With the economy being what it is, everybody is concerned about getting value for the dollar. The days of shareholders rubber stamping management plans, particularly about executive compensation, are over. Stockholders want to make sure that every dollar spent is an investment in future earnings – not a cost. The world is changing and everybody wants transparency and accountability. See my post in Talent Management Magazine about CitiGroup shareholders.
‘Rewards’ Articles
Use your Mega-Millions Jackpot to Fix the NCAA?
ADI guest blogger
Tom Spencer took his thoughts to Talent Management today where he plotted to fix NCAA officiating with his expected Mega Millions winnings. Quickly discovering that his plot would reward the wrong behavior, he offers tips to avoid the same misfortune in your organization.
Why Wall Street won’t ever change their spending ways
I’m going to get right to the point. I have little faith that Wall Street will ever get smarter about how they spend their money. The reality is they have too much of other people’s money and deal in such large amounts day to day that they will never take seriously the efficiency and effectiveness of their own management systems. They have seen good times and bad. While they are talking about making dramatic changes now, history has proven that they will only be temporary. Even though they are in a position now where their financial belts will have to be tightened, it will be only for a short time because when the economy improves they will return to their spendthrift ways. Why? Because they don’t know any better and since they are in the business of selling money have come to believe that money will solve their problems only if it is given in large amounts. It is an environment where $100,000 is considered “chump change.”
What prompted this blog was an article in Bloomberg News titled, “Wall Street Mulls Partial Pay Freeze” by Jeffery McCracken and Christine Harper. They talk about the fact that revenues in the investment-banking business have been so bad that they might have to resort to eliminating the practice of boosting pay automatically each year. They quote Joseph Sorrentino of Steven Hall & Partners, an executive-compensation consultancy who said, “Pay increases have been traditionally automatic because there are traditionally very long hours in terms of the amount of work and this is another way to try to boost their morale and signify that they’re a strong part of the firm and that they’re appreciated.” This quote cracks me up because it shows the almost total lack of understanding of the laws of behavior.
I can assure you that Mr. Sorrentino has no data showing that the way these investment banking firms structure bonuses improves junior bankers’ performance, retention or morale. It is naïve to think that you can treat people poorly day to day, give them money at the end of the year and think that will create the feeling that “they’re a strong part of the firm and that they’re appreciated.”
The reason these firms can get away with wasting millions of compensation dollars is because practically every company in the industry is using the same poor uninformed compensation practices. Therefore, no firm has an advantage or disadvantage. The customer pays the freight.
If these firms ever get to a point where they must operate in a more sound way financially, I can suggest several things.
- Every problem cannot be solved with money, even on Wall Street. What causes people to quit and go to another company is more about the way they are managed than the money they make. If employees are treated poorly, they will leave for a dollar more. If they are treated well, it will take a lot more to hire them away. Make no mistake, loyalty cannot be bought. Big bonuses have often helped a disaffected employee start a competitive company or retire early.
- Bonuses that are not earned, more often than not, do not strengthen productive behavior because that is not the contingency involved in receiving the bonus. While upper management believes that annual bonuses increase loyalty and performance, they do neither because they don’t have to be loyal or productive to receive one. They have to do just enough to stay on the payroll. Of course management doesn’t believe this because if they did, they would make immediate changes where nothing would be automatic that was not individually earned. A system where employees knew the personal accomplishments they had to achieve to earn the money would be far superior and less costly.
- Forget what rival firms do. Focus on promoting to management only those who have good social skills and an understanding of the science of behavior. Pinpoint the behaviors and results that are valuable and generously reinforce those behaviors and reward those who produce the results. That way, the only thing that executives will have to “mull over” will be how to spend the money that is left over.
Santa and Year-end Bonuses
Naughty or nice? Many times it doesn’t matter how employees behave, they still get rewarded with year-end bonuses. But should they? In my latest Talent Management blog post, I raise the question of whether or not handing out year-end bonuses to all employees makes them happy. Find out why the reality is that it may have the opposite effect.
A Dozen Ways to Weather the Economic Storm
Guest Blogger: Darnell Lattal
Nowadays you can’t turn on the television, pick up a newspaper, or read a magazine without seeing headlines about jobs and the turbulent economy. Inundated with negative news and experiencing the all-too-real repercussions of a financial downturn can be downright depressing and can easily impact performance at work.
Believe it or not, there is something productive we can do. Managers and employees alike can infuse the workplace with meaningful activity by focusing on behaviors that lead to positive outcomes. The following twelve tips will help any manager wade through these difficult economic times; delivering their best performance and that of those who work with them.
• Be realistically optimistic. Don’t spend time worrying about things that are beyond your control. Focus only on those things you can control and provide a sense of realistic secure messages that, while times are difficult, there is a future.
