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1. Does Your Business Need A People Strategy?*

By Jim Kochanski and Peter LeBlanc who can be contacted at www.sibson.com

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1. Introduction

The next new idea is here to stay—developing and executing a People Strategy, as an adjunct to overall business strategy. Business strategies define market, product and financial priorities. People strategies focus on the right combination and type of people and the level of performance required to succeed.

Just as successful business strategies must be distinctive, people strategies too must focus on competitive people advantage relative to competitors. No best formula exists, but some rules of the road can be discerned from companies that use a People Strategy to advantage.

2. What is a People Strategy?

A People Strategy is a set of specific, prioritized choices about where and how to invest in human capital. Choices may include:

>> Employee groups to grow or shrink

>> Skill sets to invest in

>> Performance levels required

>> Number of employees needed to achieve required productivity and service levels

>> Types of work to in-source and outsource

>> Total reward strategy that defines the employee value proposition

>> Cost base associated with different segments of employees

A People Strategy is owned by business leaders, and it is viewed as critical to executing business strategy successfully. It differs significantly from headcount and salary budgeting run by Finance as well as people program and policy direction instituted by Human Resources. While a People Strategy may be driven by an HR executive, it is not just a strategy for the HR function; it is a critical strategy execution tool.

Companies as diverse as Avon, Becton Dickinson (BD), Duke Health System and Nationwide use People Strategies to articulate key choices about how to invest in human capital in order to achieve their business goals.

A People Strategy helps to direct the investment in talent and the programs to manage them. Companies without an articulated strategy run the risk of developing programs that don’t meet organizational needs or further the business. For example, a large consumer products company launched a people management "best practices" study and instituted most of the practices, unconnected to the business strategy or particular business issues. The adoption of best practices became the focus and drove most of the people priorities. Unfortunately, many of the "best practices" didn’t work as well for this company as they did for others. As a consequence, company performance lagged competitors by more than half.

In contrast, a People Strategy can unify and focus an organization, improve the return on human capital, and raise the organization to higher performance. When a health care company instituted a People Strategy, it was able to unify its business units and departments. In the past, the groups had resisted synergy. Through the People Strategy development and deployment, they discovered shared talent resources and learned the value and necessity of working together to get the right skill sets and to build a shared and compelling employee value proposition.

3. Do You Need a People Strategy?

Indicators that suggest the need for a People Strategy include the following:

A. SIGNIFICANT SHIFT IN BUSINESS STRATEGY: If significant changes are planned for products, customers, and geographic markets, it is likely that the current people portfolio will not be adequate. A People Strategy can help manage the transition to the people portfolio required to execute the new strategy.

B. MAJOR MERGER OR ACQUISITION: A major acquisition or a merger typically requires fundamental decisions about people and people management approaches that require an articulated strategy linked to business needs.

C. SIGNIFICANT PEOPLE PROBLEMS: Sometimes there is no particular change in the business, but issues such as significant turnover, inability to hire critical skills, or very low productivity put business success at risk.

D. AN OPPORTUNITY TO DOMINATE IN THE MARKET: When strategy is focused on dominating the market for top talent, being the low cost producer, or otherwise beating the competition through people, a People Strategy becomes an imperative

People Strategy is not appropriate in the following situations:

A. FAD FOLLOWING: People Strategy by definition is not emulating the practices of other companies. A People Strategy must be linked to business needs and goals

B. OTHER HIGHER-LEVEL PRIORITIES: Some organizations may find themselves facing competing priorities. If top executives are not able to support it effectively, a People Strategy will not succeed. For example, one major corporation tried to develop a People Strategy while implementing a major reorganization. Senior management was not able to focus on both efforts. In addition, staff required for implementing the reorganization were diverted to the People Strategy effort. Eventually the People Strategy was halted to focus on the reorganization.

C. PERFORMANCE ISSUES WITH THE OPERATION OF HR: A People Strategy for the business is not the solution for a dysfunctional HR function. If the HR department is too large, slow, or disconnected from the business a departmental strategy is needed, not a People Stategy.

5. How To Develop A People Strategy

A well-constructed People Strategy has four cornerstones, as illustrated in Figure 1

# CORNERSTONE ONE—LINKING THE BUSINESS AND PEOPLE STRATEGIES: This first step involves examining each of the major planks or choices in the business strategy to determine the people implications or requirements. Some implications may be obvious, e.g., a decision to move operations to a new country will require the means to relocate, hire, pay, and manage people in that country. Other implications may be more subtle: a decision to expand organically with product extensions may or may not have significant people implications.

Nationwide, a Fortune 500 insurance and financial services organization, redefined its strategic planning process for the business several years ago. A "human capital strategy" is now developed in conjunction with the business strategy process. The strategy process provides natural milestones for considering the people priorities and the business strategy provides the information required to connect people priorities directly to business plans.

# CORNERSTONE TWO—PEOPLE PORTFOLIO MANAGEMENT: This step involves comparing the likely future portfolio of talent in the organization to the portfolio required by the strategy. Rather than reacting to (or ignoring) headlines about general labor shortages or surpluses, this cornerstone uses scenario planning to project the number and type of people that will be required to execute the organization’s own business strategy. This step also examines actual trends in the workforce such as turnover, rate of hiring, and retirement eligibility to determine if any significant adjustments are needed in the patterns of recruiting, training, downsizing, or redeployment to ensure the right talent portfolio in the future. This is different from typical succession planning, which is focused on individual positions and successors. Portfolio analysis examines the key segments of the workforce that the business strategy suggests will be critical for the future. Then, as with personal financial portfolio analysis, people portfolio analysis suggests which talent investments should shrink, grow or be maintained to meet future goals.

Avon embarked on a new business plan led by their new CEO. In conjunction with the business plan the company developed a "template" for tying a people plan to the business plan. The people plan template focused heavily on the people portfolio, particularly leadership talent. The initial hypothesis was that the new business plan would create gaps in the current and future leadership portfolio. A process was put into place to systematically examine business plans region by region, determine the people requirements of the plans, identify significant people gaps, and define ways to fill the gaps. The process was based on an approach that had proven successful in Avon’s European business unit. In addition to the process for determining and closing gaps in the people portfolio, Avon also adopted a set of Key Performance Indicators to tell if the people plan was working. This allowed Avon to objectively determine where and how to recruit or develop the people it needed to succeed. In addition, Avon clarified its employee value proposition as the "company for women". It has been named as one of the best companies for women to work for, the only beauty company to be so named.

