Strategic HR

3 terms all HR leaders should know to stay relevant

3 Terms All HR Leaders Should Know

Many HR leaders are moving away from traditional transactional roles and becoming strategic business advisors. This means more and more of us are playing an important part in executive meetings and providing input into company-wide decisions.


But keeping up with corporate terminology and jargon can be a challenge. To ensure you're not pulling a blank face at the next board meeting, here are three terms you might need to know.



1.  Forced ranking 


Forced ranking divides employees based on perceived performance, often focusing on the top 20 percent of workers – with the theory being that these people deliver 80% of the work. 


Forced ranking is an interesting, and largely outdated HR term, which has some pretty controversial roots. However, many forms of forced ranking still take place today – even if they’re not branded the same controversial label.  


Largely popularised by Jack Welch – the very icon of top-down hierarchy himself – forced ranking is a performance management system that tends to involve large rewards for the top performers and large penalties for the bottom performers. For example, the top 20% of performers in an organisation may receive a bonus, whereas the bottom 10% may receive their P45.  


During his time as CEO at General Electric, Jack Welch notoriously insisted that the bottom 10% of the workforce were removed each year


Forced ranking systems are not thought to be a very good HR model. They are criticised widely, for many reasons. These include:  


-  Employee rankings tend to be biased and influenced by favouritism 

-  The system forces a high turnover rate for the workforce 

-  Employees don’t tend to thrive well under systems driven by fear and intimidation 


It is highly unlikely that you will come across an Australian or New Zealand employer admitting to using a “forced ranking” system these days. However, there are many examples of employers who operate in a similar way, albeit under a different name or guise. If you find yourself turning your entire HR system into nothing but a leader board; if you find yourself only ever rewarding the very top percentage of employees; and if you are quick to show the door to under performers… then you may well be playing close to the edge yourself. 



2.  Deferred compensation 


What is deferred compensation? In a nutshell, it is an arrangement that lets an employee complete work, for which they will get paid at a later date. 


According to Investopedia, an employee may opt for deferred compensation for the potential tax benefits it offers. Most of the time, a deferred payment scenario means that income tax is deferred until the actual pay-out – normally when the employee retires. 


Deferred compensation can take the form of a retirement plan, a pension plan, and a stock-option plan, amongst other forms. 



3.  Abandonment rate 


This is another term that isn’t exclusive to HR – but it pays for HR to understand what it is, and how it might apply to them. 


What is abandonment rate? In HR or recruitment, you would probably consider it the percentage of candidates who start applying for a job, but quit before they finish the process. 


In the world of online retail, abandonment rate is generally taken to mean the level of customers who add items to their shopping carts but leave the website before checking out. The real-world equivalent to this would be customers leaving a full trolley in the middle of the supermarket. 


For HR, a high abandonment rate can be a red flag that something is up with your recruitment process. If a high number of candidates are engaging with your vacancy, but leaving before they submit their application, then you should take a look at each step to see what could be wrong. 


Is your applicant tracking system running slowly? Are you offering a low salary compared to similar jobs on the market? Do you have a bad reputation on sites like Glassdoor? Is a hyperlink broken? 


If you have integrated analytics, you’ll be better able to see where your high abandonment rate is coming from, and hopefully, find a way to fix it.


This post was written for The Access Group, a leading provider of HR, digital learning, payroll and financial management software to small to mid-sized organisations. It helps more than 47,000 customers globally across commercial and not-for-profit sectors become more productive and efficient.