• Communicate! When hard decisions are needed, make them and communicate them cleanly and clearly to the individuals involved. If you need to lay people off, consider how you can support them during that transition, through community services that might help or via other methods. Encourage dialogue and provide straightforward answers.
• Have a contingency plan. Look to your own level as to where you can cut, reduce, and manage, including your own pay before you begin looking at other levels of the organization. If you are at the executive level, you should be the first to step up. You can definitely share this information, but don’t advertise, “Hey I’m a good guy. I’ve just taken a pay cut!”
• Invite feedback. Figuring out the honorable thing to do when you’re under the gun and your company is in high distress is difficult. Have trusted advisors who will always challenge you to think clearly and correctly and listen to your clients’ difficulties as well. For example, if they need a certain period of delayed payments and it’s reasonable for you to consider that, try working out payment terms with your customers.
• Be energetic in your own efforts to find financial resources and clients for your company. Don’t retreat and don’t become too controlled by what you read or hear in the news. Look beyond the newspapers and examine what you’re actually seeing in your organization. Many times we may find that business continues and even develops, but if we get too gun-shy, too soon, we don’t test good opportunities.
• Be willing to spend money during this time. Even while you’re reserving money, don’t retrench so much that you fail to market and reach out. Be careful not to conserve in areas that really will harm your future and growth over the long run.
• Consider a pay-for-performance system. You may not be able to give wage increases but you can consider setting up pay-for-performance based on profit sharing. By doing so, you will keep the organization whole while keeping salaries in place. Even at a time when you can’t give raises, you can reward people’s dedication, commitment, and performance by including them in any profits. By having a well-structured, pay-for-performance system, you also make people aware of what it takes to get to that profit.
• Engage all employees. Use the skills of your staff to build tools, materials, and resources that you will need going forward. Give employees a sense of purpose by enlisting them in helping to complete those projects you’ve put on hold. That may mean you need to use some creativity but that’s essential because their effort to show up is a valuable gift to you. Treat it as such.
• Be flexible. Another alternative is to offer your employees flexible time for their extra efforts. For example, when it’s possible, let them work from home and save on the high cost of gas. But do so carefully, because part of getting through these rough spots is a sense of teamwork and collaboration that happens when people are together trying to solve problems.
• Be honest and forthright about the organization’s economic reality. Always keep the information flowing. Don’t freeze up on giving employees the data they need including where you are financially, what’s coming down the pike, and what the future looks like. Have one-on-one conversations with individuals. Be honest; tell them when things are tough and are not going to get better for a while. Let them know you will do all you can to make their lives good and that you’ll remember their contributions, but only if you mean it. In the meantime, do not punish people if they need to explore employment possibilities elsewhere.
• Empower employees. Encourage your employees to look for opportunities to find business. Have meetings and ask for suggestions about what the company can do. You might get some good ideas!
• Add fun and recognition. No matter what the economic times are, we can still bring in lunches and have little celebrations of events that are happening, just to keep the mood up. The company can support get-togethers such as going to the movies or taking a break in the middle of the day to go to the park. Try to think of events that will reinforce employees. During an economic downturn, management should step back and really look at people’s contributions. Take the time to remember people in specific ways for what they have done. Make that public, enjoy it, and celebrate even in the face of tough times. Employees can do the same with peer-to-peer appreciation. Sometimes that may be difficult to do, but it’s important.
Workplace Tips from Brad Pitt
Well, not exactly but I did have the privilege of writing about the new movie release Moneyball, as a guest blogger for Talent Management Online. Click over to read about what lessons can and should be taken from Moneyball and applied to the workplace.
Parenting and Behavior: Examples from Real Parents
I want to start by saying ‘thank you’ to those who sent me stories of how you applied the tools and principles of behavioral science to your parenting challenges. I wish I could recall all of the stories I’ve heard through the years but in the end what is most satisfying to me is seeing people light up about how well the behavioral technology worked and how it leads to positive behavior where previously it had been problematic, and in their view, unresolvable.
With that, I share the following stories, from real parents, about the positive impact the science of behavior has had on their personal lives:
Learning to Drive
When my son, Sam, was learning how to drive, even though I knew better, I found myself only calling out the things he did wrong. Once I realized what I was doing wrong; I had to force myself to pay attention and identify the things he did right, and then specifically tell him about it. The first behavior I made a point to notice was following the speed limit. After watching him drive across town for a little while, I told him I noticed how well he did in following the speed limit. He was so happy and proud that I noticed, and said “I know! I do it all the time!” His response reinforced me to start noticing more of what he does right. I then made a list of specific driving behaviors to remind myself to observe them such as, maintaining 3 second following distance, making complete stops, or stopping with enough space to see the bottom of the tires of the car in front of you. I only picked one at a time so that I wouldn’t overdo it. It really made me realize the strong tendency to fall back into the pattern of only noticing the things he does wrong. Without a deliberate effort to watch for specific behaviors (that I had to write down and look for), I would have fallen back into the old ways.