# CORNERSTONE THREE—EMPLOYEE VALUE PROPOSITION: Organizations that put together a People Strategy almost always need to ask themselves how they will distinguish themselves versus other employers in order to attract, retain and motivate the number and type of people that they will need. Crafting a distinctive employee value proposition (EVP) is significantly different than typical benchmarking of benefits and compensation in order to stay competitive. Benchmarking is a way to ensure that employee costs align with the market to safeguard against high costs to the company or turnover due to low pay or benefits. A People Strategy helps set the desired positioning relative to other employers. It also asks how the people portfolio should differ from other companies and segments.

# CORNERSTONE THREE—EMPLOYEE VALUE PROPOSITION: Organizations that put together a People Strategy almost always need to ask themselves how they will distinguish themselves versus other employers in order to attract, retain and motivate the number and type of people that they will need. Crafting a distinctive employee value proposition (EVP) is significantly different than typical benchmarking of benefits and compensation in order to stay competitive. Benchmarking is a way to ensure that employee costs align with the market to safeguard against high costs to the company or turnover due to low pay or benefits. A People Strategy helps set the desired positioning relative to other employers. It also asks how the people portfolio should differ from other companies and segments.

An EVP makes choices about each of the element of the model shown in Figure 2 and their relative positioning to each other.

A distinctive EVP can make a company an "employer of choice." Many of the companies that top the "best places to work" lists have distinctive EVPs that make sense for their business and their workforce.

Duke University Health System defined its own distinctive EVP following the unification of its three hospitals, multiple clinics and physician groups. Defining the EVP was an early joint effort of the new leadership team. The CEO and VP of HR wanted a baseline measurement of the alignment among the various health system entities, the state of employee engagement, and the nature of the work culture. Rather than use standard measures of engagement, the leaders crafted an EVP that described a desired future state that would be distinctive relative to other employers. The EVP leverages their size, organizational diversity, and connection to a top university by emphasizing learning and development, and affiliation with one of the top five hospitals in the US. Measuring the gap between the desired state and the current state through a custom employee survey led to several other health system-wide initiatives including development of a reward strategy.

# CORNERSTONE FOUR—PRIORITIZING PEOPLE INVESTMENTS: Prioritizing people investments is where the implications of the business strategy, the portfolio analysis, and the EVP come together. In this step, choices are made about where and how to invest in human capital. For example, one company decided to reduce its investment in training since the skill level of the workforce was where it needed to be. They then increased the investment in benefits and recognition in order to strengthen retention. Another company began shrinking a segment of the workforce that possessed skills less critical in the future and invested in hiring employees with the specific skills required for business growth.

Prioritization of people investments is different from annual budgeting, which often is a zero sum game. In typical annual budgeting, an increase in one area requires an offsetting decrease elsewhere. In contrast, people investments can become a priority if they can show a positive return and if the organization has the capacity to implement the people priority. For example, a company established a good business case for increasing pay well above current levels for one type of technician. Breaking through the zero sum barrier, it put the money into a retention bonus that would cut recruiting and retraining costs by several multiples of the cost of the new bonus.

Often multiple investments may yield impressive returns but a company may lack the money or capacity to implement them all. In one company, the final priorities were determined by the severity of the problem. Investments that addressed current talent gaps in key roles were given priority over longer-term investments in growing internal talent for future needs. Though the company needed to do both, it only had the capacity to focus on the shorter-term need that was crippling the business. So that received the investment.

Becton Dickinson (BD) determined people priorities through a process that began with a new business strategy. Being a global organization, developing a People Strategy that would be aligned with and support its business strategy was a bottom-up effort that began with the input from hundreds of leaders around the world. HR leaders used this input to build on the business strategy and identify the People Strategies that were required to achieve the major planks of the business strategy. They identified three major, global priorities that crossed all the business units. These priorities were confirmed and aligned in a meeting of 200 senior leaders. HR leaders then developed a three-year plan on how to achieve the three people priorities.

6. Getting Started With People Strategy

As with any major change, success with a People Strategy depends on getting a good start and driving to execution. Successful People Strategy efforts use semi-dedicated cross-functional teams with a steering committee of senior executives to oversee the development of the strategy and measure and guide the execution. They also involve HR but make sure the effort is driven by the business leaders, who are heavily involved in development and execution.

The most critical first step in a People Strategy is identifying the need for a strategy and making a conscious determination whether to take it on. Such a readiness assessment can be accomplished with a combination of business leader interviews and analysis of metrics. The aim is to determine:

>> The extent to which the business strategy requires a change in the number, skills or performance of people

>> The extent to which serious people problems are impeding current business performance

>> The interest and capacity of leaders to tackle a People Strategy and prioritize people investments.

If the readiness assessment points towards the need to seriously align people strategy with business strategy and executives are committed to the effort, the organization is a good candidate for developing a distinctive People Strategy.

*Reprinted with permission from The Segal Company. First published in Sibson's Perspectives(tm) magazine, Volume XII, Issue 1.

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2. HIV/AIDS:  Don't Deny That It's Happening; Confidentiality Is The Key

Sunday Times Business Times Survey, 23 August,2004

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EDITOR’S NOTE: These 2 items appeared in the Sunday Times Business Times survey on HIV/AIDS. The articles are particularly pertinent for those HR Professionals who want to be taken seriously as business partners. As a business partner and a leader in your own right you are duty bound to play both a financial risk management, and a social responsibility role for the management of HIV/AIDS in the workplace.

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# Don't deny that it's happening!!

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Call to action: Dr Danisa Baloyi, executive director of the National Black Business Caucus, says HIV/Aids should be on every board of directors' agenda.

Companies are failing to tackle HIV/Aids because of a lethal combination of denial and a lack of knowledge and understanding, says Dr Danisa Baloyi, executive director of the National Black Business Caucus. Baloyi says prominent South Africans are dying of HIV/Aids but the stigma surrounding the epidemic means that many people continue to "suffer and die in silence".

People are afraid to speak out about Aids because of the stigma attached to the disease, she says, adding that the situation is worse for women. She says: "If more and more people speak about the disease, it will bring comfort to the infected and the affected." Baloyi says too many businesses are not implementing HIV/Aids programmes because they believe it's "happening next door".

