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Psychology of Incentives Part 4

Psychology of Incentives Part 4

Behavioral Psychology Conclusion

In this four-part series we delved into the world of behavioral psychology with the express intention to understand how this field of study influences incentives.

We stated in Part 1 that HR personnel is now required to be a strategy swami, a finance guru, an operations rock star, a behavioral psychologist Jedi to transcend and become an incentive ninja.

To recap some of the important observations of behavioral psychology:

Executives are inherently risk-averse. The majority would choose fixed payments over a possible bonus of higher value. Geographies influence the level of risk aversity.

Executives are prone to hyperbolic discounting where over a 3-year period they would discount a future payment by 50% instead of the correct 14%. Further, it is difficult to convince executives that their calculations are incorrect.

Executives are more concerned that their pay is comparable to a peer group than the quantum of the incentive.

Agency Theory states that it is essential that the executive and the company should be striving to achieve the same goals. Research has however shown that there is little correlation between schemes that incorporate Agency Theory and the share price.

If you reward executives for doing something, they lose interest in performing these tasks. Economists disagree and have found evidence of increased productivity.

One could be excused for now questioning the applicability of incentives – this is not the intention of these articles. Rather, the objective is to understand the science which influences employees’ perception of incentives so that these can be addressed. Further, any new incentive designs should incorporate, where possible, the tenets and findings of behavioral psychology.

Possible alternative incentive design

Perhaps – however any company who elects to introduce a new and radical incentive design may face headwinds because it is contrary to copy-cat influences (“what our competitors are doing’) and may erode the EVP – unless it is adroitly communicated.

Professor Alexander Pepper in his article, “The Case against Long-Term Incentive Plans” which was published in the Harvard Business Review, October 2016 issue states

” My research suggests, somewhat perversely, that companies would be better off paying larger salaries and using annual cash bonuses to incentivize desired actions and behaviors. Additionally, they should require leaders to invest those bonuses in company stock (or should pay the bonuses in the form of restricted stock) until a certain share of leaders’ net worth, or some multiple of their annual salary, is invested”

According to Pepper, if executives continue to hold substantial equity, their interests will be aligned with those of shareholders. This alternative incentive design would achieve that aim without the confusion and inefficiencies of long-term incentive plans.

Given Prof. Pepper’s statement and the previous analysis contained in this article, what would the ideal incentive scheme look like? We would contend that the following scheme would be an option:

1. Short Term Incentive (“STI”) scheme

50% of the pay-out would be subject to a short deferral period.
The remaining 50% would be paid into the Long-Term Incentive (“LTI”) scheme.
The employer would double the employee’s payment to the LTI.

2. Long Term Incentive (“LTI”) scheme

No other LTI scheme would be introduced other than the vehicle to house the deferred pay-outs from the STI.
The employee would receive growth in the share price (or other measurement criteria) on both the employer and employee amounts in the LTI from the outset.
Vesting and exercise of the LTI are only permissible 1 to 3 years after the executive’s last day of employment.
Additional conditions could be introduced to allow the executive to partially exercise based on a minimum holding requirement.

The advantage of this incentive design includes inter alia:

The design ensures that all decisions taken by the executive are based on long-term value creation.
Negates the temptation to implement short-term initiatives which may boost the share price in the short term, but which may not be a driver of long-term value creation.
Aligns the design of incentives with the principles of Agency Theory.
Reduces the occurrence of hyperbolic discounting given that the value is not some intangible possible future amount but rather the quantum is known.
One of the issues which may be raised by executives (and especially CEOs) is that the actions of the new CEO may lead to a decline in the share price.

This methodology will ensure that adroit succession planning is done. The outgoing CEO will know that the actions of the new CEO may affect the value of his LTI and thus the new incumbent will be subject to a stringent and robust selection process; and
Further, so often a new CEO is appointed and writes down the value of assets. The suggested methodology will ensure that a “clean balance sheet” is left.
Clawback provisions seldom work. The computation of a clawback is fraught with difficulty and will often involve significant legal costs. This methodology has an in-built clawback and allows the market to determine the clawback and further, aligns the clawback amount with the interests of shareholders.