Household Chores
Pinpointing seemed overwhelming to me when I thought about my work environment but it became more manageable after I first applied it at home. I learned its importance when working to teach my son John to wash the dishes when he was about 7 or 8. It was his task at night to wash and my task to dry. When we first started, I was confused when he left the kitchen with several dirty pots and pans in the sink and went to play. I said “Wait a minute, you’re not done!” He said “Yes I am!” I said “What about these?,” pointing to the dirty pots and pans. He looked at me begrudgingly saying “You said I only had to do the dishes!”
What Makes Them Happy
My daughter used an approach to identify things that were reinforcing to her twin daughters when they were 18 months old. She wanted to determine effective reinforcers for behaviors associated with toilet training and also for other toddler behaviors. Individually, she placed several objects in front of the first child and whatever item the daughter picked first was identified as a reinforcer. She then placed the remaining items in front of the child and repeated the process until 3 items were identified. She then went through the same process with the second child. Once she did this with both girls, she had effective reinforcers. It’s worth noting that reinforcers do change so the process, or a modified version, will need to be repeated over time. By the way, the twins picked different objects.
Seeing Eye to Eye with Your Teenager
While I thought I had tried everything to improve my relationship with my teenage daughter, our relationship still felt strained. After learning about the 4:1 Rule (four positive comments to one negative), I thought it was worth a try. Over a one week period, I consciously worked at applying this rule, and did so as genuinely as possible. I saw improvement in the first day and kept at it. By weeks end, our conversations had significantly improved, and were even enjoyable. This not only taught me how to improve my personal relationships but it also taught me that when you focus on the positives, you see more things you would have otherwise not seen.
Google Follow Up
The following is a comment on my post “What was Google thinking?!“. My response required more than few words so you’ll find it below.
Question: What would be an appropriate model for fiduciary reinforcement in an organization like Google, where creativity is highly encouraged and employees are about as fully empowered as anywhere on earth?
Smaller reinforcements are generally the norm and asking employees to give more and more discretionary effort when they are often already working 70 to 80 hours a week is a difficult proposition.
I realize that an examination of the system would probably lead to a means of ensuring appropriate reinforcements are capitalized upon but I was wondering, given the information that is available, what would be your inclination?
My Response: Thank you for your questions.
While it may be presumptuous of me to question anything about Google in view of their huge success, I know the laws of behavior will catch up with them if they keep doing what they are doing now and that is non-contingent pay and benefits. There is an old Greek saying, “Whom the gods would destroy, they first send forty years of success.” That was said two thousand years ago when things moved much slower. I am sure that the time has shrunk to 20 years and quite possibly less.
From what I have read, and I need to point out that is not always the best source for knowing factually about day to day practices, current management seems to think that money will solve their problems. That is why they gave the salary increases and bonuses. I don’t think money is the problem. I think management is the problem. There seems to be too little understanding of the basics of human motivation. This is demonstrated in part by the fact that the work environment has too many positive reinforcers that compete with the doing work of Google. Haircuts, billiards, ping pong or foosball and others too numerous to mention in this response are all done on company time. In the early days when discoveries were being made by the minute this probably worked well as people would work all night and weekends fueled only by their creations. Today employees complain that if they eat dinner in the company dining room, they are expected to work late and that in many cases working late is unproductive and may be better described as hanging around long enough to avoid the frowns.
You state that ” asking employees to give more and more discretionary effort when they are often already working 70 to 80 hours a week is a difficult proposition.” The fact is that if you have to ask for discretionary effort, it is an indicator that it is not being done because of positive reinforcement. Discretionary effort is that which is given freely — not that which is expected, required or demanded.
There are several sources of reinforcement at work: 1) that which comes from the work, 2) that which comes from managers, 3) that which comes from peers, and 4) that which comes from policies, procedures and the physical environment.
I am quite sure that reinforcement that comes naturally from the work has diminished in the recent past. To quote a former Googler, “While outside, I had all these big ideas I could do if I worked there. Once inside I discovered there were 18,000 googlers who thought the same.” If you read the blog post in Tech Crunch by Michael Arrington, “Why Google Employees Quit,” you get the idea that reinforcement has been reduced from the other three as well.