Despite directors being aware of rising absenteeism rates caused by HIV/Aids, everyone still wants to pretend it is not happening. Baloyi, who sits on the Sabcoha board, says directors should be talking about the risks of HIV/Aids in every board meeting in the same way that financial or operational risks are discussed.

Another myth that needs to be broken down is the assumption that Aids is only associated with poor people. The attitude that "I'm a director; this thing can't touch me" needs to be tackled head-on by the business community, Baloyi says.

Peer educators and "buddy groups" are crucial as people will only disclose their HIV status if they are confident they will get support, she notes. Many HIV-positive South Africans continue to suffer from loneliness and depression as they think they are the only ones struggling with HIV.

Meanwhile, the reality is that there is probably a neighbour or colleague struggling with the same issues. Baloyi called on business to take a more vocal and active role in widening the discussion on HIV/Aids.

Too many discussions and debates about HIV/Aids focus on blaming the government or arguing over statistics instead of making sure something actually gets done, she says. Apart from the problem of denial, Baloyi says many companies lack basic knowledge about HIV/Aids, including how long HIV usually takes to develop into full-blown Aids. Baloyi says employers need to understand that the trauma of finding out one's HIV status can result in an employee becoming withdrawn and unproductive.

This is why it is so vital for every company to develop an HIV/Aids support programme. Even small companies must, at the very least, have information available about where to go for Aids counselling, testing, treatment and support, Baloyi says.

But the reality is that while many companies have the Labour Relations Act mounted on their walls, the issue of HIV/Aids remains largely invisible. "It's sensitive at the personal level but it's also tragic at the national level," says Baloyi.

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# Confidentiality is the key

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Legal implications of HIV/Aids in the workplace must be understood by managers, writes David Ball

'An HIV-positive employee who gets TB and inflicts it on other employees could result in the employer being charged'

Confidentiality is an important legal issue for companies implementing HIV/Aids programmes - especially when it comes to voluntary counselling and testing, says Neil Kirby, director of healthcare law at Werksmans Attorneys.

In order for employers to play it safe, they should not have access to personal test results. In addition, they must understand that they cannot force employees to take an HIV test or offer incentives to those who take one. Says Kirby: "Taking an HIV test cannot be a pre-requirement for employment or a requirement during employment."

The upshot is that companies are increasingly outsourcing their HIV/Aids programmes to "one-stop shop" service providers, he says. Companies offering voluntary counselling and testing need to be able to prove that the employer does not have access to the test results. This guards against future accusations of discriminatory behaviour.

One of the service providers is Calibre Clinical Consultations. Its chief executive, Charles Parsons, says a good starting point is to train executives how to deal with HIV/Aids-related matters, as managers are most likely to breach confidentiality.

He says an employee might, for example, tell a manager that he or she is HIV-positive. The manager might not know what to do and then tell another manager, thus breaching confidentiality. Kirby says businesses wanting to protect themselves against legal action should conduct an audit to assess their compliance with all relevant legislation, including the Employment Equity Act and the Department of Labour's HIV/Aids Technical Assistance Guidelines.

The guidelines, an 85-page publication, cover issues such as unfair discrimination, testing, confidentiality and disclosure, employee benefits, and dismissals and grievances. Kirby says all companies are obliged to protect employees' legal rights, regardless of whether the firm is an industrial heavyweight or a small enterprise.

Parsons says there are potentially significant cost implications as well as legal dangers for companies that do not address HIV/Aids in the workplace. For instance, Parsons says, an HIV-positive employee who develops tuberculosis and then inflicts this on other employees could result in the employer being charged with not protecting its employees from risk.

Another example is provided by business expert Clem Sunter, who says a trucking company could face possible legal action should a sick long-distance driver be involved in an accident. To minimise exposure to this kind of risk, Sunter - a board member of the SA Business Coalition on HIV and Aids - urges companies to make HIV/Aids management a strategic issue within their businesses.

Addressing employee incapacity arising from ill-health is a difficult task for employers when faced with the numerous employment laws facing employees. Not only must employers grapple with the Code of Good Practice on AIDS / HIV in the workplace, but also the associated Code on Disablity and accompanying Technical Assistance Guidelines for HIV/AIDS and Disability. For a no-nonsense guide to addressing employee incapacity in the workplace, click here to order now.

This guide provides practical steps to addressing employee incapacity whilst taking into account the provisions of the Employment Equity Act as well as the Codes of Good Practice.

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3. The 'At The Table Study': The Strategic Effectiveness Of Human Resources*

By by John Asencio, Chris Ellis and Myrna Hellerman who can be contacted at www.imakenews.com/sibson/

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1. Introduction

We’ve done a great job," said the self-congratulating senior executive team of a major corporation. "Just look at how we’ve cut overall per employee expenditures. Our benefit costs are the envy of the industry. We replaced most of our expensive training with e-learning and videos. We’ve streamlined performance management by getting the whole process on line. And, no one can criticize our variable pay plans—if employees don’t perform, they don’t get paid. Yes, we’ve got our employee spending under control." Management’s exuberance, however, contrasted sharply with the investment community’s "sell" recommendation and customers’ consistent evaluation of the company: "they’re hard to work with and they are our supplier of last resort."

As this major corporation continued its decline, its competitor was winning the hearts, minds, and pocketbooks of the investor and consumer communities. A clear contributing factor to the competitor’s’ success was a mindset around employee economics. The competitor managed employee related spending (i.e., using up money) in the context of investment (i.e., planful use of money to gain a future advantage/benefit). While the competitor’s absolute expenditure for employees was only slightly higher, it strategically allocated its expenses as investments to bring the greatest return to the business. Specifically, it invested in those elements of its rewards system that its analysis suggested would enhance the effort, commitment and results of its employees. The competitor measured success not just in terms of money spent (and saved) but also in terms of optimizing the return on its investment in employees.

Increasing the ROI of rewards is a goal of many organizations in today’s economic climate where productivity and revenue growth are paramount, but without the open checkbook of the prior decade. Based on research, organization experiences, and common sense, there are three key ingredients to achieving a greater return on rewards:

1. Develop a business-based total rewards strategy

2. Establish a robust set of people metrics

3. Take a disciplined approach to determining ROI

DEVELOP A BUSINESS-BASED TOTAL REWARDS STRATEGY

There are many facets of the total rewards system in an organization. In essence, anything provided by the employer that offered to employees in return for their membership, commitment, and contribution can be considered a reward. Based on our experiences, total rewards can be sufficiently defined using five elements, two of which are financial (compensation and benefits) and three of which are non-financial (affiliation, career, and work content), as shown below.

