptions for the year ahead, let me mention the important topic of performance and rewards, because they are essential to the way people behave.

First, as you all know, organizations have become very interconnected. This means that people work in a more agile fashion (not necessarily in the Agile Methodology), they lend a hand to other projects and teams, and their managers are less involved in their day to day activities.

As Edgar Schein once sent to me, in any company the most valuable cultural asset is “people wanting to help each other.” How do we incent, reward, and pay people so they want to help each other? This gets to the core of the performance and rewards process.

Also, as you know, the traditional performance process is based on individual achievements (all based on the concepts of “rugged individuals” each of whom can rise to the top), goals of some kind, various forms of 9-box grids (succession plans), talent reviews, and periodic pay raises. These practices fall into the category of “performance management.” Research now shows that the highest performing companies reward people for team goals, not just individual goals, yet fewer than a third of companies do this.

Third, we also now know that this process is riddled with problems. A new study by Mercer (an excellent study) found that only 2% of companies believe their performance process delivers high value, only a half have goals at the business unit level (how do you set individual goals when you don’t have a business unit goal?), and fewer than 3% believe they have excellent feedback practices. To make this even more challenging, the study also found that only 30% of companies rate managers on their people leadership capabilities and only 9% reward managers based on their ability to lead people.

Seems crazy doesn’t it.

Well the study, which is well worth reading, essentially points out one of the most fundamental things going on in business. We are now well into a world where companies operate as networks of teams (I like to say that every company is turning into a professional services company) and management practices have to catch up.

As I learned during my seven years at Deloitte, in a company driven by services (people serving clients, team mates, and internal organizations), the entire success of the organization is based on alignment, continuous feedback, trust, and accountability. The Mercer study clearly points out that “pay for performance” is on the rise (and it’s quite strong in consulting companies), and the number one driver of success is a sense of fairness and transparency in pay. 

In other words, performance management has moved back into center stage again, but this time it’s all about sound goal-setting, clear expectations, focus, feedback, growth, and a fair, equitable, and well-designed way of rewarding people.

Mercer believes that “goal clarity comes first.” And of course, this has always been true. But the key word here is “clarity” not “goals.” Do your managers know how to help people focus? Tell them what not to do? Where to stop wasting their time? This is all about management development, and tying the performance management process to the business goals themselves.

I just visited PNC Bank last week, and the head of analytics for HR is also the head of business analytics for the bank. They can tell the number of new bank accounts being opened, the average balance in each account, and when a branch or geography is behind on its goals. So there’s no confusion about what “goals” people should have – the business goals are clear and the HR practices line up. Far too few companies operate this way, so we have to get our HR-driven performance process directly linked to the business leader’s goals.

What does this mean about ratings? The Mercer report shows that 15% of companies have now done away with ratings (doubled from last six years), but that removing ratings is not a panacea. Without strong feedback, the ratings don’t make a lot of difference. In other words, the key to performance management is “management.” Talking to people. 

One of the clients I talked with yesterday told me they hated ratings (they have a tendency to alienate most people) so they did away with them, replacing them with a 9-box type of process so EVERYONE gets a sense of their developmental needs and potential opportunities each year. It works well for them. It’s the latter that matters, not the former.

What do we do about pay? It’s still very important, but in the future of work we have to review it more often, adjust it based on market changes, and create total transparency in the process. One of the highly successful companies I talked with this week told me they do quarterly reviews of pay vs. benchmark for all major roles, and people receive cost of living adjustments at least once per year. Patagonia aligns raises (in base pay) for an individual’s in-the-job performance, and then pays high bonuses for “beyond the job contribution.” Lots of opportunities to innovate here.

Finally, the research points out, as all my other research shows, that career growth is key to performance and rewards. The best “reward” for any ambitious person is “a promotion.” And that may not mean a higher level, but it does mean a new, exciting, expanded role. As I’ve written about a lot this year, creating a talent network for career growth is key to the future of work.

At Deloitte (and other consulting firms) your growth is largely related to the clients, projects, and service line roles you have. Everyone moves around a lot and people move “up” by moving “around.” In fact I used to laugh that when we had internal meetings and people introduced themselves, everyone started with “I Lead xxxxx…” In other words, in the Future of Work, there are a lot of leadership roles, and they aren’t all held by managers.

(Note how low companies rate their managers’ ability to coach and set direction for people.)

As you think about your priorities for the year ahead, I really think you have to revisit this integrated set of practices in your company. We’re building some advanced courses on this for 2020 in the Josh Bersin Academy, and I’ll keep pointing out great research as I find it. And I”m exploring the topic of OKRs, which is a growing practice in many companies (and business functions) in this new world.

By the way, in early 2020 I”m publishing a fascinating report on Management of Tech Workers, which we just completed with HRPS. Tech workers, as you know, are the most in-demand people in the world. What you’ll see is that empowerment, clear goals, pay for performance, and transparency are all key to high performance in that area. So in a sense they are the “canaries in the coal mine” teaching us what everyone needs to perform better in this new world. This report will be out soon.

Let me conclude with one interesting conclusion from the Mercer research. The authors claim “Managers as we know them will cease to exist and AI will play a bigger their role.” Well, I think this is a bit over the top, but there is a message here. One of the biggest topics I run into as I visit HR teams around the world is “realigning or developing leaders to understand their new role.” Leadership in this new world is not just a job of “setting goals and holding people accountable.” I’d argue that’s the simplest part of all: now it’s a job of listening, coaching, advising, connecting, and serving as the career stewards for people around you.

Take a good look at your leadership model in the year ahead, and don’t be in the 91% of companies who don’t reward leaders for the real role they play. Everyone is a leader in the Future of Work, it is important in the year ahead that we redefine what leaders do. 

Stay tuned for more on the year ahead, and I want to thank Mercer for a fantastic research study which is well worth reading.