Keeping internal talent is critical during tough economic times.

We see the HR industry re-focus their efforts on Talent Management, with Generation Y flooding into the employment market, while at the same time companies are reviewing their compensation strategies.

This article looks at the best Talent Management strategies for the current tough economic climate.

Talent Management components
Where a year ago the HR industry was talking mainly about Performance Management, and how to create a Performance culture, these days the focus has moved on to Talent Management, which shifted the attention to recruiting high-performers into the organization.

Talent Management can be broken down in three main components: Compensation, Performance and Recruitment.

Compensation Management ensures that the high performers in the organization are recognized, are motivated and don’t even think about leaving. Here, a low ‘regrettable losses’ metric would be an indicator for good Compensation Management.

Performance Management identifies skills and capability requirements for an organisation, compares these to the existing workforce skills and capabilities, and manages actions to move the organization from the Current to the Desired. Usually this is the domain for training and development units.

Recruitment tries to cover the current and future gaps in the performance portfolio by hiring replacements for losses and candidates for new positions. A newer feature within Talent Management focuses on the marketing efforts to get the attention of potential employees.

Where to put the effort
The market conditions have radically changed. When a year ago, the key drivers across all industries were growth and the need for productivity increases, these days the messages are more geared towards survival mode and ‘how to prepare for better times’, with many organizations currently in a hiring freeze.

“The best person to do your star performer’s job is… the star performer.” So the best Talent Management strategy at the moment is to make sure that you keep your existing top performers motivated. This holds true not only in the current climate, but in general. If you have stars in your organization, you should make sure that they are happy where they are and don’t look anywhere else.

The US Bureau of Labour Statistics reports an average 19% voluntary attrition in the US for 2008 based on 143.3 m non-farm payroll jobs in December 2008. It can be assumed that it is the ‘better performers’ that leave for a better job, so this statistic puts the average 'Regrettable losses' figure of companies at 10% or higher, which causes significant cost for any organisation.

Everybody knows of the customer satisfaction mantra, that it is five times harder to win a new customer than sell to an existing satisfied one. A similar ratio applies to the replacement of a true star in your organization. If you don’t live under ‘hiring freeze’ restrictions, meaning you have budget to replace leavers, you are looking at replacement cost of 150% of the leaver’s base salary, and that is not counting productivity losses, missed opportunities, and the time it takes to fill the role. In terms of real value, the 5:1 ratio applies here too.

The message is clear: If you invest in Talent Management, spend your first Dollar on existing high performers and straighten out the Compensation Management policies and processes.

The next investment priority depends on the industry. Usually you want to develop existing employees into star performers and only fill the remaining gaps via the recruitment function, but there might be the need to invest greatly into new staff.

Good compensation management practice
Currently performance rewards for Executives are in the spotlight, and emotions are high due to Executives still asking for incentives, even though their companies are in receivership.

Still your stars expect to receive recognition for successes and overall good performance and head hunters make it their business to know where good performers might be interested to jump ship.

It can be expected that the link between pay and performance will be strengthened across the industry and that companies in these economic times are tightening their incentive pay budgets. Even more complex Incentive compensation schemes, like Malus clauses and long term incentives, will appear in many organisations’ HR program.

Good compensation management practice ensures that
- Real performance is understood and reviewed, not a gut feel decision
- Recognition is given to those whoperform well, not to those who scream the loudest
- Review processes are based on clear policies and are automated

The current hype in the HR industry and the software market in this space seem to be missing the point, that is, to make sure that existing performance stars should be the first on the list to be cared for, not the last.