With this framework in mind, an investment in any of the elements represents an investment in the total rewards system of the company. This includes investments such as a new pay plan, benefits program, training course, or wellness facility. There are two primary ways an organization can increase the return on its total reward investment:

1. Align rewards with business strategy and talent requirements.

2. Make reward investments that are complementary and mutually reinforcing.

ALIGNING REWARDS WITH BUSINESS STRATEGY AND TALENT REQUIREMENTS

Many organizations today talk about aligning rewards with the business but in reality span a wide continuum in terms of actually achieving it. Companies that do this most effectively have clear and explicit alignment: they define in detail the critical strategic imperatives (e.g., grow revenue through new products) and than identify the organization capabilities (e.g., fast product development) and key talent segments (e.g., Product Engineers) required to execute the strategy successfully. In this way, organizations can best decide where and how to invest rewards based on the value of each talent segment. Some segments of employees will drive strategic competitive advantage (like in the example above), others will manage strategy execution, and still others will perform non-strategic, yet requisite tasks. Companies that are serious about achieving a high ROI on total rewards will differentiate their rewards investments accordingly, building a total rewards investment strategy based on directly aligning employee rewards with each segment’s impact on the organization (see figure 2).

While an effective reward strategy is closely aligned with business strategy, it also must represent a compelling a distinctive value proposition to employees. In other words, the strategy must also provide a foundation for reward programs and policies that people will find meaningful, valuable, and distinctive relative to the external marketplace for talent. Some organizations use the following simple process (in addition to other inputs) to gather this information: The current total rewards offering is clearly explained to all employees, who are then asked to distribute 100 points among the five Total Rewards Principles—compensation, benefits, career, work content and affiliation—to reflect their perception of how the company invests in each of the elements. Employees are then asked to distribute another 100 points as they believe the company should invest in each of the elements, reflecting perceived importance and value (See Figure 3).

Make reward investments that are complementary and mutually reinforcing

There are numerous studies that show how companies have measured the ROI of various reward programs. For example, gainsharing programs have been shown to increase worker productivity and work-life benefit plans have been linked to increases in employee retention. Clearly, it is critical for an organization to determine the best investment in a reward program for a particular talent segment. But companies that truly apply a total rewards perspective take this philosophy further and ask: how can the ROI of reward programs be further maximized when bundled together?

Recent research has shown that the concept of complementarity is important when assessing the impact of innovative human resource practices (Journal of Economic Perspectives, 2003). In particular, the return to implementing a bundle of mutually reinforcing human resource practices is greater than the return on the sum of non-reinforcing single initiatives. Like general HR practices, total reward programs should complement each other; the bundle of mutually reinforcing reward programs will exceed the return on the individual programs. This total rewards edge can be illustrated in such examples as:

A company with a strong affiliation, or employment brand, will leverage that brand value in the design and communication of its benefits plans, thereby enhancing the return on investment in those plans.

A company with a strong pay for performance philosophy will carry-over that same message to its career programs, linking development opportunities to employee performance and impact.

ESTABLISH A ROBUST SET OF PEOPLE METRICS

Interestingly, some organizations discuss the importance of increasing the return on rewards but do not have good people metrics to actually know if they are increasing the return or not. The set of metrics used to measure total rewards effectiveness will be unique to each company, and should be reflective of the company’s philosophy regarding the impact of human capital on business results. These chosen metrics set the stage for baseline measurements of the total reward system and can be used to determine the effectiveness of future investments in the total rewards offering.

It would not be unusual to begin with HR metrics that reflect the effectiveness of the HR function, such as "time required to fill an open position". But companies should avoid these types of metrics when it comes to measuring and optimizing ROI of rewards. The human capital metrics that matter are those that business leaders care about, involving productivity, cost, and retention. In developing a set of metrics—an HR Scorecard (Figure 4)—organizations should avoid searching for the perfect, fully controllable measures. Instead, metrics should reflect true value creation and impact.

TAKE A DISCIPLINED APPROACH TO DETERMINING ROI

Measuring the actual ROI of the total rewards offering in its entirety is very difficult for any organization because there simply is no existing baseline to measure impact against. A more productive approach involves measuring the ROI of changes made to the total rewards offering. This more practical approach to measurement will reveal whether specific investments in the offering have yielded the projected and desired returns to the business.

It is important to note that most ROI analyses will involve assumptions and calculations that require some degree of judgment. Taking a disciplined approach to determining ROI therefore does not involve a purely objective approach, which is often impossible, but rather a sensible, practical, and repeatable methodology that the organization consistently applies after every substantive investment or change it makes in its reward system.

The general approach to determining rewards ROI involves measuring both the cost and benefits of an investment, or bundle of investments, in one or more of the elements of the Total Rewards Framework (Figure 1). There are four basic steps to follow in determining return on investment:

1. Calculate baseline performance using your people metrics for the targeted population segment(s)

2. Calculate the cost of the investment

3. Calculate the change in baseline metrics

4. Determine the ROI

Specifically, the determination of the cost of investment in a new reward program or practice involves several activities, including:

>> Cost of development and implementation of the change (internal and external costs)

>> Cost of management of the change (delta between cost of managing the new practice versus old practice)

>> Cost of the change itself (the new practice might result in increase in compensation dollars, for example)

The determination of the impact/benefits of the investment involves several activities as well, including:

>> Change in key metrics associated with population segment impacted by the change. Example: Retention of high performers increased by 10%.

>> Other potential "intangible" benefits based on anecdotal evidence. Example: management perspective that "the quality of feedback as improved as a result of the investment in training and development."

>> Analysis of the impact of the reward investment in the key metrics relative to other changes that may or may not have impacted the key metrics. Example: employee satisfaction may not increase as much, for example, if the reward investment is implemented at the same time as a reduction-in-force.

The measurement and determination of rewards ROI will vary in difficulty by type of investment. For example, measuring the return of a leadership development intervention is more challenging than measuring the return of a new incentive program, which entails clear costs and benefits due to the nature of the program. More specifically, it is relatively easy to determine the cost of a new incentive program that links compensation directly to performance goals, as well as the benefits, since compensation cost is directly connected to improvements in key metrics, such as quality, productivity, or profitability, each having a clear relationship to financial impact.

