Is Your Human Resources Department Unwittingly a Socialist Institution

By Staff Report

Dec. 10, 2004

We all know that in the age-old economic battle between capitalism and socialism, capitalism won.

    Unfortunately, if you were to classify the actions of many human resources departments, more than a few of their actions come across like socialist actions rather than capitalist ones. As a strong capitalist, I am wondering out loud here: How do so many human resources departments get so out of focus? Some examples to illustrate the point:

Human resources as the advocate of the weak vs. the top performer
Some human resources thought leaders and a good number of human resources departments actually declare that they are “employee advocates.” In addition, it’s a common practice for the human resources department to focus on poor-performing employees and managers despite the fact that human resources has no statistical evidence or metrics to show that focusing on poor performers results in them ever becoming top performers.

    The truth is that it’s fairly routine for the employee relations and training departments to spend a disproportionate amount of time and resources trying to “fix” poor performers. Most human resources organizations develop progressive discipline, job simplification and second-chance opportunity programs for those employees who consistently fail. But they offer little in the way of programs that support or improve the productivity of top performers.

    The problem is so widespread that I defy you to find a human resources program that focuses on improving or supporting the performance of top performers.

    From a capitalist viewpoint, all human resources organizations would spend the majority of their time and resources on the best-performing assets–in this case, top performers. Unfortunately, the reality is that top performers seldom see or get help from human resources, so their issues are seldom addressed. In a capitalist-dominated world, survival requires you to rapidly shift resources from bottom-performing assets to top-performing ones. Incidentally, I find that most companies fire less than 1 percent of their workforce for performance reasons, which is clearly an indication that poor performance is widely tolerated.

Human resources as supporters of equal pay vs. differential pay
    Capitalists learn that you must differentiate rewards in order to improve performance. What is needed is not “reward them all equally” or “reward each according to their need,” but rather “reward those who produce the best results.”

    In contrast, most compensation departments act like socialists when it comes to pay. They frequently give across-the-board cost-of-living raises that reward everyone equally for just showing up. They also frequently institute across-the-board pay freezes, which essentially punishes everyone equally. When they do reward performance, there is often less than a 15 percent differential between a top and average performer, which isn’t much of a reward differential for producing great results.

Human resources focused on seniority vs. relevant and recent performance
    Capitalist principles tell you to reward based on results. Unfortunately, all too many human resources departments instead reward based on seniority. They give preferences in job promotions, vacations, transfers and even pay increases to those with the most experience, even though others may have a higher performance level.

    In addition, by giving 10-year pins but not giving out top-performer pins, human resources is demonstrating that it is more willing to reward time in the job than it is to publicly recognize performance in the job. Although many human resources socialists and union leaders believe in seniority, capitalists measure and reward performance, regardless of one’s tenure at the firm.

Equal treatment of departments and managers vs. resources based on results
Firms routinely prioritize their business units via the budgeting process. Chief financial officers disproportionately allocate resources based on the department’s results and its return on investment. Human resources departments, in direct contrast, routinely treat everyone, every job and every department equally.

    For example, human resources almost always puts the same dollars, time and effort into hiring individuals in low-priority departments as it does in high-priority departments. Human resources routinely treats all managers and problems equally, even though they should prioritize service offerings so that the most time and resources are spent on the most productive and high-ROI managers, jobs and business units.

Human resources as consensus decision-makers vs. innovators
    It’s quite common for human resources departments to make decisions in a meeting based on a vote or, even worse, consensus decision-making.

    A capitalist realizes that although input is important, it is essential that those with the most information and knowledge make the most critical decisions. In a world that requires risk-taking and innovation, consensus decision-making essentially dooms you to reducing all “wild ideas” to the average and the mundane.

Human resources as the protector of people and jobs vs. being a champion of profit
    Firms are in business to make a profit. Human resources professionals are often overly focused on defending people and jobs, even though that approach may be detrimental to the overall profitability of the firm.

    Human resources’ resistance to the practice of cutting the workforce is an illustration of its overconcern about protecting people. Human resources will recommend the cutting of training and the freezing of salaries and hiring in order to preserve jobs for the weak–instead of layoffs– even though freezing salaries and training, for example, might cause the majority of workers to become frustrated and less productive.