Conclusion

The alternative design presented above is radical but at the same time, it has been designed based on the lessons to be learnt from behavioral psychology. While it may be difficult to implement now, as the science becomes more entrenched in incentive design, there is little doubt that this is what the future of incentives may look like.

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Psychology of Incentives Part 3

Psychology of Incentives Part 3

Short Term Incentives (STI)

Behavior psychology provides valuable insights into incentives and rewards and understanding this science, does enable us to better understand the drivers or motivators of incentives. It is axiomatic that HR practitioners must become behavioral psychologist Jedi’s in order become an incentive ninja’s.

However, when it comes to Short Term Incentives (STI) behavioral psychologists and economists are divided in their opinions.

Opinions against STI

At the outset one must acknowledge that a plethora of research and experiments, has been conducted examining the value of short-term incentives or rewards – and in concluding that rewards are counterproductive. Given this, the following is a brief overview of the work, and opinions, of some behavioral psychologists:

The University of Rochester’s Edward Deci and Richard Ryan studied the “free-choice paradigm”. Participants in an experiment were paid to draw. The compensation to draw was then taken away. Participants who were at first paid to draw, drew less when there was no payment. Paying people to draw changed how they viewed drawing, undercutting the intrinsic motivation that made it fun in the first place.

Alfie Kohn in his seminal article in the Harvard Business Review entitled “Why Incentive Plans Cannot Work” stated:

1

“One of the findings in psychology that has been shown over and over again [is that] the more you reward people for doing something, the more they tend to lose interest in whatever they had to do to get the reward”.

2

“Incentives, a version of what psychologist call extrinsic motivators, do not alter the attitudes that underlie our behaviors. They do not create an enduring commitment to any value or action. Rather, incentives merely – and temporarily – change what we do”.

3

“As for productivity, at least two dozen studies over the last three decades have conclusively shown that people who expect to receive a reward for completing a task or for not doing that task successfully, simply do not perform as well as those who expect no reward at all”.

Frederick Hertzberg famously stated that just because too little money can irritate and demotivate, it does not mean that much more money will result in satisfaction and increased motivation.

Given the foregoing opinions of eminent scholars, one could be excused for immediately scrapping any STI!!

Opinions for STI

Economists however disagree with the findings of these experiments. They postulate that the salient function of incentives should be to increase the productivity of the activity. The research does show that one should not introduce an incentive scheme and then change it or discontinue it. The initial plan design must be an adroit and well-designed plan which will stand the test of time and motivate employees to perform individually and collectively, to achieve the strategy of the company.

Jenkins when formulating his article “Financial Analysis” studied 28 previously published studies and found that 57% had in fact had a positive effect on performance but only when the performance measures were quantitative in nature, such as producing more of something and/or faster. The take-away from this is that STI performance targets must be quantitative – achieve an EBITDA of X. This design feature was also discussed in Part 2 where Agency Theory dictates that where the principal has information to verify agent behavior, the agent is more likely to behave in the interest of the principal.

We have been saying this for years – any goal, objective or performance condition should have a calculable ROI (return on investment) and be “self-liquidating”; where the cost of the incentive represents a percentage of value added for the company.

Hockenbury and Hockenbury state that “Incentive theories proposed that behavior is motivated by the “pull” of external goals, such as rewards, money, or recognition.”

Prendergast in his article entitled “The provision of incentives in firms” found that there was empirical evidence that the use of incentives improves performance.

Lazear in his article “Performance pay and productivity” examined the impact of a change from fixed salaries to piece-rate compensation in an auto-glass factory. Productivity soared and output per worker was increased by 44%.