ACHIEVING OPTIMAL ROI

In summary, optimizing total rewards ROI involves making the highest impact investments in the company’s total rewards offering. Achieving high impact involves investing in elements of the total rewards offering that are proven to be drivers of performance, satisfaction, or retention and that are consistent with the company’s total rewards strategy. Moreover, organizations should take care to make reward investments that are complementary and mutually reinforcing to achieve even higher levels of ROI.

Like most strategic endeavors, optimizing ROI is a process will never be perfect or fully objective; it requires a practical methodology and sound business judgment. It requires a good understanding of the impact of an investment, or set of investments, relative to the baseline metrics (and also relative to other potential investments). A thoughtful and rigorous approach to measuring and optimizing ROI will help a company ensure that it is allocating its rewards investment wisely and attracting, retaining, and engaging its talent in a manner that drives value for customers and shareholders.

*Reprinted with permission from The Segal Company. First published in Sibson's Perspectives(tm) magazine, Volume XII, Issue 1.

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4. Breaking The Silence: Surely It’s Time For The Education Mandarins To Wake Up?

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EDITOR’S NOTE: My personal thanks goes to the Minister of Labour Membathisi Mdladlana for breaking the silence about Education’s uncoordinated, and some would say high-handed ‘business’ practices. The regulatory framework for the Education ‘system’ consnists in the main of Ministeries, Councils, and Statutory Bodies. Is it also not time for HR to start to do something about this (uncoordinated) use of your company’s taxes (and if they can have their way your company’s Skills Levy payments too!).

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"Labour minister takes swipe at education"

By Moshoeshoe Monare, The Star, 31 August 2004

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In a first for South African politics, a government minister has publicly attacked a cabinet colleague.

Labour Minister Membathisi Mdladlana yesterday flayed the education system for what he termed "cosmetic transformation and a lack of co-ordination", particularly with his ministry.

He was speaking at a three-day North West Growth and Development Summit held in Sun City.

'This is not transformation'

"All we have done to transform education was to take black children and flood them into (former) Model C schools. In the former Bophuthatswana, what they did was to get some few darkies here and there. This is not transformation," he told delegates.

Mdladlana said this was undermining training and skills development.

"I am very frustrated as minister of labour... we have to link education with training... what is frustrating is when you can't help because you train people and they don't know what to do after that, and they come back to you.

"And you don't know what button to push when people are in need. That's what President Mbeki was talking about when he emphasised co-ordination, so that the left hand knows what the right is doing."

Mdladlana said he was frustrated at the lack of co-ordination between the ministries of education and labour. He said it was a nightmare to review the National Qualifications Framework with the Department of Education in order to restructure all training and education skills under one structure.

'All we are doing is fighting for turf'

"All we are doing is fighting for turf. There is a need to have education and training under one roof," he said.

In another attack on the education department, Mdladlana said although some of the 25 sector education and training authorities (Setas) were not performing effectively, he would not channel money into the National Students' Financial Aid Scheme (NSFAS). The scheme is funded by the Education Department in order to give bursary loans to students at tertiary institutions.

"That money (for Setas) came from the private sector for workers. Don't tell me I must use it for the NSFAS and it must be used for those students who burn down universities. I am not going to fight with workers for those who burn campuses," he said.

Students at Wits University and the Tshwane University of Technology went on the rampage several months ago, protesting against reduced NSFAS allocations.

Immediately after her budget vote speech, Education Minister Naledi Pandor told The Star that among other alternatives to solve financial aid problems, "we have to look at Setas".

Mdladlana also said there should be Umsombovu Youth Fund offices at every Labour Department office before the end of the year. The fund is government-subsidised to help young people start business ventures.

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5. How Companies Will React To The Expensing Of Employee Share Schemes

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1. Introduction

Historically in South Africa the cost of share schemes was only reflected by the dilution of issued equity. AC139 has the effect that earnings per share are to be reduced in two ways: one from the dilution effect on issued equity (as before), and two from expensing of the equity instruments to the income statement. Obviously cash costs remain unaffected.

2. How Does The Accounting Work?

In essence AC139 requires that any increase in the value of shares allocated to employees (between the date of grant and date of vesting) should be expensed against earnings over the vesting period. This increase in value should be determined using ‘fair value’ at date of grant as the basis of valuation in most cases (i.e. when fair value can be reliably estimated at grant date and the award is in the form of equity). AC139 goes on to specify that ‘fair value’ is to be determined using a share valuation model. The choice of model is left open.

Companies need to evaluate different share valuation models and select one that is most appropriate to their circumstances. Although AC139 does not prescribe share valuation models (nor offer more than cursory guidelines as to their application), the onus regarding fair valuation rests squarely on the shoulders of the external auditor as part of the fiduciary responsibility to certify the fairness of the company’s financial statements. We will deal with the topic of valuation in a follow up article.

3. What Are The Issues Facing Companies?

Share options have been widely used in South Africa as long-term incentives for management. In recent years use of the deferred delivery construction in schemes has become popular.

South African companies have begun to evaluate whether the use of share options in future is desirable for two main reasons:

>> The expensing requirements necessitate a cost comparison with other long-term vehicles, and

>> The accounting expenses associated with equity vehicles are not tax deductible (as opposed to cash compensation).

A number of other considerations add complexity to the evaluation:

>> A statement by the Minister of Finance during the 2004 budget speech regarding intended tax changes related to deferred delivery share option schemes,

>> No clarity from Internal Revenue as yet whether the accounting costs brought about by AC139 will be tax deductible in future (as in the US and UK),

>> The tendency by Inland Revenue to question the funding structures involving Employee Share Trusts and whether profits made from share issues in Employee Share Trusts are capital or revenue in nature,

>> The implications of a recent requirement by the JSE that share scheme trusts be consolidated with company accounts,

>> Various other impacts on Employee Share Trusts from changes in Company and Tax law,

>> Increased pressure from investors to improve governance--fuelled by scrutiny from the press, and

>> The growing prevalence in recent years of underwater options.

4. How Are Companies Likely To React

The direct, and far reaching effects in some cases, of AC139 on reported earnings is expected to alter company thinking around long-term pay strategy and delivery. This will be considered in conjunction with the other factors set out above.

