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Integrating Learning and Development With Compensation and Rewards at Hertz: A Case Study
Karl-Heinz Oehler
To state the obvious, the world has changed. But more important, the world of human resources has changed. The question is, how obvious are the consequences of this change to the HR community and, more to the point of this chapter, to the learning and development profession?
The L&D profession needs to evolve to keep up with the pressing challenges that organizations face in today’s rapidly changing and turbulent business environments. In these contexts, organizations’ effective transformations hinge on an L&D model of adaptability and resilience whereby L&D is systemically positioned to manage for results and returns on investment.
As HR professionals, we understand that development programs alone do not foster sustainability, which requires enablers that direct employees’ energy and motivation toward adopting newly acquired knowledge and advancing skill development through on-the-job application. Unless the employees who receive the transfer of knowledge in the workplace are properly compensated and rewarded, the developmental impact will evaporate rapidly. That’s why integrating L&D with compensation and rewards (C&R) is a powerful tool for delivering real-time, business-focused, development solutions reinforced by incentives to continue desired behaviors for sustainability.
So how did Hertz, the largest general use car rental brand in the world, leverage the synergies of L&D and C&R to make an immediate impact on its business goals? Here, I share the five key success factors we learned along our journey to transforming the L&D organization to focus on results.
Lesson 1: Integrate Systemically, Not Partially
Lesson 1 is to integrate systemically, not partially. At Hertz, L&D continues to be a challenging yet exciting endeavor:
Challenging—because the ongoing turbulent economic environment requires increased learning agility from employees and creative, yet cost-effective, business-focused L&D solutions.
This volatile business context has accelerated the need for Hertz to implement integrated structures, thus eliminating silos not only within HR but also across the entire enterprise. An independent training structure, overlapping curricula, staff duplication, and ineffective delivery mechanisms created our initial learning landscape. Before we integrated L&D and C&R, we first focused on consolidating existing, independent training structures into one global Hertz L&D organization. This integration had clear objectives:
Specific tasks—such as instructional design, program delivery, training administration, and training platforms—were outsourced to a global L&D provider. The new L&D structure consisted of subject matter experts working as learning business partners dedicated to senior business unit leaders and senior functional leaders. The learning business partners were intimately linked with and integrated into the business. They understood both the day-to-day operational problems and the longer-term strategic issues, and they worked in partnership with the business leaders to build solutions. Their intimate business knowledge enabled the learning business partners to develop integrated L&D solutions and define how to measure behavioral changes in the workplace and to compensate and reward the employees being persuaded to adopt them.
Finally, a global talent management organization was created, made up of L&D, talent acquisition, performance and career management, succession and high-potential management, operational excellence (Lean Sigma), and human capital management. Additional functions included organization development and culture and change. Creating this level of integration under one umbrella secured a consistent approach with all the touch points of the employee life cycle, which in turn were all directly linked to C&R.
This new integrated structure operated as a center of expertise with the charter to continuously improve internal effectiveness and thus achieve stronger external competitiveness. Its degree of integration connected L&D to all other talent development functions, with the added value of increased cooperation with C&R.
Lesson 2: Take a Systemic Look at L&D and Its Interdependence With C&R
Lesson 2 is to take a systemic look at L&D and its interdependence with C&R. Our central L&D question had become, how do we build an employee development infrastructure that is (1) not only an integral part of talent management but (2) also fully integrated within HR and, more important, linked with C&R? The challenge became a matter of balance: How do we develop the right employee behaviors for creating positive customer experiences while reinforcing and sustaining desired behaviors through adequate C&R programs? It is L&D plus C&R that equals sustainable employee development for greater organizational performance—and we were up for the challenge.
C&R is interrelated with almost every functional HR domain, but its relationship with L&D is special, yet underestimated. It is special because L&D’s role is to enhance employee competence, to bring about behavioral change, and to develop employees’ ability to work more effectively. Yet development programs all too often fall short in producing the desired change—and not because these programs are poorly designed or delivered. In fact, many of them receive very high ratings. So what was the problem?