Conclusion

In light of the conflicting opinions elucidated above, we feel that we need to declare our

We are firm advocates and promoters of STI

We contend that an appropriately designed scheme will support and reinforce a high-performance culture and encourage ethical behavior consistent with the company’s values. However, the risk-reward must be balanced where the scheme is structured in such a manner that it incentivises the employee to promote sustainable long-term growth, without encouraging excessive risk taking or a short-term parochial focus.

The scheme should be designed with a view of encouraging recognition and strengthening the psychological engagement with employees, while at the same time, providing top talent with an extrinsic monetary reward for their hard work and dedication.

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Psychology of Incentives Part 2

Psychology of Incentives Part 2

Long Term Incentives (LTI)

In Part One we examined the impact of behavioral psychology on incentives in general. A plethora of academic studies have shown that:

Executives are risk adverse and prefer a smaller guaranteed amount to a possible bonus of higher value; and

Employees do not place the correct value on future incentive payments – they value them significantly less than they should; and

The age and geographic region of employees influence the perceived value of the incentive.

Further, we stated that HR personnel must not only be a strategy swami, a finance guru, an operations rock star but also a behavioral psychologist Jedi in order become an incentive ninja.

In Part Two we want to concentrate on the influence that behavioral psychology exerts on Long Term Incentives (“LTI”)

LTI has always been lauded as the correct, optimum and appropriate reward vehicle to align the interests of shareholders and executives. Further, encouragement for the increased use of LTI in the reward mix is being encouraged by regulators and other regulatory bodies. A significant amount of behavioral psychological research and experiments have been conducted which are pertinent to LTI and we have consequently been forced to only select a few for this article.

Inclusivity Recognition Need

In Part One, we discussed the fact that executives do not value future payments that introduce risk and/or volatility to their remuneration – they would prefer to receive a higher basic pay now and, in any case, because of hyperbolic discounting, ascribe an outrageously low value to future possible incentive payments.

Given the above, one could safely assume that executives would dislike LTI? You would be wrong. In various surveys, over 50% of executives state that an LTI is an effective incentive and 66% stated that they valued the opportunity to participate in the scheme.

Lesson Learned

Behavioral psychology therefore states that it is not the amount of money which executives’ value with an LTI, but simply the fact that they have been selected to participate in the scheme. The company could therefore reduce the number of shares granted, decrease the potential gain to the executive and drastically reduce the cost to the company – WITHOUT decreasing the attraction of the LTI to the executive.

Behavioral Agency Theory

LTI’s have always been proposed as the ideal vehicle to address Agency Theory. These proposals and encouragement are coming from – coercive influences (regulators), copy-cat influences (everyone else is doing it) and best-practice influences (consultants/ advisors encouraging companies to do it). Concomitantly, one does need to examine whether the science is aligned with, and justifies these reasons given that copy-cat and best-practice influences are poor reasons for introducing an LTI.

Deferral of any reward is always espoused as best practice to align the interests of all stakeholder’s interest, which in turn will result in long term sustainable value creation. In Part One we demonstrated that hyperbolic discounting challenges this conventional wisdom.

Agency Theory states that by bridging the divide between the executive and the company, this will ensure that both are working towards a common goal and the implication is that both will strive to increase the long-term value of the company. Agency Theory further assumes that agents are rationale, risk averse and therefore effort and motivation are highly correlated.

Alexander Pepper and Julie Gore have explored the impact of Agency Theory on incentives in great depth and their seminal work is insightful reading- “Behavioral Agency Theory: new Foundation for Theorizing about Executive Compensation”.

Of great concern is that various studies have however shown that there is LITTLE correlation between LTI schemes which are designed on the agency methodology and/or which incorporate the agency philosophy, and the share price. If shareholders do not receive the benefit of a higher share price, why have an LTI at all?

LTI design features

Let’s confront the brutal facts. Risk aversion, geographic influences, hyperbolic discounting, low correlation to the share price and the perceived lower value attributed to future rewards, would lead one to question why an LTI should be introduced in the first place. However, one does need to be pragmatic and recognise that regulators, proxy voting companies and shareholders do advocate that a significant portion of an executive’s remuneration should be long term.