Ultimately, long-term incentive programs will be tailored to each company’s business strategy and approach to create shareholder value, while helping attract and retain the best talent to deliver desired business results. The following responses can be expected:

>> A wider range of vehicles tied to equity performance can be expected. Where equity is used, schemes are likely to include shorter terms and performance-contingent vesting (due to the effects on the accounting cost). Performance hurdles are particularly applicable to senior executives who are most able to drive company results. This alone may lead to greater differentiation between awards made to senior executives and those to lower level managers.

>> The transitional accounting requirements may induce companies to shorten the vesting terms for existing allocations (to reduce the accounting cost).

Specific factors that will require focus for future allocations under equity schemes are:

>> The design of performance hurdles to maximise the link between performance and remuneration and minimise the accounting expense of the scheme. The particular measure implemented in a share/share option scheme may or may not allow a true up of the expenses if the performance hurdles are missed.

>> An analysis of historical forfeitures and exercise behaviour in share/share option schemes. Whilst this is necessary to comply with the accounting and may lead to altered vesting terms (to reduce the expense effect), companies will learn more about employee behaviour and how they value equity awards. This in turn is expected to lead to more effective design of share schemes and the introduction of other incentives.

>> Companies need to analyse: whether the benefits they derive from alternative scheme constructions outweigh the accounting costs, particularly in SA where the costs are not deductible for tax; the benefits to participants, including tax changes that may reduce the tax benefit to participants (deferred delivery schemes); tax, accounting and structural issues relating to Employee Share Trusts; the effects on cash flow; the dilution effect on issued equity; the perceptual value of the scheme to participants; and, the effects from a governance perspective. In doing so, alternative instruments will be considered:

5. Alternative Instruments: description

>> Cash based (e.g. Notional/phantom shares): Cash benefit equal to growth in share price over a term, possibly with vesting conditions.

>> Share purchase schemes: Shares are purchased at date of grant and a loan granted to the participant. Repayment of the loan and delivery of shares takes place at vesting.

>> Indexed options: The exercise price is indexed to an external measure such as the JSE all-share index or a peer group.

>> Performance conditional ‘tax structured’ share options: Deferred delivery share option schemes, except number of options that vest are dependant on the company’s performance relative to a performance hurdle (e.g. EPS must exceed inflation plus a %).

>> Restricted stock units: Options are issued at par value. The number of options that vest are dependant on the company’s performance relative to a performance hurdle (e.g. EPS must exceed inflation plus a %).

>> Other instruments: Convertible preference shares or warrants

>> Combination schemes: A deferred cash bonus scheme combined with restricted stock units, where the deferred bonus is used to offset the discount on the option.

Less costly schemes will be considered, even discontinuation of the scheme, with or without a commensurate increase in other compensation. However equity based schemes are likely to remain appropriate as long-term incentives, although dilution and cost constraints may prevent companies from their use as broadly as before. Companies are expected to re-evaluate their compensation plans and ensure that their incentives—using a blend of equity and cash vehicles—drive financial performance and meet the organisation’s unique needs.

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# SUBJECT:SUBSTANTIVE FAIRNESS IN DISMISSAL AUTOMATICALLY UNFAIR DISMISSALS

ISSUE: Determine whether or not the employee’s dismissal was automatically unfair – employee failed to demonstrate that the reason for her dismissal, whether fair or not, was her pregnancy or any reason related thereto – court has no jurisdiction if fairness of dismissal becomes an issue – claims dismissed.

SUMMARY OF FACTS: A pre-trial conference between the legal representatives of the parties was held. The minute of that conference records the employee's intention "to show that the termination of the employee's services constitutes unfair discrimination as provided for in terms of Section 6 of the Employment Equity Act and constitutes breach of her common law contract of employment", in addition to being without a sufficient reason or fair procedure. The company's intention, on the other hand, was precisely and narrowly stated in the minute. It argued, that this Court's jurisdiction "should be limited to the question whether, having regard to the reason for the termination of the employee's employment, such termination constitutes an automatically unfair dismissal." If it was found, as they inferred and subsequently vigorously argued, that that was not the case, that would be the end of the matter.

The court referred to the absence in this matter of any evidence of the consent criterion there referred to and in these circumstances the cardinal issue in the determination of the existence or otherwise of this Court's jurisdiction to entertain the dispute between the parties, is whether or not the employee was automatically unfairly dismissed as a consequence of her pregnancy, "or any reason related to her pregnancy". Counsel for the employee argued correctly that in terms of Section 192(2) of the Act, the company bears the onus to show that a fair reason exists that is unrelated to her pregnancy and that such a reason justified her dismissal.

The determination whether or not that onus had been discharged, was however, not a matter falling within this Court's jurisdiction but one to be determined under the auspices of the CCMA as provided for in Section 191. There was no substance, in the courts view, for the somewhat startling contention advanced by the employee that jurisdiction can be vested in this Court through the simple medium of its arbitrary selection by the employee as the preferred forum for the adjudication of the dispute in question. That submission was manifestly sourced in misinterpretation of the provisions of Section 191(5) (b) and did not bear further analysis.

The employee, in the context of her statement of case, sought in the Labour Court, the adjudication, in addition to her allegation of the automatic unfairness of her dismissal, of her contention that it was, in any event, "not for a good reason" and "inappropriate . . . given the complete absence of any form of corrective discipline as required by the Code of Good Practice", as well as her contention that, having being effected without notice, it was in breach of her contract of employment and in contravention of the relevant provisions of the Basic Conditions of Employment Act.

For the reasons already stated, these latter issues are beyond the jurisdiction of this Court and that the sole issue to which this judgment will be confined is the determination whether or not the employee's dismissal was automatically unfair.

Summary of Dismissal: On the first day of her return from maternity leave the employee received notice to attend a disciplinary enquiry.

The charges related to dereliction of duties in failure to produce proper financial records. There were also charges of neglect in fulfilling basic functions and duties as Group Financial Manager in respect of general ledger and cash book reconciliations and poor maintenance. In addition, after investigation, she was charged with gross negligence with regards VAT returns, PAYE, UIF and RSC levies which had not been finalised timeously resulting in numerous fines, liabilities and penalties to the companies cost. This therefore caused direct financial loss to the company and brought the company into disrepute. The chairperson of the enquiry, described in the disciplinary notice as "independent and external . . . to ensure complete impartiality", presented in his findings that the accused had demonstrated a lack of trustworthiness and had not always acted in the best interest of the company.

It was noted that these responsibilities were fairly elementary and could have been managed with ease and were indicative of her dereliction of her duties.

