TOTAL PERFORMANCE MANAGEMENT: MAPPING PERFORMANCE TO EQUITABLE TALENT SELECTION

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1 TOTAL PERFORMANCE MANAGEMENT: MAPPING PERFORMANCE TO EQUITABLE TALENT SELECTION February 2017 Report Highlights p3 p4 p6 p9 The post-financial crisis employment landscape slowed down the rate at which new employees were being allowed to enter the workforce, while slowing down the rate at which businesses could, or would, take risks to expand. Seventy-nine percent of companies seeking high-potential candidates saw a critical skills shortage in their talent pipelines. Best-in-Class companies are 24% more likely than All Others (71% vs. 54%) to prioritize increased innovation as a top priority for the organization. Best-in-Class companies were 25% more likely than All Others (52% vs. 39%) to define high potential talent criteria based on internal and external business drivers. Heading into 2017, organizations are still grappling with a skills gap and lack of clarity around what defines top talent. In this research report, Aberdeen will look at the market characteristics leading to these talent acquisition pressures, as well as what Best-in-Class employers are doing to respond to and resolve them.

2 2 Total Performance Management: Mapping Performance to Equitable Talent Selection The financial crisis prolonged an entire generation s retirement and led to lower levels of corporate risk-taking on new people and new ideas. Now, employers are embroiled in a hiring showdown amidst a looming skills gap. Aberdeen s Maturity Class Framework Aberdeen s research defines a Best-in- Class organization by looking at organizational performance and then categorizing survey respondents into three maturity classes described below: Best-in-Class: Top 20% of performers Industry Average: Middle 50% of performers Industry Laggard: Bottom 30% of performers Aberdeen also uses a fourth, comparative maturity class, All Others, that refers to a combination of the industry average and laggards. Changing industry trends have caused a skills gap to emerge in almost every industry. In a 2016 survey, Aberdeen found that 58% of organizations acknowledge that a lack of quality talent, leading to a skills gap, is their most significant challenge in talent management and talent acquisition. Which leaves one to wonder, Is the quality of the workforce to blame, or are there other labor characteristics and internal considerations standing in the way? The reality is that HR, and organizational management, have yet to acknowledge the impacts of the slowdown in innovation and the looming retirement of the Baby Boom generation and the crossover generation immediately after it. Setting the Stage for a Hiring Showdown The 2008/2009 financial crisis caused a massive economic slowdown. In 2009, data from the US Federal Reserve Bank, reported on by Reuters, showed that U.S. household wealth fell approximately 20% from peak levels in Since then, the middle class has not felt the full benefit of the market recovery, which has been unevenly distributed across class levels and geographic regions. In regions where economic recovery has taken place, microinflationary pockets in the cost of living have emerged, despite a national trend of deflation in U.S. consumer prices. The nonuniform recovery is underscored by data from the National Institute on Retirement Security. The data reveals that in 2016, the average working-age household only had $3,000 in retirement account assets, while the typical near-retirement household had only $12,000. Aside from highlighting the recovery disparity, the lack of significant savings has also prolonged the retirement of the Baby Boom generation and crossover group directly after them. Despite the U.S. Social Security Agency noting that by 2013, 36% of the workforce was eligible for retirement, the retirement curve

3 Total Performance Management: Mapping Performance to Equitable Talent Selection 3 among the eligible population is following a more continuous logarithmic probability curve. Due to the lack of uniform recovery, and the resulting deflationary trend, there have been fewer general-skillset, entrylevel jobs. The current working generation is unable to stay in the workforce and fulfill the growing skills demand without new investment in training. Best-in-Class top talent turnover has leveled off at 48%, cumulative of voluntary leave, layoffs, and firings. The post-financial crisis employment landscape slowed down the rate at which new employees are entering the workforce, while delaying the rate at which businesses could, or would, take risks to expand. Today, as new entrants to the workforce are chasing entry-level jobs, employers are seeking deeper skill sets that accompany incremental innovation, as pushes for blockbuster innovation are growing farther and farther apart. The result is that new entrants are being pushed further away from full-time, salaried jobs. In the past, these positions had put their predecessors on pathways to becoming tomorrow s leaders. The Showdown Means New Pressures in Performance In a 2015 survey, Aberdeen found that 64% of Best-in-Class companies were likely to experience turnover of top performing talent 0-20% of the time. By 2016, Best-in-Class talent turnover of 0-20% had leveled off at 48%, cumulative of voluntary leave, layoffs, and firings. While the decrease looks good, turnover amongst younger generations remained above the 67% mark amidst a widening gap between top-skilled, specialized employees, and those poised for the general entry-level workforce.

