Three weeks ago I told you about Jim’s quandary in supporting his CEO’s approach to layoffs, asked what you would suggest he do and in a follow-up post shared more about the culture, the CEO and ideas I’d given Jim. I also promised to tell you the outcome, it’s just taken longer than we expected.

Jim called yesterday and told me that he started by sending links to both posts to his CEO, “Sue;” when she reacted positively he asked permission to send them to the rest of the executive team.

Sue refused, saying that she wanted to send them herself, thanking Jim publicly for taking the initiative to start an alternative ball rolling and ask her executive team to bring still more ideas to a brainstorming session two days later.

Sue also said that she had been horrified by reader reactions; she had really thought that her approach was a fair one until she saw it through outside eyes.

Jim said that the entire exec team was super excited; all of them had been struggling; trying to decide who to lay off, when and how to maintain morale during and after the process.

Here is an overview of what happened at the meeting;

• Sue had already discussed a pay cut with the board, but decided that increasing it to 50% would not just be a good gesture, but would help preserve jobs.
• She also asked the executive team to accept a 25% cut, which they all did.

The savings from these two moves would prevent immediate layoffs and give them time to take more creative actions.

• They agreed that it was important to level with all the employees simultaneously in order to squelch the rumors that had started flying.
• The information would include the size of the cuts that Sue and the executives were taking.
• The announcement would be by live webcast instead of email to avoid anyone forwarding it outside the company without thinking.
• Each vp would schedule a Town Hall meeting immediately after the webcast for his department, including everybody.
• After an open discussion and answering questions as transparently and honestly as possible they would ask their people to come up with every possible idea to increase revenue, save money and avoid layoffs.
• They decided to set up a suggestion box on the company intranet to make contributing ideas simpler; they chose to use a wiki so that people could comment and add to other’s ideas, stressing that there were no dumb ideas and people should post anything they thought of.

They started implementing as soon as the meeting was over.

Most of the staff were blown away with the salary cuts they had taken. The meetings went over really well and suggestions are pouring in.

The really great thing is a number of the ideas related to increasing revenue, including new market opportunities. Jim says that the sales team really caught fire and is pushing ahead with these and several others that had been shelved for lack of faith.

Almost everyone agreed that they would rather take salary cuts or rotating furloughs to avoid layoffs.

To date, trust levels have skyrocketed, morale is sky-high and, best of all, the sales pipeline is up 4% and growing.

Sometimes bad stuff is the best stuff that can happen—if it is handled well.

Image credit: arte_ram on sxc.hu

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I have a question for you today and I’ll post my thoughts on the subject Monday.

I had a phone call from an executive today, “Jim.”

In short, Jim said that he understood why his boss was instituting pay cuts across the board, but had found out that the cuts were scaled with those who were young and single taking the biggest hit, older or married less and those with children the smallest.

This isn’t public information and when he asked his boss about the rationale, she said that the company had limited resources and that those with fewer responsibilities should be willing to make a greater sacrifice for the sake of those with greater ones.

Jim believes that this action isn’t legal and will open the company up to a lawsuit and even if it is legal it won’t remain unknown, will destroy employee trust and decimate the company’s culture.

The CEO sees it as the fairest way to deal with the problem.

Jim called looking for ideas on how to convince her that this is a bad idea; further, he would like to offer a better approach.

What would you suggest Jim do?

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We’re coming up on that time of the year and considering the economic climate I thought this post from 2006 especially apropos.

Do you work hard? Did you, or will you, take a vacation this year? A real live vacation during which you actually disconnected from your office/business/work?

If your answer is no, you have a lot of company. The attitude/action even has a name, it’s called “shrinking-vacation syndrome” and it’s prevalent.

Smart bosses know that people need to get away, not just to recharge their batteries and creativity, but to reduce stress and rebuild coping skills. Taking the office along defeats the purpose—especially in these days of ‘staycations’.

Smart people know that cramming everything possible into the available time (especially when kids are involved) leaves them more frazzled than they were at the start.

But if you’re not PricewaterhouseCoopers, which has taken to shutting down its entire national operation twice a year to ensure that people stop working, what can you do?

Several things…

If your company offers paid vacations insist that your employees use them. Not by taking them away when not used, but by including “staff taking vacations” as a line item in every manager’s review.

If you’re a small biz that can’t offer paid vacations consider allowing your employees to trade paid holidays for different days they want, e.g., working July Fourth and Thanksgiving in trade for a Friday and the following Monday off.