    Layoffs are a chance to cull out the weak and the unnecessary and are a method for reducing overall costs. It’s easier to find a Republican who wants to raise taxes than it is to find a human resources person who actively supports layoffs. Offshoring is another efficiency practice that human resources resists in order to protect jobs for the “little guy.” This insistence on maintaining local jobs raises costs and hurts the firm’s competitive advantage. The difference between the two approaches is clear: Socialists champion “saving” the lowest common denominator, while capitalists champion profit.

A bias toward people over capital investments, no matter what the ROI
    It’s time to face facts. In the business world, investment dollars go to the assets with the highest rate of return.

    CEOs and CFOs generally show no “human” bias, and shareholders, without a doubt, show little particular favoritism for the human element. They all just want high returns from their investments whether they are investments in people, equipment or financial instruments. In direct contrast, human resources often sees itself as an employee advocate with little or no concern about comparing the productivity of human assets versus those of technology and finance.

    Human resources inevitably sides with the people element. Capitalist human resources looks at people costs as a business investment that is no different from any other business asset. CEOs and CFOs invest money in resources based on their ROI, whether it is marketing, R&D or people; they have no preset preferences. They expect all assets to demonstrate a return, and, naturally, they invest the most dollars in those assets that provide the highest rate of return, require the least upfront capital, have the lowest risk and the shortest payback. It’s time to stop fooling ourselves by automatically believing that “human assets” have some special standing and instead support expenditures in whichever assets produce the highest return.

Other indicators that a human resources department leans toward socialism
    Additional characteristics of socialism and the bureaucratic approach to human resources might include:

  • A large emphasis on “showing-up pay” (100 percent base pay and large benefit packages are all show-up pay) sends a message that showing up is more important than performing.

  • An emphasis on process, organizational charts, building relationships and meetings are all indicators of a bureaucracy.

  • Striving to eliminate any “special treatment” means turkeys and eagles get the same treatment.

  • Tracking and maintaining headcount (thereby considering all employees the same) rather than actual employee costs (salaries and benefits) and their ROI.

    Human resources needs to be a unit that increases workforce productivity efficiencies, not a creator or protector of jobs. Businesses make money by being efficient. In the area of people management, efficiency means increasing workforce productivity (which is the dollar difference between the costs of paying and employing people and the value of the output that these people produce).

    It’s rare to find a human resources department that talks about workforce productivity at all, and only one in 1,000 actually measures its workforce productivity as a regular part of its performance measurement activities.

Why such a socialistic focus in human resources?
    Now you might be thinking, “I agree some social work mentality does exist, but why does human resources have such a social work focus?”

    It’s hard to point to a specific reason why human resources focuses on equal treatment and loves to delve into social and community issues. The best evidence I’ve seen indicates that the primary causes for this anti-capitalist approach is that most of the people in human resources do not have degrees in business, nor do they have extensive experience managing a P&L business unit. Let’s face it: Too many people in human resources are there because they “like to work with people” rather than because they like to make the firm a lot of money by increasing “people productivity.”

    You can also see this socialist bias in some human resources publications that frequently place social concerns at center stage. Even though the human resources department is a business function, some of the people who write about human resources seem more focused on outside social issues than the publication of any other business function.

    These human resources publications routinely focus on issues in the community. I’ve never met a CFO or CEO anywhere who said the role of a human resources department is to make the world a better place or to worry about the little guy. However, quite frequently I see the cover of human resources magazines highlighting social issues, obesity, housing issues and even concerns for a happy retirement. Maybe it’s because most of the writers for human resources publications are freelancers with no degree in business.

    The war between capitalism and socialism is over, and capitalism won because it’s a superior approach. Now is the time to pass that message along to the numerous junior psychologists, former teachers and social workers in human resources that just haven’t heard the message yet. Incidentally, these are also the individuals that fight the use of technology, ROI and metrics in human resources because they feel that they “dehumanize” people in the people function.

    OK, remember that I never said that all human resources departments are socialistic, but it is certainly true that a truly capitalistic performance culture is more of an exception then it is a rule.

    Firms like GE, Intel and Nucor are famous for their capitalist practices, while all too many human resources departments act more like government agencies that emphasize equity over differentiation based on performance.

    Now is the time for proud capitalists in human resources to become the champions of differentiation and employee productivity.

    If your goal is to increase your company’s people productivity through the effective use of human resources tools and strategies, it’s time to change the DNA of human resources. It’s time to change human resources so that it focuses on top performers and ensures that it spends most of its time and budget on high-ROI activities. In brief, it’s time for human resources to become a profit center.

Reprinted with permission from John Sullivan. E-mail to comment.

Schedule, engage, and pay your staff in one system with