4 4 Total Performance Management: Mapping Performance to Equitable Talent Selection Aberdeen found that 79% of companies seeking high-potential candidates saw a critical skills shortage in their talent pipelines. Consequently, executives feel they will only be able to deliver two thirds of the leaders they will need in the coming three to five years. 79% of companies seeking high-potential candidates saw a critical skills shortage in their talent pipelines. Best-in-Class companies are now 7% more likely than All Others (41% vs. 38%) to find their inability to overcome a skills gap to be a top pressure. The Best-in-Class are also 8% more likely than All Others (36% vs. 33%) to find an inability to recruit high potential candidates as another dominant pressure. Linking top talent to the skills gap shows that Best-in-Class companies are 63% more likely than All Others (80% vs. 30%) to realize a major pressure in aligning top quality candidates with the skills required by the organization. So, what is causing the bifurcation in skills demand vs. reality? Employees at 76% of Best-in-Class companies are likely to stay with the organization because they can chart a career track there. Employers are looking for the silver bullet in terms of the ideal candidate: One who will just plug in and hit the ground running from the point of hire. Part of the problem in finding these candidates is the logarithmic retirement curve that is prolonging the exodus of more senior age groups. Retention of older generations, whose experience and deeper skill sets that evolved alongside industry requirements, is allowing even the Best-in-Class to create a double standard in hiring and skills qualification: They are seeking a longer lasting, younger workforce, while at the same time, demanding deeper skills without investing in training or career development. In Humanizing Wellness: Using Advisors for Employee Well-Being (January 2017), Aberdeen found that the double standard is further exacerbated by the slowdown in new market development. As senior management pushes decision-making onto employees, they are investing in lower levels of blockbuster

5 Total Performance Management: Mapping Performance to Equitable Talent Selection 5 innovation. What this means is that management needs to focus more intently on fostering career development within the organization. HR also needs to brand and hire around career potential beyond just filling an immediate job need. For example, Aberdeen found that Best-in-Class companies are 30% more likely than All Others (30% vs. 21%) to focus on strategic talent branding up to the point of hire. However, even the Best-in-Class do not expand talent branding to career branding by looking at talent analytics and known trajectories in career development. Employees at 76% of Best-in-Class companies are likely to stay with the organization because they can chart a career track there. Beyond branding for career potential, career development requires ongoing employee training. However, while Best-in-Class companies are 42% more likely than All Others (50% vs. 29%) to use a learning management system, more than half do not advance content development along directed career training. Instead, their learning management solution provides a content repository for at-will, self-driven employee development. The picture gets worse when the lack of career development translates into performance metrics. Aberdeen has found that while 50% of Best-in-Class companies are generally increasing employee performance in line with the general quality of business, they are failing to align these improvements with greater achievement of management goals and objectives. In other words, 75% of Best-in-Class employers are failing to align management goals with an ongoing understanding of how they meld with, and depend on, employee development. Employers need to rethink how they are measuring and developing the quality of the workforce. Organizations also need

6 6 Total Performance Management: Mapping Performance to Equitable Talent Selection to remember that investing in HCM technology is not a replacement for good managerial practices. Performance Enablers for Employee and Employer Rewards Best-in-Class organizations are 23% more likely than All Others to be investing in employee collaboration and resource development ahead of automated management and data collection. The good news is that Best-in-Class organizations are 23% more likely than All Others (48% vs. 37%) to be investing in employee collaboration and resource development, ahead of automated management and data collection. As this trend continues, organizational management will continue to place communications channels and task management ahead of the flow of data. In a 2016 survey, Aberdeen found that Best-in-Class companies are 24% more likely than All Others (71% vs. 54%) to prioritize increased innovation as a top priority for the organization. The problem is that investments are not matching the necessary market-changing ideas that create entry-level job growth. Aberdeen found that only 27% of Best-in-Class companies are planning to expand hiring, and only 29% are planning to expand labor spend. Furthermore, only 59% of Best-in-Class companies are investing in fiscal recognition to improve employee performance or large-scale employee contributions to corporate growth. With such small-scale, incremental investment, how can employers ensure top skill sets from new entrants? In 2017, Aberdeen looked at what defined top talent for industry leaders. What emerged was a characterized general willingness on the part of an employee to take on more responsibility and provide more resources ahead of any guarantees of formal recognition.