Small biz owners should also consider closing one Friday with pay at least once, preferably twice, a year, e.g., the Friday after Thanksgiving (or a similar day). Consider it an investment as the ROI in increased productivity and retention will surprise you.

If you’re one of the many managers, found at all levels and in all sizes of companies, who don’t believe in vacations and intimidate your people so they don’t take one, or insist that they “deal with stuff” while gone, I sincerely hope you have few personal expectations and excellent hiring skills, since you can look forward to low productivity, high turnover, and poor reviews no matter where you work!

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Many economic pundits are predicting the end of this economic meltdown (see previous post). Chalk those predictions up to the optimism of springtime and the need to fill a news cycle.

While rates of decline for various economic indicators may be decreasing, the excesses that created this meltdown will take years to work through. The ham-handed responses by government and many businesses will only delay the eventual recovery. This is only a break in the winter weather.

But even as the economic meltdown is only now approaching its nadir, a few new businesses may find this to be a fertile time to set up shop.

Consider the single greatest expense and challenge of most new businesses – finding and attracting talented workers, trained and immediately available for interesting work.

Currently the US economy provides 155 million jobs. This meltdown has reduced employment through five distinct mechanisms shown in the table below:

Given that the measured statistics are usually undercounts and that these unemployment/underemployment numbers will grow in the next 12 months, likely over 32 million workers (over 20%) in the US will have talents and time available to participate in another business.

For many companies, payroll costs represent over 65% of total expenses. For new ventures, personnel costs can be much larger, up to 90% of expenses. In this environment, many workers are searching for work.

New ventures traditionally offer below-market compensation for their workers. However, they offer other significant benefits.

Typically, new ventures offer broader scope in each job, better growth opportunities, ability to make large, direct, measurable contributions to the organization, and the enthusiasm of working in a small, close-knit team. Some new ventures offer profit participation or stock options. For unemployed or underemployed workers, these benefits can be significant, even when the cash compensation is low.

Technology and the recession have dramatically reduced other business operating costs. The cost of computers, phone systems, and tele-conferencing have dropped. Office space is cheaper, and home-based employees can cut that cost even further. Travel, where necessary, is cheaper than any time in the past ten years.

Even without easy availability of capital for start-ups, this recession may offer fertile ground for new ventures and with the added benefit of retaining far more of the equity.

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Who’s innovating? Why is it important to stay focused on innovation? How are companies doing it in today’s economy?

Check out Business Week’s story on the 50 Most Innovative Companies and don’t miss the side bar on the 25 most innovative companies you’ve probably never heard of.

A second innovation commentary comes from consultant Peter Bregman who offers up and interesting perspective on why it’s better to be David in this economy than Goliath.

Finally, what’s happening in compensation these days aside from Wall Street bankers with dubious bonuses?

Here’s the information for those of you wondering what CEOs are earning or whether it’s worth going for an MBA.

Image credit: MykReeve on flickr

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Who’s innovating? Why is it important to stay focused on innovation? How are companies doing it in today’s economy? Check out Business Week’s story on the 50 Most Innovative Companies and don’t miss the side bar on the 25 most innovative companies you’ve probably never heard about.

A second innovation commentary comes from consultant Peter Bregman who offers up and interesting perspective on why It’s better to be David in this economy than Goliath.

What’s happening in compensation these days aside from Wall Street bankers with dubious bonuses? Here’s the information for those of you wondering what CEOs are earning or whether it’s worth going for MBA.

That’s it for this week. Have a wonderful weekend and keep your eye on the innovation ball—that’s really what pays.

Image credit: MykReeve on flickr

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Economic pundits, eagerly searching for signs of the recovery, are grasping at almost anything. “The rate of decline has slowed.” “Unemployment has stabilized.” “The cardboard box index has bottomed out.” And the shape of the recession and recovery has been predicted to be a V,  W,  L, or even a double-bounce W.

I think they’re all wrong.

The old economy will never come back.

This economic meltdown is much like a forest fire. After the fire burns itself out, the storm may be over, but the burn area is fundamentally changed. It does not “bounce back.” It starts at a different place.  Sometime in 2010, the economy will stabilize, but it will not “come back.” We will go forward from a fundamentally different position. This new starting point will reflect the impact of deep, long-term, global trends in the nature of work, the value of the dollar, and our relationship to our government. The current recession is a convenient marker to recognize these trends.

