Implementing a new cost-sharing plan to make managers / leaders responsible for their people, beyond the traditional rhetoric "We are all about our people".

Problem

Despite a plethora of research in the acadmeic world, most corporates underming the importance of and fail dismally when it comes to managing people well. Despite having multiple business cases for fostering employee engagement and retention, most managers still pay mere lip-service to the issue.

Despite thousands of dollars invested into employee engagement programs, companies do not see the right results because nothing really gets done with the results.

How could we take an organisation-wide step to build more accountability for people management and employee engagement?

Solution

I believe that managers do not take enough responsibility for their people because they do not see a "direct" impact of poor people management and attrition on their individual "P&L". Enough has been done to show the impact of employee engagement on the enterprise-level business outcomes like profitability, attrition, safety etc. Perhaps, this issue needs to be made more "real" for managers.

Among others, attrition is one of the key outcomes of low levels of employee engagement. And, it's a costly affair. Apart from the talent loss, there are costs related to recruiting replacements, training the newcomers and the loss of training / recruitment dollars for the outgoing person. Various estimates have put the cost of attrition to be about 3-6 times of the employee's monthly salary. At times, it can be up to 1 year of employee's salary!

Traditionally, these costs are born from the budgets of the Human Resources departments.

I propose that these costs be shared between the HR and the individual managers. The cost of attrition must be established and a portion of it must be born by the managers, so that they understand the importance of managing people well, rather than treating them as mere resources.

I feel that a progressive cost-sharing ratio needs to be worked out in this scenario. This is to allow for the system to sink in as well as give people managers ample time to go through a process of education, changing behaviour and implementation. So, we could begin with something like 80-20, where 20% of the attrition costs are borne by the line and 80% by the HR and increase line's share of the costs gradually over a period of 3-5 years.

Another improvisation to the plan could possibly be that the performance of the leaving employee should be factored in. So, when an employee with a high performance rating leaves, there is a slightly greater penalty to to the manager, as compared to a situation when a low-performing employee leaves.

Practical Impact

Greater ownership of people management among line managers.
Change in mindset that people are "resources". Brings about a "real" need to manage people really well.
Better people management will contribute to better employee engagement.
Engaged employees will help create engaged customers and thus, contribute to better business outcomes.
Reduction in overall costs of attrition

First Steps

Engage the organisation in conversations about employee engagement and people management.
Begin a consultative process (including senior leaders and middle management) to establish the cost of attrition and cost-sharing ratio
Establish a comprehensive change management program to plan, communicate and execute change. The change process will include an educational component too for managers.

Credits

The works of people like Peter Drucker, Douglas McGregor, Peter Senge, Gary Hamel and countless others who I interact with on Twitter, LinkedIn and my blog brought this idea out of me.
And of course, the various clients who I have worked with, who have shared their problems and ideated together with me on solutions.

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June 21, 2010 at 6:14am

Abhishek Mittal

Matt - thanks for the great comments.
The main theme I am trying to address is managers' over-focus on the "business" issues and indifference to the "people" issues. I am not trying to address "judgements and decision-making" which are more directly related to business / operational areas.

On what I have seen in my short consulting experience is that organisations grapple with making employee engagement a vital part of the managers' role. Making managers more accountable for their people is what I am trying to address.

When managers genuinely engage employees, it leads to better business outcomes (plenty of evidence for that). And engagement is a function of various drivers such as role clarity, empowerment, leadership, progress, pay etc. Research again shows that engaged employees are more likely to be more innovative, productive and loyal.

June 21, 2010 at 11:23am

Matt Shlosberg

Abhishek -

Thank you for the post.

Please help me understand your idea a little bit better.

If managers make poor judgments, rewards and punishments don't change much. Incompetence can only be cured through proper education. By sharing costs between HR and managers, how are you impacting their judgments incompetence?

I've seen many companies implement what you've described but I am yet to see the difference. When managers are inexperienced, they make mistakes regardless of rewards and punishments. When managers are of senior level, they don't make these mistakes as often, so there's no point in punishing them. Also, how would this system impact managers' ability to take bold risks?