Given this, one needs to incorporate the findings of behavioral psychology into the design of the LTI. Some tips from the research would include inter alia:

Eisenhardt’s research found that: Where the contract between agent and principal is outcome based, the agent will behave in the interest of the principal. This is important information when designing LTI – the performance objectives must be outcome based or have some sort of performance condition attached to the vesting; and

Where the principal has information to verify agent behavior, the agent is more likely to behave in the interest of the principal. Given this, it is essential that quantitative objectives are set. For example, it is extremely easy for the principal to verify agent behavior if the performance condition for vesting is that EBITDA must increase by 10% annually compounded over a rolling 3-year period. Verification is however difficult if the condition is to “Live the culture of the company”. We have been saying this for years – any goal, objective or performance condition should have a calculable ROI (return on investment) and be “self-liquidating”; where the cost of the vesting shares represents a percentage of value added for the company.

Behavioral Agency Theory states that there is a strong connection between goals, commitment, and performance where the goals are specific, difficult, attainable, and self-set and then mutually agreed. Simple design advice which we would agree with.

The LTI design must attempt to encourage Agency Theory, but cognizance must also be taken of the Upper Echelons Theory. This theory states that Agency Theory works best where the agent has the ability (necessary knowledge, skill, and aptitude), motivation (intrinsic and extrinsic) and the right opportunities (the necessary work structures and business environment). Normally only executives or senior managers have all three and can influence the company’s performance by defining, contributing to and executing the strategy. Given this, LTI schemes should in general, be the preserve of executives or senior management and not all-inclusive.

Perhaps the best advice we can offer is that your LTI should not be based on copy-cat influences (“what others are doing”). There is also no “off the shelf “scheme which you can “plug and play”.

Your LTI design must be aligned with the company culture and promote the achievement of the business strategy but of equal importance, the design of the LTI must be aligned with the other elements of remuneration namely, guaranteed pay and short-term incentives (“STI”) to ensure a holistic, cogent, and integrated total rewards offering. The total rewards offering should incentivize employees by driving individual performance and enhancing the Employee Value Proposition.

Radical Idea

Scrap LTI. Have a STI where some amount is deferred into LTI.

In Part 3 we will concentrate on the impact of behavioral psychology on STI.

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Psychology of Incentives Part 1

Psychology of Incentives Part 1

Behavioral Psychology

In the past, we have often said that HR personnel are now required to be a strategy swami, a finance guru, an operations rock star and now unfortunately, we add another discipline to the requirements – you will need to be a behavioral psychologist Jedi.

Why? Because recent findings are concluding that behavioral psychology drives the success of any incentive, reward, or recognition scheme

… it determines the way that stakeholders view and measure incentives and increasingly, examines the question of whether incentives conclusively provide the company with a return on investment.

Unfortunately, this is a long article with constant reference to academic research and experiments. We would urge you to wade through and persevere because if you do not understand the behavioral psychology of incentives, it pains us to say – you can never become an incentive ninja.

Yes, you may understand the mechanics of a phantom share scheme, the vesting periods, and the valuation methodology but unless you understand what will motivate, and what will demotivate employees about the scheme, you do not fully understand the phantom share scheme. Further, you will not be able to evaluate the true success of the scheme and whether it is in fact, achieving the outcome envisaged at the design stage.

Obviously, this cannot be an exhaustive treaty on all aspects of behavioral psychology that influence incentive scheme design. Rather, the following is our choice of factors that we feel should be considered when designing incentive schemes, determining which scheme is applicable for your company, and perhaps most importantly, deciding whether the current methodology of short-term incentives (“STI”) and long- term incentives (“LTI”) is still relevant.

Why is this important? Your STI, LTI, and other schemes are vital components of your Employee Value Proposition and influence the company’s ability to attract and retain talented individuals, introduce a high-performance culture that ensures attainment of the company’s strategy, and concomitantly, higher profitability.

