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Aligning Learning and Development With Compensation and Rewards
Jon Ingham
Ensuring the alignment and integration of learning and development with compensation and rewards—and other management policies, processes, and practices—is an important aspect of effective talent management. There is, first, a need for horizontal alignment—ensuring that both L&D and C&R, along with other elements of the HR and management architecture, are linked together and support one another.
However, it is even more important for an organization to ensure vertical alignment, which it achieves from having both L&D and C&R, and other processes, aligned with its overall business strategy and its mission, vision, and values.
One helpful concept is organizational capability. This consists of human, organization, and social capital and acts a bit like the organizational equivalent of an employee competency framework.
Organizational capability provides strategic focus in the same way as clear competitive positioning or a set of core competencies, but it is more concerned with what the organization sees as important in its people rather than just its processes and technologies (core competencies) or simply its products, services, and customers (competitive positioning). This is useful because it helps an organization refocus from HR activities to human capital as an outcome of these activities. This focus on human capital and organization capability can then also make it easier to link L&D, C&R, and other HR processes with the business strategy.
These vertical and horizontal linkages can help build HR, L&D, and other processes around what an organization believes about people management and development—for example, what it thinks works in motivating and upskilling people and how these strategies can best be implemented.
Differentiation in L&D and C&R Systems
One source that has had a high impact in the C&R area recently is Dan Pink’s book Drive: The Surprising Truth About What Motivates Us (2009). Pink suggests that a lot of what we try to do to motivate people (at least those working in knowledge management roles) fails to do its job and can actually produce the opposite result from what has been intended—that is, less motivated employees. Organizations that subscribe to Pink’s thinking will look to use other forms of reward and recognition than just pay and, in particular, will work toward creating an environment in which people can motivate themselves. As part of this, these organizations are also more likely to make greater investments in learning and to see doing this as providing a source of motivation and a basis for capability development.
In thinking about what works in strategy implementation, some organizations will decide to focus more on competencies and others more on performance. Focusing on competencies is still a popular approach to developing strategies in L&D and other areas of HR, but is now less common in C&R than it was at the end of the last century. The problem with a high emphasis on competency-based rewards is that organizations can end up paying for characteristics that do not always lead to enhancements in performance. However, this means that today there is a common potential misalignment, whereby organizations focus on competencies for L&D and on performance for C&R. This is not necessarily a problem but could mean that L&D is suboptimized, so the situation does deserve some consideration.
To give another example, some organizations believe strongly in formal systems and structures, whereas others prefer informal and social ways of operating. The first form of organization is likely to have set learning curricula for each grade and level supported by an L&D management system. Organizations subscribing to more informal approaches are likely to put a greater emphasis on opportunities for connecting with others in the organization and for self-managed learning. An organization’s C&R strategy should also be aligned with these approaches to learning. For example, a formal L&D system is likely to function best when supported by a formal incentive program, and an informal or social approach to learning may work best when linked to a looser recognition program that allows and encourages managers and employees to express their appreciation for exceptional effort, skills, and performance.
L&D, C&R, and other process areas should also be affected by an organization’s staffing model, that is, by the way it recruits, exits, and progresses staff through its career levels and grades. An interesting example is provided by looking at legal, accounting, and other professional services firms. The staffing models in many of these firms are built around the requirement for staff to gain professional qualifications before they can become highly chargeable and therefore more marketable. Referring to his recent book Talent on Demand: Managing Talent in an Age of Uncertainty (2008), Peter Cappelli describes these firms as academy organizations and suggests that their staffing model is unsustainable because staff will easily be poached once they have gained their qualifications. In my experience, however, this only becomes a problem when L&D and C&R strategies are out of alignment or when organizations are not sufficiently creative to develop broader methods for retaining their people.
So, for example, when I was an HR director with Ernst & Young, we put significant effort into linking C&R with L&D, and in particular focused on ensuring that employees’ compensation was increased substantially once they had received their accountancy qualifications. But we also focused on making the firm a real employer of choice, so staff members knew exactly how they would benefit significantly from working for it as opposed to its competitors. And we ensured that these benefits were provided not only in rewards and learning opportunities but also in many other areas.
These vertical and horizontal linkages can also be useful for thinking about particular issues within talent management. For example, one challenge for many organizations operating in Western countries is the aging workforce. Increasing and often unpredictable retirement eligibility criteria are accelerating the trend for employers to introduce new roles for older workers, enabling them to focus on coaching and supporting the learning of younger workers, and also supporting knowledge transfer before they leave. Though not so prevalent, these challenges are also leading some organizations to rethink their C&R policies, allowing them to retain older workers without necessarily continuing to increase, and maybe even to decrease, rewards. This raises interesting questions about how these organizations will encourage older employees to continue to invest in their own learning while not benefiting from any further increases in rewards. (The answer to this question seems to focus on emphasizing how these individuals can be recognized other than through more pay.)
Choosing L&D and C&R Strategies
The important thing to understand from all this is that there is choice— people management and development strategies can and should look different from one organization to another. What counts isn’t best practice; it’s best fit.
This differentiation can come in a number of ways, including by building an organization’s HR architecture around a particular capability, staff model, and the like. However, one basis for organizational differentiation is the extent and type of employee differentiation. Many organizations are increasingly focused on differentiating their best performing from their lowest performing employees, an approach further popularized recently in The Differentiated Workforce (B.E. Becker, M.A. Huselid, and R.W. Beatty, 2009). However, a smaller number of organizations believe that excessive differentiation can result in internal competition and lead to reduced collaboration. Many of these organizations want all their people to perform at similar levels—whether this is due to their management philosophy or is the result of focusing on a particular type of role where standardized performance is important. Where an organization stands on this spectrum will, or at least should, influence the approach that it takes, including to L&D and C&R.