The company viewed the employee's misconduct in a very serious light and the chairperson recommended to the company that the employee be dismissed with immediate effect.

SUMMARY OF JUDGEMENT: Detailed evidence relating to the charges against the employee which, the company contends justified her eventual dismissal was adduced in the course of this trial. The neglect and inadequacy of various critical aspects of her performance in the responsibility which she held, it was stated, only became apparent during her absence and there was an urgent need to address the serious problems, which had now manifested themselves. It was in that context that, on the advice of its consultants and attorneys, the disciplinary action against the employee upon her return to work, was instituted.

The employee's response to these submissions was based in essence on a defensive challenge to the allegations of her performance inadequacy. In certain respects, factual allegations were disputed, in others, blame was diverted. The hostility towards her, resulting in the disciplinary proceedings and her eventual dismissal was, she contended, fundamentally sourced in the company's irritation at her enforced absence from work, as a consequence of her pregnancy, at a critically inconvenient time, having regard to the prevailing state of affairs in the company's financial administration.

A comparable examination of the principles of such an enquiry was conducted by the Labour Appeal Court in –SA Chemical Workers' Union and others v Afrox Limited (1999) 20 ILJ The court said that in their view, formed on a conspectus of the evidence adduced in this matter, the employee's submission that the disciplinary action and her resultant dismissal were the consequence of a vindictive reaction by the company to the fact of her pregnancy and the inconvenience of her absence in that regard at a time when the company was under severe administrative pressure, cannot be sustained in the face of the detailed allegations of negligence and incompetence upon which the company is adamant that it was based.

The court emphasised however that whilst concluding that the employee's allegation of automatically unfair dismissal could not therefore stand, it was, in the words of Froneman D J P to which was referred, " . . . important to remember that at this stage the fairness of the dismissal is not yet an issue". The court reiterated that, if and when it became an issue, its adjudication would not be the function of this Court which does not have jurisdiction to perform it. In the same context, the employee's allegations of breach of contract and contravention on the part of the company of the applicable provisions of the Basic Conditions of Employment Act arising from her dismissal without notice are inextricably linked to the fairness or otherwise of her dismissal for the substantive reasons alleged by the company. The determination of those specific issues was not the business of this Court but with what the company contends to be the factually accurate reasons for her dismissal, is the function of the forum designated by the statute properly to deal with it.

In conclusion therefore the court found the employee had failed to demonstrate that the reason for her dismissal, whether fair or not, was her pregnancy or any reason related thereto. She was also unable to establish any other unfair conduct by the company over which this Court would have jurisdiction and her application accordingly failed.

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7. Best Practices For Leading The Global Workforce*

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1. Introduction

A reputation for delivering solid results. However, the year 2000 began a period of dramatic change. The emerging challenges appeared to be completely outside of the control of the organization and too insurmountable to overcome. Verizon Dominicana found itself in an increasingly volatile and potentially devastating environment.

How does Verizon Dominicana continue to deliver great results year after year while being subject to such tremendous external pressures? What strategies have emerged? What is the secret of this organization?

In such a tumultuous economic environment and rapidly evolving industry, the key success factor for this organization became the people within the company and the manner in which they worked together. By engaging all of the employees with the vision and strategic direction of the company, Verizon Dominicana not only survived against all odds, but continued to deliver positive results. A well-designed and well-orchestrated strategic planning process became the roadmap for a business transformation. It brought the leadership, management team, and employees together around one strategy…one vision…and this allowed the company to go through economic chaos with a minimum of damage and a significant amount of success.

The process used to navigate through this unpredictable environment delivered results beyond mere survival. What has emerged is a stronger, faster, and more flexible organization aligned around a common objective…one that is fully engaged at every level. Not merely "words on a wall", at Verizon Dominicana, the vision became a living thing…a fire kept alive by the people…a high purpose spelling out the advantages they provide to their customers, community and employees alike.

2. The Journey - Continuous Business Transformation

The annual strategic planning process became the catalyst for the business transformation that emerged. Each year, a 5-year strategic plan was established and presented by the executive team to Verizon International. A facilitator/consultant would be brought in and over the course of three days, a plan would be assembled.

The process had its shortcomings. Three days of facilitated planning did not allow for the development of an understanding comprehensive enough to result in an executable plan which would be fully embraced by the organization. Further, the 12-month planning cycle did not allow enough time to fully implement the strategy or to analyze and respond to its effectiveness. Previous strategic plans had delivered disappointing results because they had not been fully implemented and did not achieve consensus throughout the siloed functions of the organization. Year after year, the organization was burdened with layer upon layer of "projects"…some of which were implemented and many of which were not. The sheer volume of the accumulated projects proved to be a significant drag on resources and a source of great dissatisfaction among management and employees.

A business transformation process was designed to be an emergent process that was very organic in nature and that would develop Verizon Dominicana's capacity for change while simultaneously delivering significant results in what was fast becoming a more complex and difficult operating environment. The new process allowed the executive leadership team to initiate a strategic plan that centered on the people involved and that engaged the entire organization in a way that had never been accomplished in the past.

# Alignment

Common themes emerged from the conversations with members of the executive team. The individual interviews exposed diverse, as well as common ideas, which were organized into high-level themes. The exploration of these themes became the agenda for the first group session. In this session, the consultant shared with the team the patterns that had emerged throughout the interviews. The group began to see its present state in similar ways and with this common foundation, it began to move ahead.

# Diversity

While building strong alignment among the leadership team, the process simultaneously allowed for a new level of diversity and inclusion. The differences and strengths that each member brought to the team were openly recognized and respected, bringing a new level of acceptance and alignment to the group. This made it possible for the team to learn from these differences and to use them to enrich their understanding of their organization. By allowing individual thoughts and honoring diversity among the team, the team was stronger, smarter…better. This was a different kind of alignment…one that drew on the strengths of each member and the collective wisdom of the group.

# Clarity

This new collaborative environment gave the team the power to act in a more effective manner as leaders and as architects of the future of the organization. From this vantage point, the team was able to effectively scan the terrain, obtain a clear picture of where the company was in relation to its surroundings, and view the challenges they must rise to meet. It became very apparent what needed to be focused on in order to be successful in the next five years. They had successfully evolved from implementers of tactics to designers of strategy.

