Beyond The Carrot and The Stick: Impact of Culture on People Practices

“Never try to change culture. Try, instead, to work with what you’ve got.”

Peter Drucker 

It’s hard to find an organizational mission statement that doesn’t include some reference to people.  People are our most important asset. Our most important customers are our people.  Yet, reliable surveys like Gallup show that employees frequently don’t feel the love.  Organizational leaders grumble that talent management practices don’t deliver results. Why do these stubborn gaps persist through good and bad economic times?

Many variables go into the employer/employee relationship- far too many to cover in a single blog post. My focus will be on just one:  Context is everything in people practices. “One size fits all” strategies – the kind many in global organizations find attractive because they are easier to manage – are frequently trumped by culture.

Examine talent retention strategies as an example. Assume that the organizations that discuss people as their most important asset really mean their strongest performing people are their most important asset. It’s not unfair.  The twin goals of 1) retain and optimize top performers and 2) replace poor performers with better performers are at the heart of many talent management strategies.

Research shows that turnover and performance follow a “U” shaped relationship. Most voluntary turnover occurs at the twin peaks of high performers and low performers. Voluntary turnover is lowest among average performers- at the bottom of the “U”. Why?  High performers are more attractive to alternative employers and, as a result, have more options. Low performers are often more doubtful about their ability to succeed in their organization, and are often more dissatisfied with their job.  The “U” shaped turnover pattern relates to well known talent management strategies, e.g. forced ranking and pay for performance schemes.

What’s the Problem?

Talent management solutions focused on retaining top performers and upgrading poor performers have mixed results, particularly in global organizations.   Interesting research recently out of Cornell University helps to explain why.  Most talent research is based on the 5% of the global workforce in the U.S. and, as a result, has a Western bias. Sturman, Shao and Katz offer that the bias in turnover and retention research misses the cultural context so often at the root of “stay or go” decisions by employees. While they agree that the principal of the “U” shaped relationship between performance and retention is generally true across cultures, the details are very different.  Think of it this way: a global organization wants to keep the top performer in New York and the top performer in Mumbai.  But the cultural factors that influence the “stay or go” decision of each are quite different.

Beyond the Carrot and the Stick

Sturman, Shao and Katz examined data from a large multi national corporation to show how culture can trump intent of global talent management solutions based on North American cultural values. A few examples follow:

Pay for Performance compensation schemes that over- reward high performers and takes away rewards from low performers works best in individualist, performance-oriented cultures, like the U.S.  It works far less well to retain high performers or encourage turnover in low performers in collectivist cultures, like India, with a strong orientation that group effort gets results so rewards should be shared.

Senority is a critical factor in cultures with a high power difference orientation, frequently found in emerging markets Brazil and Russia. High or low performers with significant seniority may be more reluctant to change employers because in doing so they surrender the authority and deference provided by tenure. Seniority is less a factor in turnover decisions in cultures with low power difference orientations, often found in Canada and the U.S.

Voluntary turnover is discouraged in cultures where uncertainty avoidance is valued, such as the Nordic countries and Singapore. High performing employees find it difficult to gain a return on movement and lower performing employees are more difficult to identify, so the overall performance- turnover relationship becomes weaker.

Why Does This Matter?

We tend to think that what’s true for us is true for everyone. In organizations, it’s easier to think what works here will work everywhere. And, if we just explain it often enough, “they” will get it.

We can agree on many things that work across cultures. One is that people truly are an organization’s most important asset. It’s difficult to have that promise come to life when practices fail to recognize that people do not exist in isolation from their culture. It comes to work with them. Human resources and talent management practices flexible enough to compliment cultures, instead of work against them, have a far greater chance for success.

Reference

Sturman, M.C., Shao, L., Katz, J.H. (2012). The Effect of Culture on the Curvilinear Relationship Between Performance and Turnover.  Journal of Applied Psychology, Jan, 2012. Vol. 97, pg 46-62.

9 thoughts on “Beyond The Carrot and The Stick: Impact of Culture on People Practices

  1. Thanks for another wonderful post Susan. I have two additional thoughts. First, pay for performance tactics which “over pay” high performers have the result of creating a culture that has huge gaps between individual workers. These gaps (in both financial rewards and status) can actually reduce effective collaborative behaviour – with egotistical super stars calling the shots.

    Secondly, these pay for performance schemes under-estimate the importance of the “average” worker. By definition, most employees will be average. Yet they still perform their jobs and have skills and abilities. By focusing time, money and resources on either the high or the low performing employees, we miss a huge opportunity to build capacity among the vast majority of our employees, who can make an incredible contribution to the organization.

    Colleen

    • Very good points, Colleen. You give me a new post idea. Perhaps you recall the insight out of Harvard a few years ago that made the case against hiring stars from other organizations for the sole purpose of duplicating their success at a new organization. Its key point was that much of what produces organizational “stars” rests in the particular organization, not the person. These are things like opportunities for work, resources available, level of developmental support, and as you point out, the quality of the “average” talent in the organization. So, when a star is raided, the new organization only gets the person, not all of the context that created the success. The research showed the failure rate of raided stars to draw its conclusions. Hhmm, got to look it up. Thanks for the idea.

      • Your welcome. I also found a study that showed that recruiting stars from other companies (rather than promoting from within), resulted in higher salaries, higher turnover and lower performance evaluations for the star hired from the outside, than for the employee promoted from within.

        Hiring “stars” costs more and buys you less than promoting from within.

        I’m looking forward to your next post.

        C

  2. I have never seen a pay for performance program that worked. Either management was measuring the wrong performance, or the employees figure out ways to exploit the system. Incentive programs are extremely difficult to implmement and usually cause many more problems than they solve. Great post.

    • I am sad to agree. If I had a magic wand, I’d make two HR practices disappear: forced ranking and pay for performance systems. I think rewarding good results makes eminent sense, but how most PFP schemes are set up badly miss the mark. Thanks for your observations.

  3. “But the cultural factors that influence the “stay or go” decision of each are quite different.”

    This is a great point, Susan. This reminds me of the recent issues with Apple changing its policies in China (less hours, more benefits) and how the workers are genuinely afraid of losing their jobs. Different cultures have different expectations of the workplace (for better or for worse), and different reasons for taking or rejecting job offers.

    • You are right, Erin. It’s easier for global organizations, or those who just cross a few borders, to have one policy because its simpler. But the effort in a locally designed program usually gains the best pay off.

      Susan

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