I would suggest that one of the things that is supporting Google these days is that their competitors are no better at management than they are. My solution is that Google managers should learn something about the laws of human behavior. Until they do things will not get better even if pay gets much better. Thanks, Aubrey
End-of-year bonuses; some parting words
As the end-of-year bonus season approaches, remember the words of Thomas Gilbert, who said,
Money is a beautifully honed instrument for recognizing and creating worthy performance. It is the principal tool for supplying incentives for competence and therefore deserves great respect. Any frivolous use of money weakens its power to promote human capital – the true wealth of nations.
I have written in-depth recently on the subject in this blog so for more go to What was Google thinking?! (post about the surprise $1,000 cash bonus and 10% raise) and in an article for the Harvard Business Review Blog, How to Navigate Bonus Season.
Look for Thomas Gilbert’s autobiography to be released by Performance Management Publications in spring of 2011.
See also:
Podcast OOPS! #6, Salary & Hourly Pay; Blogs Performance Pay
What was Google thinking!
The headline read “Google Gives All Employees Surprise $1,000 Cash Bonus, 10% Raise.” While I believe that companies should work to pay employees as much as possible, there is a right and wrong way to do it. From what I have read, Google is doing it wrong. To paraphrase Thomas Gilbert, author of Human Competence, money is a finely honed instrument of motivation and deserves great respect. What Google has done not only disrespects the instrument but also, in my opinion puts Google’s future in peril.
CEO Eric Schmidt said that an internal email survey revealed that employees value the salary part of their compensation far more highly than bonuses. Duh! If you were to offer employees a choice between $1000 now and the possibility of $1000 a year from now what do you think they would choose? Behavioral research consistently shows that people prefer smaller, guaranteed rewards as opposed to larger, future and uncertain ones.
From a behavioral perspective, I see several problems with Google’s actions:
- Google is reinforcing “show-up” pay – It will not improve production, quality, customer service or creativity. All one has to do to get this is enough to stay on the payroll.
- Google is encumbering the company – The way the raise was given creates an ongoing obligation that will increase the cost of all their goods and services making them less competitive in the future. The cost of the raise is somewhere between 1 and 2 billion dollars. While Google is said to have $33 billion in savings, $2 billion may seem like chump change. The problem is this is an ongoing obligation. For someone making $100,000 per year (there are apparently many) they will get a $11,000 raise this year. What is the future value of this raise? Let’s assume the employee is 35 years old. This means that over the next 20 years, this person is actually getting $200,000, not counting the compounding of the present raise by future increases, and surely there will be some. Multiply this by 20,000 and you’ve got quite a future liability for the company. What does the employee have to do to get this largess? Be on the payroll! He does not have to be grateful, productive or loyal.
- It will not improve retention of employees. Look at it this way. When seeking another job, say with Facebook where a number of key employees have gone, the current raise just increases the pay package that Facebook will have to offer, match or exceed to get a Google employee.
- It feeds an entitlement mentality. People respect most what they earn, not what they are given. The impact of this raise will be measured in weeks, after which it is more likely to be, “What have you done for me lately?”
- It increases extraneous reinforcement. Think of the conversations in the break room, on cell phones and in the workplace focused on the raise, the company and management – all positive but at the expense of what they are actually paid to do.
- It worries Wall Street. Revenues at Google through the second quarter are up approximately 24% but operating expense is up over 34% from last year. Financial writers are already sounding the alarm on Wall Street. Although the stock has risen over 35% so far this year, it is only back to where it was at the beginning of 2010. As Dan Gallagher, of MarketWatch says, “The news may be a cause for concern among investors.”
- It worries the industry. While some of Google’s competitors may be smiling because they see the negative implications of the way Google is using money, they all will be plagued by employees who want to know why their company can’t do the same .
Are there any positives?
- Google will attract more applicants – not that they need them but they certainly will get them.
- They can put a bumper sticker on their cars that says, “My Company Gives Better Raises Than Yours.”
- Free media attention. To get media coverage and raise the visibility of your company it could cost millions in advertising and media. Google has gotten a lot for free! I wouldn’t categorize it as good press necessarily but it’s press nonetheless.
- They are increasing merit pay. I must add that performance-based pay outperforms salary every time, however even though “merit pay” sounds performance-based, it is usually screwed up as well. Given how Google is misusing money, I don’t have much confidence they will do a better job with merit pay.
In the face of an increasingly competitive environment in the not too distant future, Google would do better in my opinion to put all this money into performance bonuses. The same things that made Google what it is today are not the things that will keep it there. In the early days at Google generous benefits, high salaries and a lavish work environment were small positives compared with the reinforcement associated with being part of groundbreaking and popular technology. In the beginning, being an employee of Google brought admiration and awe. Now this is available at other companies as well. If Google continues to disrespect money in this way, there may be more “Facebooking” than Googleing in the future.