An organization that wants to treat people equally is going to be more likely to offer standardized menus of development activities and to set rewards at team rather than individual levels. It may also try to keep differentials between high- and low-paid employees quite small. An organization that is more concerned with differentiating its employees is more likely to encourage people to seek ways of meeting individual development needs and to offer opportunities for significantly higher rewards for higher performance, perhaps through a focus on variable rather than fixed remuneration.
You can get a good feel for the variety of opportunities available by comparing organizations at opposite ends of this spectrum. For example, Whole Foods limits its chief executive’s salary to $19 for every $1 that the average, full-time team member earns, and the top five executives receive less than 10 percent—as opposed to an average of 75 percent—of stock options. In comparison, Netflix avoids internal benchmarking, instead aiming to pay each employee what they would be able to get elsewhere.
The Benefits of Integration
Integrating L&D, C&R, and other people management processes provides a number of benefits. The first is helping to avoid the common problem whereby an organization is trying to develop one thing but is rewarding another—for example, emphasizing training in technical skills but paying employees more to take managerial roles. More important, it is only by achieving tight integration that organizations can gain the full benefits from all their talent management practices.
When organizations have this level of integration, they can start looking for new opportunities for both L&D and C&R—for example, when learning becomes reward (by promoting the outcomes of learning, holding ceremonies, presenting certificates, and so on) and reward starts to form the basis for learning. Another example of this approach is in gaming, which is increasingly being introduced and adapted into organizations and in which being provided with instant feedback produces immediate, or at least short-term, performance improvement.
Think of an organization with a particular focus (that is, core competency or organizational capability) in innovation. For this focus to be successful, both L&D and C&R need to support ideation, idea selection, and other activities. However, both L&D and C&R might start to have more of an impact if they were combined. This might involve a system of peer recognition providing funding for the best new ideas and an opportunity to develop these ideas (providing learning as well).
Taking Action
What should talent management strategists and L&D, C&R, and other practitioners do to achieve these benefits? The first thing is simply to think about what the opportunities for horizontal and vertical integration might be within a particular organization, given its strategy, environmental context, and so on. In doing this, practitioners should keep in mind that integration can be achieved through either outcomes or activities.
For example, an organization focused on collaboration and treating its people equally (as referred to above) may want to implement strategies for developing the social relationships among these people. It can achieve integration in doing this by using similar activities such as social learning (social-networking-media-enabled learning) and social rewards (for example, social recognition systems providing the opportunity to share kudos with other employees). Both of these involve the use of social networking media to integrate activities across L&D and C&R. Or the organization can achieve integration by focusing on similar outcomes, for example, using learning to develop shared mental models (as in “the learning organization”) and lower differentials plus pay transparency to enable smoother collaboration across organizational levels. Both of these involve a focus on similar outcomes but not necessarily similar types of activity.
However, many organizations are going to want to differentiate their employees, and here it is important to consider which people the organization is going to focus on for differentiated support; that is, who are the organization’s talent groups, and are they the same or different for C&R and L&D processes? (There may be good reasons why these groups will be different—for example, when different groups are affected by requirements for greater capability and motivation or retention. But practitioners should still think through the consequences of these groups being different.)
Practitioners should also note that integration between L&D and C&R will be supported by broader integration with other processes, particularly recruitment and performance management. Technology integration is also important—allowing information on participation in and success in learning to be linked to reward systems, providing the ability to reward learning.
The integration of metrics also supports integration between L&D and C&R. This integration can also happen at both activity and outcome levels. For activities, the organization can use common metric frameworks for both L&D and C&R processes. For example, many learning practitioners use Kirkpatrick’s model, often with the addition of returnon-investment as the basis for evaluating their learning provision. But this model is actually just one example of a standard value chain involving input, activity, output, and business impact / return-on-investment, which can also be used to measure and evaluate C&R and HR processes. Using a similar model across processes helps monitor the success of talent management activities and is particularly useful in evaluating integrated approaches. Organizations can also think about using metrics that will integrate the measurement of outputs, which might include, for example, the proportion of learning that is accessed by people receiving topquartile compensation.
In general, there will be no need to implement all these forms of integration. But practitioners and other executives should be aware that in most cases, the more L&D and C&R processes are integrated, the more successful talent management strategies are likely to be.
References
Becker, B.E., M.A. Huselid, and R.W. Beatty. 2009. The Differentiated Workforce. Boston: Harvard Business Press.
Cappelli, Peter. 2008. Talent on Demand: Managing Talent in an Age of Uncertainty. Boston: Harvard Business Press.
Pink, Dan. 2009. Drive: The Surprising Truth About What Motivates Us. New York: Riverhead.
About the Author
Jon Ingham is a consultant, researcher, writer, and speaker focusing on strategic human capital management, HR 2.0, and management 2.0. He helps organizations gain competitive advantage through the creation of human and social capital supported by effective leadership, HR and management practices, organizational development solutions, and the use of Web 2.0, social networking media, and the like. He has worked for 20 years in engineering, IT, change management, and HR (including serving as an HR director). He is based in Britain but has a global focus and spends much time in North America as well as Europe, the Middle East, and Asia.