Rather than formulate a solution to the problem in the conclusion of this article, we would rather state it here upfront. This will enable you to constantly interrogate and challenge our conclusion. As we raise various behavioral factors, you can ascertain their importance or relevance to the following radical and bold hypothesis:

Do executives welcome incentives?

At the outset, given that incentive remuneration represent variable pay which is “at-risk”, one must examine whether executives welcome risk if they are risk adverse. Are all executives gamblers like Koos Bekker? When he became CEO of Naspers, a top 5 Johannesburg Stock Exchange company, he elected to be paid in shares rather than earn a salary – to his huge advantage.

There are several studies and experiments which have been conducted which illustrate that executives are in fact risk adverse. Consider the following findings from some studies:

The majority will choose fixed payments over a possible bonus of higher value. Only 33% are willing to gamble a certain sum for a potentially higher bonus.

Further, almost 50% would choose a smaller certain amount over a higher bonus.

Geographic regions exert an influence on the risk adversity of executives. For example: Bonus schemes in South Africa are popular and have become entrenched in the remuneration policy of most companies. However, in general, Africans are the most risk adverse – almost 66% would choose to receive a fixed amount rather than the possibility of a slightly higher potential bonus. The dearth of incentives schemes in Africa is therefore not surprising; the salient reason for their unpopularity can be attributed to the risk adverse mindset of the executives. How many times in Africa have you heard “You keep the possible bonus and just pay me a little bit extra every month”.

Asian executives on the other hand welcome higher risk in the form of higher potential variable pay.

The lesson to be learned here is that it is extremely difficult to introduce a generic global incentive plan – different regions will attribute different values and utility to the global plan. One plan does not fit all, and often regional tweaks must be incorporated to recognise and mitigate the concerns and risk profile of different regional executives. “Think globally but act locally” is also applicable to incentive plans.

The research would appear to offer empirical evidence that executives do not like incentives and would rather settle for a higher salary.

Given this evidence, perhaps shareholders and owners should re-evaluate their perception of executives as risk-loving, big bet taking, prima donna’s who love, treasure, and are preoccupied with their incentives?

Do executives value incentives correctly?

The answer to this question is emphatic and resounding:

Of significant concern, is the fact that executives should be financially astute and have the fiscal acumen to evaluate the inherent value of their incentives – or at least one would think so.

Executives are prone to hyperbolic discounting. Assume I was to receive $100 in 3 years. The present value (the value today) should simply be the future value discounted by the risk-free rate applicable in that country – on average this would probably be around 5% per annum. $100 would then be worth $86.38 today – a discount of 14%. Executives however discount the $100 by almost 50%.

Executives, therefore, apply discount rates to deferred payments that are massively more than the correct economic discount rates. Hyperbolic discounting is not time-consistent; it is neither linear nor occurs at a constant rate. Values placed on rewards decrease very rapidly for small delay periods and then fall more slowly for longer delays.
Once again, the various surveys and experiments illustrate that the region exerts an influence on discounting. For example:

African and the Middle East executives will discount the future incentive by double the amount of a Western European executive. That is, they will only assign half the value that a Western European executive would, to a specific future amount.

Younger executives will discount the incentive by almost double the percentage to that of an older executive.

In both cases (young executives and African and Middle East executives) would not have significant experience with such schemes which probably contributes to their incorrect calculations.

Hyperbolic discounting is behavioral economics and not financial theory. It is difficult to convince the executive that his/ her thinking is flawed as the calculation is based on behavior rather than an equation.

Lesson Learned

This is an important lesson or observation. The immediate response is often – “that’s stupid”. It’s not, as our brains are hard-wired to think like this and the miscalculation is not an indication of lower intelligence of the lack of financial nous. It is simply behavioral psychology which must be understood and factored in when designing incentive schemes.

What is also imperative is that change management and an adroit communication strategy must be formulated when introducing such schemes, or else executives will place a lower (and incorrect) value on incentives which in turn erodes the company’s Employee Value Proposition.