How would you use your idea to solve this problem?

June 22, 2010 at 6:34am

Abhishek Mittal

Matt - thanks again for your interest in this post and for making me think :)

As I said, we will need a comprehensive change-management framework to execute an atypical idea like this. And, as you said, manager education will be a critical component of the process.

Also, consider the large number of companies which invest in employee engagement programs. Based on survey results, they often embark on an action planning initiatives and ask managers to create workgroup level action plans for workplace improvement. One of the most commonly used ways of making managers accountable for action-planning is to set one of their KPIs as completion of action planning and achievement of target scores in subsequent surveys. This KPI is then linked to the managers' pay increments / bonus. But, often this can lead to"doctoring" of engagement programs.

My proposal attempts to tackle such problems by making engagement, actioning and emphasis on people management a more integral part of the managers' role - putting people management into the profit & loss equation.

June 22, 2010 at 6:35am

Abhishek Mittal

Matt - thanks again for your interest in this post and for making me think :)

As I said, we will need a comprehensive change-management framework to execute an atypical idea like this. And, as you said, manager education will be a critical component of the process.

June 22, 2010 at 6:52am

Matt Shlosberg

Abhishek -

I agree. I've seen exactly the types of situations you are describing. The next question then is: How do you make managers more accountable? I have seen managers with P&L responsibility gladly pay for improperly placed employees because they thought it was a better option than going the "firing" route.

I think you are on the right track. Maybe the next step is to educate managers on hiring and firing employees or placing them in the right jobs?

June 23, 2010 at 6:22am

Abhishek Mittal

Tarry - thanks for those comments.
Appraisals are a good way of tackling this issue. But, often "people management" gets assessed quite subjectively in performance evaluation. Hence, I was looking at quantifying it and incorporating it as a part of "financial performance" of managers. Yes, they could "manage" the budget deficit, but a managers P&L would still get affected.

June 23, 2010 at 9:50am

Tarry Asoka

Abhishek,

Thanks for this hack. But what better accountability tool than holding managers responsible for the poor performance of their people - by instituting good people management competence as an appraisal issue for managers? Managers should know the variability of work and the need to effectively engage their people. Where employees leave because they have not been fully engaged - I agree that their managers should be held responsible. But budget sharing appears to be too remote and the budget deficit can be annulled through other means. Rather, this should be reflected in the annual appraisals for managers - because this has a direct consequence on their career progression both within the organisation and possible movements outside.

June 26, 2010 at 11:53am

Louis Blom

Hi Abhishek

I agree that there needs to be more accountability. However I see this as an on going part of the good people recruitment and management. I believe the problem is getting the 'right' person for the job will make this approach more acceptable. Many time the hiring process is about what qualifications the person brings. Then once they start you see that they do not compliment the team dynamcis.

So managers are concerned about taking accountability as many times they feel it is a hit and miss process and that HR hired the wrong person. If the role (person, values, characteriscs etc) are well defined, and the prospect is better screen for not just education and experience, the entire process becomes more manageable.

I have experienced the proof of hiring for more than skill, and the results are better and the team is better equiped. This way the manager would take accountatbility. The manager and HR need to take more time to in the hiring process.

Does this compliment your approach?

July 7, 2010 at 6:16am

Abhishek Mittal

Jordan - thanks for your comments and I whole-heartedly agree with your points regarding creating an exciting vision, empowering people, celebrating successes, respect etc. But, often, I have found that there is a need of "hard incentives" in some organisations.

No contest, I am all for these "soft incentives" proposed by you. They are really effective, but I felt sometimes we do need to bake in "hard numbers" for the soft issues.

July 7, 2010 at 12:56pm

Jordan Cohen

I think you’re onto something. The research on employee engagement is very compelling however,
here i anther way to look at it besudes as a mechanism of cost. I view good management style as a huge lever for engagement, which doesn’t necessarily cost a thing. Build an exciting vision, give employees responsibility and mutual respect, hold them accountable to stretch targets and celebrate wins along the way. If managers get employees excited and give them an opportunity to contribute, they’re one step closer to engagement. Jordan