3. Inquiry & Reflection - Reaching our Destination

In today's world, the process of business transformation is continuous. It is an ongoing cycle with no beginning or end. Verizon Dominicana is still in the midst of its implementation, but it is also already looking at itself again and asking the same questions it initially asked:

>> Where are we in our marketplace?

>> What is working?

>> What needs to be improved?

>> Is there anything new to consider?

>> What are we learning?

There is now a perpetual process of inquiry and reflection. This emergent process has required a certain amount of flexibility from everyone involved. Rather than relying on a planning process that only occurs every 12 months, the organization has started a continuous conversation that connects the company to its world.

Verizon Dominicana understands that today it more closely resembles an organism than a manufacturing line. Moving from 'organization as a machine' to 'organization as a living thing' is a significant transformation. A tree does not switch itself on and off. It does not have to stop and plan for its next growth spurt. Instead it's an ongoing moment by moment response to the conditions around it (heat/water/soil) and within. Verizon Dominicana has started a process that has provided the organization this organic level of responsiveness.

Most organizations haven't figured out how to stay this aware, but those that do achieve a significant competitive advantage in today's changing environment: an increased ability to compete on speed.

4. Key Learnings:

Every transformation begins with the motivation and engagement of the people in the company. Designing objectives and direction is relatively easy, but obtaining commitment in the decision-making process makes the quality of implementation so much better. Important issues such as cost management become easier to manage because the team is motivated to maximize the dollars spent and to do what it can to protect the company and the vision to which everyone is committed.

Learning to trust the principle of emergence is empowering. In the beginning, it was uncomfortable to start this process without the clearest of beginnings and endings, but the results have been so much greater than could have been anticipated. Letting go of the old ways and allowing new answers emerge was very empowering. It's important to continually ask questions that allow for the emergence of new ideas…What else do we need to do? What needs to be adjusted? How can we better meet the needs of our customers?

Drawing on the resources of the entire team and embracing their contributions opens many new doors. A leader has much to gain and learn from the team. The days of the all-knowing charismatic leader are over. No longer can the lone genius hope to lead organizations of significant size and complexity without the power of the team. Team IQ rises when every member is working together to understand what they see and how they will respond. To provide people the freedom to work together, express their ideas and create results that are 'theirs' is amazing. It is the key to developing a high performance team that has the potential to move the organization to greater heights. Functional expertise alone is not the key to long-term success. True long-term success is about raising the awareness of your team and enhancing their capacity to develop their organization; this changes everything.

*Reprinted by permission of Linkage Inc

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8. Book Reviews

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# Necessary Dreams: Ambition In Women’s Changing Lives

By Anna Fels, Random House, 2004

Why are some women so uncomfortable admitting that they are ambitious? In Necessary Dreams, New York psychiatrist Anna Fels examines the role ambition plays in the lives of women from a variety of perspectives using autobiographies of renowned women and men and incorporating research from psychology, sociology, neurophysiology, learning theory, and occupational behavior. Necessary Dreams is not an academic study but uses existing scholarship to provide grounding for this fascinating topic. Fels states that she intends for her book to serve as a template for women deciding on decisions affecting all aspects of their futures.

After reviewing psychological theories on this topic, Fels discovered that the majority of the research focused on the study of an individual’s past —not their future. In fact, most methods of therapy begin with the patient’s earliest memory. Intrigued by the notion of how women envisioned their futures, she began her interviews with women by asking them how they imagined their futures in five to ten years. Fels’ primary research included interviews of friends and acquaintances—men and women—who were highly accomplished in their fields. What she realized after hearing a diverse range of women’s thoughts about their futures was that those who had clear and well-defined plans expressed a stronger sense of well-being. Women who were less focused about their futures were more anxious and unhappy.

The two elements that Fels uses to define ambition, based on the literature, are the mastery of a skill or expertise and the recognition of the achievement of that mastery. Fels warns readers early on that it is the recognition component of ambition that women find most troubling, and she devotes nearly one third of the book to this concept. She describes how women avoid attention and how recognition relates to femininity. She examines the inequality of rewards for men and women, the pseudo-recognition that women have achieved historically, and the role that parents, mentors, institutions, and peers play throughout women’s lives.

The section on careers, marriage, and family provides insight for women who are in the midst of making decisions about whether and who to marry and how to balance career and family ambitions.

In the end, she urges women to organize as a political constituency, with an agenda to influence government, and to support the interests of all women no matter what their domestic and career choices may be.

To illustrate key points, the author uses the experiences of highly accomplished, celebrated women such as Golda Meir, Katherine Graham, Jamaica Kincaid, and Anna Quindlen, as well as stories of everyday women. —Mallory Stark

# The Human Resources Software Handbook : Evaluating Technology Solutions For Your Organization

By James G. Meade, Pfeiffer; Book & CD-Rom edition, 2002

When selecting software for their companies, human resource professionals are confronted with the overwhelming task of evaluating the more than 3,000 HR software products that are currently on the market. With the flood of information in the marketplace, how can a human resource professional know the truth behind the claims a vendor makes about their software product?

The Human Resources Software Handbook is an essential volume that offers the information, suggestions, and techniques you need as a human resource professional to make the most effective decision when selecting HR software. Written by James Meade— the country's foremost expert on HR software— this book outlines a step-by-step process that shows you how to select, purchase, and install reliable HR software that will best meet the needs of your HR department. The Human Resources Software Handbook is a flexible reference tool that contains

>> Information on how you can conduct a software analysis from beginning to end

>> Specific data about HR software products in a number of major categories

Evaluations on a wide variety of products from consultants, competing vendors and users

>> Best practices for selecting software selection

>> A proven process you can use when preparing for software implementation

>> Specific criteria for selecting a vendor

This practical resource is written for HR managers like you who have little or no expertise working with information technology (IT) as well as for mangers those who have a trusted IT department that they can call on for support. But no matter how much or little support you have or how large or small your company, this book will help you make the right software decisions for your HR needs. Designed to be user-friendly, the book includes a CD-ROM that features sample forms, letters, checklists, matrices for evaluating types of software, and demonstrations of various software packages.

HR From the Heart equips human resources professionals with the tools to create a genuine synergy between their own professional goals and the business objectives of their employers. Sartain is a legend in HR circles, having spent 13 years at Southwest, consistently ranked among the best places to work in America. Her experience shines through, and readers will find she is not only a great motivator and seasoned executive, but also a champion of the HR profession and a wise career counselor.

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