Do executives value equality?

The strongest message emanating from the myriad research is that executives are concerned that their pay and incentives are comparable to their peers; this peer group includes other executives in the company and similar positions in competitor companies.

Numerous experiments have been conducted where executives were asked which of the following options they would elect:

OPTION A

Earn $50 when the median market pay is $30

OPTION B

Earn $100 when the median market pay is $125

Obviously, B is the correct answer given that the earnings are higher however, most executives elect option A.

The quantum or amount of the incentive is not important to the executive, provided it is comparable to their peers. The remedy to allay this concern, is to ensure that the incentive scheme is transparent, clearly defined and where the same parameters/ measurements are consistent and generic to all within the company.

For example, all Grade E1’s has an on-target of x% of Base Salary and that the decision to pay out an objective, is a binary decision – it can only be “Achieved” or “Not Achieved” with no partial discretionary awards.

The factors discussed above are general behavioral psychological factors which influence the perceived value of incentives. Are they important – yes, they are? If your LTI scheme only vests in 5 years’ time whereas your competitors, or the market norm, is a 3-year vesting period, your scheme will be viewed as inferior because of hyperbolic discounting.

In Part 2 we will concentrate on the impact of behavioral psychology on LTI.

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The Great Resignation

The Great Resignation

The Great Resignation is no longer an esoteric term coined by Texas University’s, Anthony Kotz and pounced on by consultants, wanting to “fear-monger” clients into employing their services. It is real and it is here. The pandemic has meant that many employees have been working remotely and this has afforded them the rare opportunity to revaluate their lives, priorities, values, circumstances, career choice, and most importantly, their employer.

Consider the following statistics (just 3 of 100's of examples) which patently demonstrate the danger to employers:

While the number of resignations in the US and some other developed markets is alarming, South Africa has not escaped the Great Resignation – several of our clients have expressed concern that staff turnover is at record levels and they are struggling to attract and recruit top talent. Even some of our UAE clients, traditionally an employer-dominated market, have expressed concern about their ability to attract talent.

There can be little doubt that the relationship between employer and employee is changing; for the first time, employees are asking – does this employer deserve me?

Accept the brutal facts, the power is shifting to the employee. It may seem strange to quote Jonas Riddestrale and Kjell Nordsrom in their book Karaoke Capitalism, given that the book was published nearly two decades ago, but their words are now frighteningly accurate:

“The talent market does not operate like markets for raw material. Competent individuals are unique and different. Economists would even describe the talent market as imperfect.

Power is now in the process of being transferred from the owners of financial capital to those in control of intellectual capital. In the gold-collar niche of the labour market, firms may end up as price-takers-being forced to accept whatever fees or salaries talented men and women suggest.”

We do not want to be alarmist and jump to the conclusion that work, as we know it, has fundamentally changed. It has not, but the Great Resignation does represent a seismic shift that must be recognised by HR practitioners and most importantly, actions must be taken to alleviate the negative effect it will have on your company and on your ability to attract and retain the required top talent, to execute the company’s strategy.

Numerous surveys have definitively proved that staff turnover during the Great Resignation has been lower in companies with a strong Employee Value Proposition (“EVP”). So, the question must be, how does HR improve the EVP?

The fundamental problem in the current economic environment is the precarious financial position of many employers, where they do not have the financial resources to “throw money at the problem”. They simply cannot increase salaries and/or introduce expensive additional benefits.

The objective of this article is to suggest some actions which HR can take to improve the EVP and stop employees from resigning or looking for another job – at no cost. The suggested actions have been carefully selected from an in-depth analysis of various surveys where employees have stated why they are looking for another job or alternatively, and more importantly, why they are not looking for another job. We have purposefully limited the proactive actions to only the most important three from our list of fourteen; the focus is required on those that will yield quick, tangible, and meaningful results for most employees.

