What Every HR Leader Needs to Know About ‘People Debt’

Lately, the topic of organizational debt has become a major concern for business leaders. But there’s another, just as problematic debt to consider: “people debt.”

All organizations have both of these to some degree, but it’s crucial to know the difference:

• Organizational debt is when companies are too bureaucratic to run efficiently. Micromanagement, meetings about meetings, and long approval chains are all symptoms of organizational debt.

• People debt is when companies lack the basic infrastructure employees need to do their jobs, like goals, career tracks, and role clarity. It’s often the result of teams neglecting to implement HR best practices (or any practices at all). 

“Organizational debt and people debt are two sides of the same coin,” said Cara Brennan Allamano, CPO at Lattice. “Every successful company needs to find the sweet spot between the two. Employees can't thrive in anarchy or bureaucracy — companies need a balance to drive performance at scale.”

The problematic pendulum swing has to stop somewhere in the middle: Too much infrastructure keeps employees bogged down in processes instead of high performance, while too little infrastructure leads to chaos and disengagement.

“Strategic people teams are uniquely poised to strike that balance. They also leverage technology to handle the paperwork and processes that keep employees from focusing on their best, most meaningful work that moves the needle on revenue,” she added.

What Is People Debt?

People debt, a concept from Matt Bradburn and ZeShaan Shamsi from HR consulting agency The People Collective, occurs when companies fail to create the infrastructure to support employees to do their best work. As you grow your company, many leaders will naturally be focused on product development and serving customers as their business scales. But with a sole focus on the external outcomes, the people within the business become underserved, resulting in “people debt.” Bradburn said people debt can take many shapes:

• Lack of clarity around growth plans for professional development
• Minimal understanding of how to interview job candidates
• Little-to-no managerial training to support direct reports
  

“Paying back that debt is so critical, before you reach that certain scale, otherwise it can slow your growth down quite dramatically,” Bradburn said.

Preventing (or Paying Back) People Debt

“Like tech debt or financial debt, not all debt is bad. But you just need to be mindful about how manageable it is for you, because it comes at a risk and cost,” Shamsi said. Leaving employees to fend for themselves is not the path to future-proofing your business from a recession, nor is it a healthy foundation for a high-performing culture. Below are just a few of People Collective’s strategies for preventing the debt from piling up, as well as figuring out how to pay it back.

1. Holistic HR strategies are about more than buzzwords.

The term “holistic” can feel vague and buzzy, and Bradburn said it’s being misused across the industry. It’s worth considering in a more realistic light: Being holistic is an iterative process, and the key is building the right amount of scale for your business at your current size — don’t try to build out an overly complicated program to unroll all at once.

A holistic approach means asking, “What are all the pieces that we need to think about at the foundations for our current stage? Then, as we grow, let’s revisit all those pieces, see what the team needs, what’s going to fit our commercial structure, and then build on that,” he explained.

2. HR teams need visibility into all parts of the business.

Shamsi said that when HR is enabled to grasp the full business strategy, they can build a better HR strategy that helps the company achieve its goals.“

By default, people might think of the parent-child dynamic, where executives are the parents, and we’re the children,” Shamsi said. “But everyone’s an adult, so we need to move from parent-child to adult-adult. And you do that by giving people context and clarity.”Without context about each team’s headcount needs, spending priorities, or skill gaps, HR strategies for performance management and career paths may fall flat, and result in failed implementation at the manager level. On the flip side, HR teams can give executives more context about their strategies to help leaders connect the dots between people success and business outcomes.

3. Define what performance and potential actually look like.

Who are your company’s top performers? For many, answering that is easier said than done. Managers might bring up anecdotes of employees going “above and beyond” or refer to someone as future management material with little evidence to back it up. 

When performance and potential remain undefined, your talent strategy is stifled: budding leaders leave, low-performing employees miss out on growth opportunities, and top talent goes unrecognized. Vague or poorly defined expectations only heighten the influence of bias in performance discussions. That might be its own form of people debt.

“When considering ‘performance’ and ‘potential,’ organizations must establish clear and consistently defined behavioral norms for each,” said Matt Raskin, people strategy advisor at Lattice. “Implementing processes like talent reviews without those shared expectations, though well-intentioned, can lead to an increase in talent debt if talent identification is inaccurate.” 

Deliberate processes like performance appraisals and talent reviews force managers to think about and document performance. Talent reviews are especially useful here — they’re used by companies to identify top performers, high potential employees, and regrettable attrition risks — giving businesses a better sense of where their talent stands.

“Running talent reviews benefits from a deliberate approach, starting with a thorough understanding of the review's purpose — whether it's for succession planning, assessing potential, or gaining talent insights,” he said. 

“Fostering a shared understanding of the evaluation criteria and the intended outcomes or next steps after the review is crucial,” he said. “Intentionality in our approach to the design, execution, and outcomes of talent reviews can significantly contribute to mitigating an organization's talent debt.” 

The end result is worth the upfront effort for businesses, especially when it comes to succession planning and avoiding regrettable attrition.  

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4. Communication is the key to doing more with less.

When executives and HR communicate consistently and clearly, they can help managers succeed at introducing frameworks and training to their teams more effectively. “It’s not what people get paid — that’s 50% of it. The other 50% comes from having a clear compensation philosophy that’s being communicated well,” Bradburn said. In other words, a pay-for-performance strategy is only useful if employees know it exists, and if managers are trained to have meaningful conversations with their employees about pay.“People teams can be conduits of proactive, informative, internal communications,” Shamsi said. But only if the above conditions are met.

5. Regularly evaluate your strategies to meet the moment.

Shamsi and Bradburn both ascribed to a perpetual state of learning, and said it should be reflected in the work all HR professionals are putting out into the world. “You should be embarrassed by work you did a year ago,” Bradburn said. “Because that actually shows how you’re all learning, how you’re all growing.”

“You can look back and say, ‘Now I know more than that, and I can build on it,’” Shamsi said. “If I’m still at the same point after two or three years, then I’m not being inclusive of diverse perspectives and other experiences to supplement that [knowledge].”

Reflecting on current strategies to pinpoint mistakes is a key part of making more informed decisions as your business needs evolve. “It’s not about retaining a great company at scale, it’s about building constantly to improve the company culture at the organization as we scale,” Bradburn.

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For more advice, watch the full episode to hear Bradburn and Shamsi’s take on the biggest mistakes HR teams make when securing executive buy-in, advice to their younger selves, and more. Visit our library of on-demand webinars for more.