Two Legs of an Organization
If you walk into almost any executive meeting, you'll hear discussions about revenue, margins, expenses, EBITDA, shareholder value and growth. These are all critically important measures, representing the financial health of the organization.
If you step into any planning meeting, budget and costs are likely to dominate the conversation. Yes, a portion of the meeting is spent discussing the other resources, but if the ROI isn’t justified on the balance sheet it’s likely to get glossed over without much thought. After all, time is money.
But organizations aren't just balance sheets. They are living systems, that depend on two key resources, two forms of capital. To survive, all organizations require financial capital and human capital.
One keeps the lights on, one keeps the business alive.
Imagine an organization as a living person. Financial capital is one leg, human capital is the other. Neither leg should be more important than the other; more often than not, that’s what happens.
Are your two organization’s legs equal in size and proportions? Are they balanced and effectively coordinating movement? Do they operate in choreographed movements of efficiency or stumble over each other, one seeking to counterbalance the awkward movement of the other?
The truth is that coordination is key. Where does this coordination originate? Where both forms of capital meet -- Total Rewards.
Most people think Total Rewards is simply payroll, compensation, benefits or HR administration. I see it differently.
Total Rewards thus becomes the hips of the organization. It is the nexus point where financial capital and human capital meet. Every investment made in people — pay, incentives, benefits, recognition, career opportunities, flexibility — is a decision about how financial resources are converted into human behavior.
Because compensation isn't really about money. It's about behavior.
The challenge is that most organizations measure financial capital with extraordinary precision while measuring human capital indirectly, inconsistently, or not at all.
Company Values
Pop Quiz! Here's three questions for you to consider:
What are your organization's mission, vision and values? Now consider:
What percentage of your values focus on revenue?
What percentage focus on people?
Based on a scan of more than 200 mission statements and core-value lists from a diverse listing of public and private organizations the top 15 most common values are below.
Do any of these match your own organization?
As far as aggregation of people and financial orientation, consider that of the above 15 values, 93% have a high relevance to human-oriented behaviors while only 53% have a high relevance to financial metrics.
The results are a clear indication that for most organizations, nearly every value describes human behavior, not financial performance. Yet, when we evaluate organizational success, we almost always overwhelmingly rely on financial metrics (i.e. Fortunate 500).
Despite the enormous effort spent measuring the outcome in terms of financial dimensions, we give comparatively little attention to measuring the behaviors that create it. It’s clear to me that we've been measuring only half the equation.
Said more bluntly, market capital represents only half of the true value of a company. Imagine being able to measure a fraction of the delta missing from unmeasured human capital value creation.
At behavIOHR, I believe human capital deserves to be managed with the same rigor we've applied to financial capital for decades. People aren’t P&L, so viewing human capital in terms of cost makes little sense. Behavioral science has shown for decades that human behavior is remarkably predictable. That’s why compensation isn’t about pay, but rather, behavior.
That’s what behavioral Total Rewards is all about, and what this newsletter explores. Over the coming weeks, we'll challenge conventional thinking about compensation, incentives, engagement, performance, and Total Rewards through the lens of behavioral science—beginning with the 9 Principles of Total Rewards.
By understanding and incorporating these principles into practice you too will See Total Rewards Differently. Better management of human capital will translate into better overall performance
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