3 PROACTIVE ACTIONS TO IMPROVE EVP

Visible HR

The trend over the last few years has been to increase communication with employees via intranets, bots, AI, and other electronic means. While this delivery mechanism is cost-efficient, recent data indicates that it diminishes the EVP. ADP’s research discovered that the more interactions an employee had with HR, the more they felt that HR was enhancing the EVP. The research found that if an employee had 7 or more interactions with HR, they were 7.4 times more likely to feel that HR was a valued promoter; and concomitantly enhancing the EVP.

Now is the time for HR to increase personal interaction with employees. Be seen and heard in person. Further, CHRO’s need to become visible. Rather than simply spewing out emails and staff announcements, manage by wandering around and/or interacting with employees on Zoom. For example, rather than distributing the Back to Work policy by email, hold a Zoom call for all employees where they can interact with you on a personal level; and see you albeit on a video call, if remote working is still being done. Where most employees are in the office, communicate the new policy by a Town Hall.

COST = ZERO

ROI = IMPROVED EVP AND LOWER STAFF TURNOVER

Career Pathing

Employees are less likely to leave or even search for another job, if they know they are valued, feel a sense that they “belong” to the company, and know that HR is encouraging them to improve themselves, their performance, and growth within the company.

The best methodology to achieve this is to conduct regular, effective, and cogent career pathing sessions with employees. For the sake of clarity, career pathing is simply the process where HR and the manager consult with an employee to set out and define their potential trajectory through the company. It would incorporate defining the goal and identifying the skills, experience, and learning the employee must gain to reach the goal. In many companies the career pathing conversation is done by the manager- we are encouraging HR to take the lead and evangelise the process, to ensure this is done comprehensively and within the next few months.

An additional consideration that is aligned with career pathing, is performance reviews. Employees want to know how they are doing, and this “want” is corroborated by a plethora of surveys.

However, at most companies, performance reviews occur annually and are aligned to the salary increase cycle. If this is the case, we strongly recommend changing the frequency. Continuous performance discussions are optimum; consider introducing monthly, or at the very least, quarterly performance reviews. Further, managers conducting these reviews should concentrate on tangible and clear actions that the employee needs to take in order to improve performance. Once again, we are encouraging HR to take a lead and evangelise the process, to ensure this is done comprehensively and within the next few months.

Career pathing and monthly performance reviews are a lethal cocktail that will reduce talented employees scouring the job market.

COST = ZERO

ROI = IMPROVED EVP AND LOWER STAFF TURNOVER

Flexibility

Remote working has furnished almost all employees with the opportunity to work from home. Initially, a work-life balance was thought to be the advantage of remote working, but many employees have since discovered that they are probably working longer hours. However, what this has demonstrated, is that remote working facilitates flexibility. A mother can now go to a child’s piano recital and a father can pop into a weekday cricket match; although it would mean that those hours must be caught up in the evening.

Almost all employers are grappling with the “back to the office” question and while the current consensus seems to be the introduction of a hybrid solution, this may not suit all employees. Some may want to work from the office full time, others may want to work 100% remotely – a dictatorial approach by the employer will lead to an exodus of top talent.

Many managers want employees back in the office to continue their “command and control” management style. The job of HR is to establish how greater flexibility can be incorporated into the workplace, without compromising the effective operational requirements of the company.

COST = ZERO.

ROI = IMPROVED EVP AND LOWER STAFF TURNOVER

The above three actions are certainly not rocket science. But what is required to mitigate the effects of the Great Resignation, is immediate action. HR is not an administrative function. It is a strategic role and is undoubtedly the driver, custodian, and promoter of EVP. Conversely, inaction by HR could result in it being a destroyer of EVP and thus exacerbating the impact of the Great Resignation on your company.

We have often said that the role of HR has expanded exponentially in recent years – HR practitioners are now required to be a strategy swami, a finance guru, an operations rock star, a behavioural psychologist Jedi, and an incentive ninja.

The Great Resignation has now added a new role – EVP evangelist.

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