Reviewing development programs at Hertz, especially those aimed at improving business results, highlighted the fact that employees were convinced that what they learned was right for the business. However, the C&R system was contrary to the principles learned and thus drove a different behavior. New behaviors can only be encouraged, implemented, and sustained if the employees practicing them are properly compensated and rewarded. This was one of the formidable challenges that Hertz L&D faced.
Another challenge was to identify which behaviors positively affect business results and which C&R systems are relevant for each Hertz business. Or, in other words: Where, by whom, and how is value created, and how is the impact of value creation on business results measured and rewarded? The answers to these questions were found by developing partnerships with the business and by integrating HR—not only L&D and C&R—into the Hertz strategic design process.
Lesson 3: Create Business Involvement and Ownership
Lesson 3 is to create business involvement and ownership. Leveraging L&D with C&R by crossing silo boundaries can only be effective if all other HR functions are integrated. That’s not usually the case. To have an impact on business results, HR must be integrated with the firm’s overall strategy and hence be part of its value chain. Because CEOs and other key stakeholders focus on business results, only integrated HR programs that affect results represent a legitimate basis for investment decisions. Therefore, it is only by becoming an integral part of this value chain that HR will become an area of major focus for CEOs and other key stakeholders, thus representing a critical factor in their investment decisions and in the firm’s measurement of business results.
Before working on L&D’s integration with other HR functions— and more specifically C&R—Hertz’s executive-level managers needed to take ownership of employee development, compensation, and rewards. Demonstrating, in financial terms, L&D’s and C&R’s combined value creation in the context of an integrated HR organization secured the CEO’s sponsorship, resulting in HR’s integration into the Hertz strategic design process.
This integration was a critical enabler for all subsequent decisions aimed at removing functional and organizational silos. HR and its functional domains were now intrinsically linked to Hertz’s strategic priorities: customer satisfaction, employee satisfaction, and asset management. This link guaranteed that business investment decisions drove subsequent L&D and C&R investment decisions. Consequently, L&D funding was decided upon early in the investment cycle, with all critical interdependencies in mind, thereby demonstrating the need to connect L&D solutions with C&R and the related benefits. Most important, combined L&D and C&R investments were directly linked to business results and were expected to generate a return.
L&D, C&R, and all other HR domains were positioned as a service organization—that is, considered as, and treated like, a business with clearly defined service levels. The intended consequence was that investment trade-offs or cost-saving initiatives would have an impact on combined L&D and C&R solutions, requiring the business to decide which solutions would be eliminated or delayed. As development solutions were directly linked to strategic drivers, any investment reductions invariably affected desired business outcomes. This complex configuration got the CEO’s and executive team’s attention; figures 7-1 and 7-2 show this integration. (How to sustain the continued involvement of the senior management team is further discussed below as part of lesson 5.)
Lesson 4: Define Key Results Areas, Cascade Objectives for Alignment, and Focus on Execution
Lesson 4 is to define key results areas, cascade objectives for alignment, and focus on execution. Let’s use a sales example, up-selling, to illustrate this lesson. Up-selling is a common practice in the service industry. Yet up-selling is also an art requiring salespeople to meet customer expectations while selling ancillary products and services to that customer at the same time. Much money is spent in developing frontline employee competence to sell ancillary services to a client who simply wants to complete a rental transaction. The employee is managing a fine balancing act: up-selling at the risk of negatively affecting customer satisfaction with respect to the rental process or forgoing up-selling and losing incremental revenues but meeting customer satisfaction scores.
Development alone will not resolve this conflict or enable the frontline employee to produce the desired outcome—which, incidentally, appears to include two conflicting objectives: achieving customer satisfaction while creating incremental revenues. The C&R system must provide the employee with sufficient flexibility to make the right decision without feeling penalized. Unless this is achieved, developing frontline employees in up-selling techniques will fail to have a sustainable impact on business results and will be perceived as ineffective and a waste of money and time.
