Competition for talent
In today’s business world, competition for top talent is increasingly fierce. There are several causes of this framework: the lack of professional training, the absence of processes that motivate employees in companies and the entry of Generation Y in the labor market.
Generation Y is a separate chapter, because this generation is formed by professionals that are the most difficult to attract and retain at companies. A legitimate representative of this generation seeks both financial reward as a “greater” for their professional development purpose. It is a professional who wants to climb the career ladder quickly, but without sacrificing their personal life. Lacking loyalty to the organization where they work, members of Generation Y seek job opportunities with good pay and quick professional development careful to keep their personal life intact.
The solution and mechanisms
In this scenario, many organizations are led to believe that the salary increase is the only, or one of the essential components, to retain and / or attract talent. But what was found is that in many companies, even when offering the best wages, the professionals were still not returning to the organization in the same proportion. The financial result generated by the company fell short of the cost in salary compensation of employees, which grew.
This occurs for various reasons and are well related to the factors mentioned in the first paragraph. Among some factors we can mention that people do not submit to the appropriate profile of the company or the role’s techniques and / or behavioral skills; not engage the principles and values of the company; or are not motivated because they do not see growth potential or do not believe that will be recognized for the work done.
Creates a scenario in which firms increase the costs of maintaining the professional, but the counterpart to the organization does not. Despite being already rewarded by higher wages, talents fail to turn their skills into results.
And this dilemma is not a privilege of large corporations. It is increasingly common for small and medium enterprises (SMEs) to find themselves challenged by this paradox.
The question that remains is: what mechanisms can be used by companies of any size or segment to retain its talent and attract others to positions that lack talent without compromising its cost structure?
The answer lies in the application of the meritocratic philosophy!
This is a concept in which much is said but little is applied. In a recent survey of CFOs operating in Brazil, only 60% of them value meritocracy. Among the several reasons that explain the poor implementation of this philosophy is the failure of the models that were communicated without proper knowledge, as well as the planning required for the implementation of the meritocratic philosophy.
In this article, we brush the main critical success factors for organizations to differentiate themselves from competitors by attracting and retaining the best talent.
The meritocratic process is relatively simple in concept but requires method, planning and knowledge before implementation.
Meritocracy applied to business is based on three commonly accepted management techniques:
1 Establish challenges
2 Investigate and recognize the goals achieved
3 Reward professionals for results
It all starts by setting audacious but possible challenges to be met. From there, it is necessary to follow the development of the work and recognize those employees who contributed to the results achieved. Along with the recognition comes the reward.
It is the reward that is the major levers of the process. With it, you can offer a total compensation above the market which is aligned to the strategic outcomes of the company. It is formed as a “win-win”, because the improved results of the company is shared between the organization and the people who contributed to raising the level of the organization.
Profit Sharing and Results
Variable Compensation for Performance
One alternative to step reward is the Variable Compensation for Performance (RVD), which can be effective if well planned and designed. Another option is the Profit Sharing (PLR). Organizations which can use both mechanisms, or choose just one. There are also companies that can use criteria and rules for RVD as their PLR. But as the PLR always requires negotiation with the unions to any setting or changing the rules, this model becomes bureaucratic and exhausting.
In general, the PLR is agreed with the unions and, once implemented, can not be removed. If the criteria is poorly negotiated it becomes a form of extreme risk to the company,. They often have to pay the PLR not only when it has profits, but also when it has a loss. To change any of the rules of the program further negotiation and approval from the union is required.
The RVD is a kind of bonus which has interesting features like:
1) Its rules can be changed and even made extinct without major complications and legal entanglements
2) Employees can be selected without necessarily having to get approvals at higher levels
3) You can have half-yearly or annually compensations.
4) Has a feature to measure individual and sectoral goals, and not simply an overall result for all
Critical success factors
Despite it being a powerful tool, RVD can be as bad as the PLRif poorly planned and modeled. Remember that at the height of the 2008 crisis, the major banks that failed in the United States paid record bonuses to their executives. This is a clear and iconic sample of a poorly designed and conducted program.
In Brazil, meritocracy is a bit misleading, and many are unbelievers because of the unsuccessful application of philosophy by some organizations. An inappropriate deployment can generate recognition and reward to people who are not deserving and discourage true talents that deliver results. Many executives are afraid to create a program that they believe will pay bonuses without consideration for the organization.
1) Failure to define goals and metrics that are challenging and aligned to the organization’s strategy
2) Lack of clear criteria on rules in the processes of recognition and reward. Transparency is critical to employee engagement.
3) Using relationship, friendship and closeness as evaluation criteria. Processes well made, impartiality and decisions are based on facts and data.
4) Exclusionary rules that reward, only a few people. The rule has to be global. All that deliver the results will be recognized and rewarded.
When well planned and modeled, meritocracy becomes a mechanism for attracting and retaining talent. For this modeling, it is crucial that the meritocratic philosophy is carried out and supported by companies that already have the expertise in the process.
The main critical success factors of a consistent model of variable pay for performance is:
1) Definition of triggers. Are the mechanisms that determine above which level the company is overcoming the expected results and thus may result incremental share this with the people who contributed to this range.
2) Definition of the rule for determining the amount to be distributed (bonus pool).
3) Defining appropriate metrics that measure performance.
4) Ensure alignment of all program goals with strategic objectives.
5) Clear communication of the rules of the model without possibility of exception for engagement of all.
Deploying meritocracy: talent management
It is very important to remember that although there is a method, each company has its own characteristics. Therefore, the rules are different between companies. The characteristics which I refer to are: sector performance, strategy, values and maturity level, monitoring results, people management, and application of meritocracy, among others.
Another mechanism that is part of the meritocratic model and the fundamental process of retention and attraction, but requires a greater degree of maturity, is what we call talent management.
Talent management to a more mature beginner can be seen in the choice or definition process of persons to be promoted and also in the definition of who will receive salary increases.
In more advanced levels of maturity, it will be present in the definition and preparation of successors of the organization process.
A key point to be emphasize to companies who are interested in implementing meritocratic philosophy is that this model brings with it the requirement for a cultural change in the company, which should be seen as part of the company’s values. Only then, meritocracy is actually applied in its fullness. Cultural disruptions do not happen one month to another or from one year to the next. Normally, a change needs time to be accepted and consolidated, until they turn “blood in his veins” and “air to breathe” to employers and employees. The process becomes effective between 3-5 years, depending on the maturity and leadership during the change.