Global Talent Management at Novartis
Individual Case Assignment
There are two philosophies of leadership behind Novarits. First was to develop talent for leadership positions from within, which was one of the goals of any talent management system. It was easier to build a company culture when its employees come up through the ranks with shared values and experiences. Also, it was often less expensive to promote from within than to outbid an outside competitor for someone already holding a comparable position. Another element of Vasella’s philosophy was that the company needed to move talented individuals to their desired positions before they were solicited from the outside. Vasella recognized that in order to manage talent successfully, the company needed to pay people well, but he also knew that pay was not enough to motivate people. People work because they believe in the purpose of the company and they feel engaged in its success.
From 2002 onward, the entire company adopted the two-dimension scale, with one dimension focusing on business objectives and the other focusing on values and behaviors consistent with Novartis norms. Each of these two performance dimensions had a three-point scale, with 1 indication poor performance dimensions, 2 indicating satisfactory performance, and 3 indicating superior performance. Employees saw their compensation closely connected to company performance and to their individual rating. In order to minimize the criticism of various aspects of implementation, the company emphasized the following five aspects when implementing the pay-for-performance system. 1. Differentiating employee’s performance
The company strongly encouraged that all managers follow the normal distribution when assigning performance ratings to their direct reports. The motivation for the normal distribution was to encourage managers to honestly differentiate performance and talent variations, to ensure that rewards were distributed fairly across the entire organization. To raise the ability of managers to discern talent differences, the company encouraged managers to compare the performance of their direct reports to employees with similar positions across the Norarits organization. 2. Ensuring Uniformity of system worldwide
To assess the results of its performance measurement, the company had conducted anonymous, online surveys around the world. The surveys showed that the system had been installed with high uniformity around the world, and a growing majority of employees appeared to at least profess enthusiastic acceptance of the purpose, design, and implementation of the global incentive system and processes. 3. Matching pay to performance
The performance rating had a large impact on the associate’s compensation. Most jobs at Novartis had a base salary and target incentive that was set according to market data. The employee's total compensation consisted of the market-determined base salary and the employee’s incentive payout for that year. The annual incentive payout was decided by multiplying the employee’s incentive target by his performance rating by the company payout factor for the business performance. They payout factor for business performance reflected the achievement of both short-term and long-term performance targets, including revenue growth, economic value creation, market share growth, and ongoing efforts to optimize organizational effectiveness and productivity. The payout factor was set differently based on divisions or function within a division. 4. Manager training programs
In order to train line managers how to lead associates and shape the talent of their teams to enhance performance, the company had instituted an in-depth managerial program throughout the company. This coaching was meant to encourage continuous improvement in middle and senior-management capabilities. 5. Talent rating for managers
Each year, a group of Novartis employees went through what was called the Organization and Talent Review. This group of 14,000 included all front-line managers and above, as well as high-potential individual contributors, and designated critical positions within all Novartis divisions regions, countries, functions, and business units. After the potential rating was assigned to each of these 14,000 employees, the midyear review was used to discuss both the talent rating as well as each person’s interim progress toward his annual plan. It allowed the manager to predict the associate’s future position in the firm and to assess the associate’s so-called learning agility, or ability to manage people, results, and charge.
It is very challenge in taking the “standardized” leadership throughout the world. When used correctly, “standardized” leadership offers a way to measure performance, which makes management a lot easier and keeps the business running smoothly. People feel more efficient and accountable. However, when it comes to the processes and activities of people management which involve more than one national context, “standardized” leadership might not become a good thing. US tendency is to require managers to “blind” themselves as to gender, race and ethnicity – to be judged only on “professional skills”. This kind of “Standardized” will cause leaders focus on process instead of people, which might demotivate employees, and make employees feel loss of trust, hope, worth, and competence. Therefore, instead of strictly follow the “standardized” leadership, company should embrace the culture diversity and tailor the “standardized” leadership to suit the culture diversity. This will bring a lot of benefits to the company as a whole, such as expanding alternatives, increasing creativity, flexibility, problem-solving skills, and also help the leadership better understanding of local employees; work effectively with local clients; better understanding of local political, social, legal, economic and cultural environments.
It was tremendously difficult to change a company from the position of middle or even upper-middle management, but that dramatic change came from either the bottom or the very top of a company. Vasella had used his experience as a middle and upper-middle manager to see what was wrong with what the company doing, and to constantly brainstorm about the changes that were needed. Once Vasella became CEO, he sought to implement dramatic, transformative change. Over the previous decade, Vasella had dramatically transformed the company to align compensation around results and values, and to take on a consistent review process with a strong incentive pay-for-performance culture. One of the metrics were used to determine this success was the percentage of senior executive vacancies that Novartis was able to source from within. Back in 2000, Novartis had been able to source only 21% of senior executive vacancies from within, yet by 2006 it was able to source 78% from within. Another metrics to measure the success was the company’s employee turnover rate. By 2006 the company’s employee turnover had been 10%, which means 90% of the employees were happy with their position they were at and the money they were making.
There was a challenge in taking the Novartis performance measurement system to collectivist cultures, to environments with strong union representation, and to countries with a history of high inflation. In collectivist cultures, such as several of the Confucian-influenced Asian societies, Novartis managers noted that the system had faced some resistance from employees who were not eager to stand out from their peers. In Japan, the organization had adapted to local conditions by recalibrating the scale to avoid putting most of the organization in the middle of the normal distribution. It is almost impossible to expect complete 100% adoption of the performance measurement system. In country with strong union, union tended to demand equal pay for the same job, and unions tend to want senior-based salary increases and other protections for older workers. Yet an incentive pay-for-performance system, by definition, was about giving higher compensation for higher performance and lower compensation for lower performance for the same job, and about raising the performance of the lower performers, or pushing them out of the organization if they could not raise their performance. In turkey, the company was able to successfully negotiate with its union to install the complete Novartis incentive pay-for-performance program for it unionized workforce in Turkey. However, in Switzerland, the company was only able to build the percentage of an employee’s salary devoted to variable pay.
Relying on statistical data to quantify employee behavior is a valid means of acquiring this information, however, how to interpret and act on that statistical correlation is a key question. There were division’s managers giving higher-than-expected individual performance rating; there were division’s managers giving poorer-than-expected performance rating; there were also divisional office was giving ratings that were far outside the recommended distribution. In addition, with regard to the performance ratings, women were significantly less likely to receive the lowest rating on the values and behaviors category. A successful performance rating system should not rely solely on statistical data, but analyze the data under different scenarios, and then consolidate the data to the final result.
The company used different methods to take the Novartis performance measurement system to different countries. The key about incentive pay-for-performance is that it is all about perceived fairness. If the line managers can understand the process, then they can communicate it effectively to their people. They need to be believers in the process, and good communicators and coaches of people to improve their performance. They should utilize the performance management system tools to help support them in this task, and they should be open and transparent about giving feedback on an ongoing basis. If they do this right and with consistency, then the impact on pay and benefits as an output of this process will not be a surprise to their associates.