Achieving the desired results is a question of alignment. It is about breaking down corporate goals into manageable units at the business, team, and employee levels. L&D programs address each level and, in partnership with C&R, ensure that reward systems are aligned to motivate employees to adopt the desired behaviors. To maximize alignment, Hertz implemented Hoshin planning techniques to (1) maintain the strategic direction of long-term goals while (2) focusing on executing against annual plans. (Hoshin planning is a process that obtains the desired results only if everybody in the organization fully understands its goals and is involved in the chain of place designed to achieve them.)
The starting point is the financial plan to analyze the strategic drivers. Once they are understood, the combined L&D and C&R solution is leveraged to align, develop, coordinate, and adopt a greater focus on desired outcomes. Implemented rigorously, this process makes the concept of “being business focused” real for the senior leaders. It translates planning into execution and thus produces tangible results (figure 7-3).
Last, but by no means least, constant communication between L&D and C&R, and the business leaders for that matter, is of paramount importance to maintain focus on business outcomes. This message cannot be repeated often enough. Business leaders don’t like surprises. They value predictability to mitigate risks in a timely fashion. Ongoing dialogue with the business at different levels is a major differentiator to maintain awareness, knowledge, and focus about the status and impact of developmental initiatives on business performance.
Why is this so important? Because markets are volatile and customer reaction to the purchase experience (in Hertz’s case, the car rental experience) is immediate. Anticipating changes in customer behaviors enables L&D and C&R to evaluate a specific situation and, as required,
swiftly adapt their programs to provide real-time responses. This is the art of flawless execution.
Lesson 5: Establish a Business Governance Group to Guide L&D and C&R Decisions
Lesson 5 is to establish a business governance group to guide L&D and C&R decisions. Lesson 3 suggested the involvement of and ownership by the executive team. The biggest risk for managing the integration challenges described above is that senior leaders may disconnect once the programs are under way. Transformation and integration success means constantly working to keep senior leaders engaged. At Hertz, the solution was to establish a cross-functional, senior leadership governance structure.
The L&D governance group meets quarterly and includes the three Hertz business unit leaders and four functional leaders. The role of the group is to review key projects, remove barriers, work collaboratively, set priorities, and drive decision making to ensure alignment with the firm’s strategic direction.
The members of the L&D governance group are the highest-ranked Hertz executives, and their active participation and involvement send strong signals to the rest of the organization. They have become role models for change and transformation. During its initial three years, this group gradually started to own the L&D initiatives, and thus it started to set a global direction for the rest of the organization. As the group approved funding decisions based on financial plans, its discussions of development solution budgets became less and less controversial. After all, the budgets that were presented reflected the requirements set under L&D governance, so cutting a budget would mean not doing what the business leaders had asked for in the first place.
This was a fundamental shift away from past budgeting processes. The dialogue with the senior leaders has changed to “OK, I take $X million out of the budget. What is it you don’t want me to do?”
Being in this position is a clear sign that our L&D, C&R, and all other HR domains have legitimated themselves in delivering value to the Hertz organization.
Conclusion
Collaboration between L&D and C&R is invaluable for delivering sustainable solutions for employee development. Furthermore, because of the critical interdependencies that L&D and C&R have with the other HR domains, only a fully integrated HR organization will be able to create economic value in the long term. In this endeavor, two questions must remain on everybody’s mind all the time:
The answers to both questions are intrinsically linked and will vary, depending on the situation. These questions sound simple, but there is a real risk of taking a shortcut to get quick results. However, such shortcuts will most likely prove to be the less effective option because they will ignore cause-and-effect relationships. The result will be a suboptimal solution that will have a negative impact on credibility.
The role of an organization’s leaders is to develop, compensate, and reward employees. The role of HR, in partnership with the business, is to provide clear direction for how talent can be best managed and how to leverage the synergy of L&D with C&R to improve organizational performance and value creation. This should never be forgotten—at any point along the journey.
About the Author
Karl-Heinz Oehler is vice president, global talent management, at the Hertz Corporation. His responsibilities include talent acquisition, succession and high-potential management, performance and career management, organizational learning, organization development and design, human capital measurement, and HR due diligence and postmerger integration. A German national, he holds master’s degrees in social psychology and economics. He is based in Zurich, having previously lived and worked in South Korea, Singapore, the United States, Finland, Sweden, France, and Germany.