7 Total Performance Management: Mapping Performance to Equitable Talent Selection 7 Table 1: Defining Top Talent Characteristic Leaders Takes initiative beyond the original role 88% Leadership skills develop into management 76% Contributes additional time/resources 68% Known contribution to improved revenue/fte 68% Interest in developing a career track internally 64% Source: Aberdeen Group (January 2017) n = 84 Table 1 shows the top characteristics that leading employers view as important to their definition of top talent. In Analyze This: Workforce Productivity (September 2016), Aberdeen found that Best-in-Class employers are focusing on driving improvements in productivity, innovation, and revenue per full time employee (FTE). Leaders are on the road to better connecting the workforce to direct business value measures. To achieve these metrics and realign employee performance with management goals, Best-in-Class employers are starting to embrace a unique combination of human capital management (HCM) functionality. This functionality should simultaneously provide them with workforce data and more directed investment avenues in the workforce. Table 2: Defining the Best-in-Class Ecosystem HCM Enabler Best-in-Class Analytics 80% Payroll 77% Non-Fiscal Rewards and Recognition 73% Compensation 66% Employee Wellness/Well-Being 61% Workforce Management 61% Fiscal Rewards and Recognition 59% Source: Aberdeen Group (September 2016) n = 204

8 8 Total Performance Management: Mapping Performance to Equitable Talent Selection The Best-in-Class are starting with a central system of record and are focusing on developing engaging data draws for end users. The Best-in-Class are starting with a central system of record, and developing engaging data draws for end-users that facilitate data collection, while incentivizing and prioritizing task management. The task management systems in rewards, recognition, and innovation management are helping to drive strategic communication of management goals and objectives by linking them to task lists for employees. Furthermore, they provide a direct avenue for employees to participate in organizational objectives while increasing the relevance of their work to the overall company. Aberdeen has found that having a sense of relevance to the organization is why employees are at least inclined to join and stay with 93% of Best-in-Class companies. On the back end of rewards platforms, employers can measure time to completion rates for certain tasks or goals. The added productivity data for the tasks themselves provides information about employee contributions and comparative figures for similar task loads across different employee sets. The data can also be mapped against payroll and compensation information to determine how to best roll out fiscal rewards and recognition to top performing employees. The result is a smaller amount of labor spend on fiscal rewards and recognition per employee, relative to improvements in productivity and revenue per FTE. Employers are starting to connect the dots on how top labor is differentiated from the average workforce. This enables employers to start honing in on a consistent definition of what drives labor performance at their organization. As the data from these interfacing solutions matures into an ongoing data set, employers can start to attribute an ROI to the workforce that links with the organization s financial performance. Furthermore, they can pass characteristics on to HR and departmental managers that will uncover how talent expectations and motivators are

9 Total Performance Management: Mapping Performance to Equitable Talent Selection 9 corresponding with corporate objectives to establish a persona for the ideal candidate. As a final resource component, Best-in-Class organizations are providing resources in employee wellness and well-being, designed to reduce the burden employees face in the selfmanaged workplace. Employees are being equipped with management resources to help guide their use of developmental task management in goals and innovation, learning, and rewards management. Connecting the Dots Best-in-Class companies were 25% more likely than All Others to define high potential talent criteria, based on internal and external business drivers. In 2016, Best-in-Class companies were 25% more likely than All Others (52% vs. 39%) to define high potential talent criteria based on internal and external business drivers. Connecting employee motivators to performance metrics, and then connecting them to organizational productivity measures, links the internal labor organization with the state of the business. As employers move to resolve the skills gap, they will need to focus on inclusive performance metrics that feed back into the design of career branding and development opportunities for new hires. This focus must be done while contributing to an understanding of the ROI of the workforce. They will also need to be more responsive to the demands of a new generation that watched their predecessors live through the shift to a selfmanaged workplace. There is no silver bullet in terms of resolving the experience gap between outgoing and incoming generations of workers. Integrated data management for ongoing performance management, however, can help drive a better understanding of how to bring the new generations up to par.

10 10 Total Performance Management: Mapping Performance to Equitable Talent Selection For more information on this or other research topics, please visit. Analyze This: Workforce Productivity; September 2016 Is Proactive Hiring More than a Mindset?; August 2016 Author: Zachary, Chertok, Research Analyst, Human Capital Management Related Research Humanizing Wellness: Using Advisors for Employee Well-Being; January 2017 Bridging the Skills Gap: Taking the Internal Approach; October 2016 About Aberdeen Group Since 1988, Aberdeen Group has published research that helps businesses worldwide improve their performance. Our analysts derive fact-based, vendor-agnostic insights from a proprietary analytical framework, which identifies Best-in- Class organizations from primary research conducted with industry practitioners. The resulting research content is used by hundreds of thousands of business professionals to drive smarter decision-making and improve business strategy. Aberdeen Group is headquartered in Waltham, MA. This document is the result of primary research performed by Aberdeen Group and represents the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group