Work Is Changing

The nature of employment will continue to change. The United States will continue to shift to a “just-in-time,” service-based workforce. The manufacturing sector will continue its decline, from 29% of GDP in 1950 to 15% in 2000 (see analysis by Dr. Mankiw). It will drop below 10% by 2010. You can construct your own labor trend at indeed.com. ( This website is a fascinating example of the business of data, which we discussed in the last three posts.)

Many new service-sector workers will be involuntary. Growing unemployment and under-employment in the United States (which will exceed 15% this year) is driving many people into self-employment as service workers. An analysis of Japan’s Lost Decade by Tom Coyner, long-time resident of Japan and Korea, provides one instructive example of this phenomenon, and some associated risks.

These new service sector workers will be driven to a “do-it-yourself” model for almost everything. They will have to provide their own health care plan, retirement plan, office arrangement, and business planning. Many of these workers will be home-based, with little differentiation. The most common product/pricing model will be piecework, with unit pricing based on the alternative of being completely idle. Ironically, one result will be the re-integration of work and home life.

Entrepreneurship is Changing

Investment capital will no longer be available for any but the most solid businesses; and the vast majority of these newly-independent service workers do not have plans to build large businesses. As a result, the successful ones will exhibit four common, positive characteristics:

Local—In a global world, being present still counts. A local service provider who can show up in person has a distinct advantage. In addition, some services simply cannot be outsourced. When your car is broken or your roof leaks, you need a local service person. For locally-based services we may see an increase in a local, personal relationship with service providers.

Immediate—Without investment capital to fund long-term research and development, independent service-providers and small businesses must focus on services that provide immediate value. The “cash-to-cash” cycle must be less than one pay period. Fortunately, credit/debit cards and other immediate payment methods support this trend.

Information-based—Information will provide significant improvements in service quality and competitive differentiation. For instance, simply finding a customer is difficult and expensive. Irritating prospects with unnecessary and unwanted sales promotions is also costly. Successful service providers will use information to target customers on a “just-as-needed” basis.

Green—Setting aside the discussion of whether the earth is warming or whether green is good, government policies will reward green activities preferentially. Independent service providers will offer green services or enhance green aspects of their existing services.

Start-Ups Will Explode in Unlikely Niches

The availability of many talented people and the flexibility of independent service providers will fuel new start-ups. While these may not completely replace the loss of investment capital, they will certainly provide an alternative path of low-cost labor for new businesses. The change may be refreshing, for us individually, and for our economy.

This is perhaps the greatest unknown—how much will individual creativity and inspiration replace financial engineering.

I am hoping for a few delightful surprises ahead.

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The Carrot Principle, AKA, How the Best Managers Use Recognition to Engage The People, Retain Talent and Accelerate Performance, by Adrian Gostick and Chester Elton was first published in 2007.

A new, updated, release this month with a new chapter and the results of an extensive 10 year study of 200,000 managers and employees that confirms what most workers have always known—recognition, not just money, is what draws them in, engages them and results in high performance.

But there’s a catch. (There’s always a catch.)

You can’t just start running around throwing recognition and carrots at your people.

There are four basics of good management you need embedded in your culture—but first they need to be embedded in your MAP (mindset, attitude, philosophy™). They are

1. Goal Setting;
2. Communication;
3. Trust; and
4. Accountability.

The bad part is that if you don’t already believe in this stuff and have a culture that reflects it then the carrots of employee recognition will be tossed out by your people. Your people aren’t stupid; if you decide after reading the book that recognition is a better way than threats and screaming don’t expect to turn things round overnight. It’s going to take consistant effort over a period of time to convince your people that you’ve changed. How long depends on how bad you were and how sincere your changes are.

The good part is that you don’t have to work in a company or for a boss who thinks that way. Gostick and Elton give multiple examples of how “carrot culture” was implemented without support from either.

Carrot Principle walks you through the process and explains how recognition can be practiced in multiple moments without budget-busting amounts of money.

Recognition leads to extreme engagement and successful managers provide their people with frequent and effective recognition.

Image credit: Simon & Schuster

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In a post last week I asked for opinions on the ideas presented in a series of articles in Business Week on managing smarter but especially one that claims that “treating top performers the same as weaker ones is ‘strategic suicide’” and said I would add my thoughts in a future post.

Bob Foster left two interesting comments (well worth your time to click over and read). Regarding pay for performance he tells the story of a company where everybody from the CEO down all quit.

“Taking on the task to salvage the company, I hired new people that met unusual qualifications: they had to be qualified for the job they were applying for; they had to be unemployed and available immediately; they had to work at sub-standard wages; they had to work while knowing the company could close at any minute; and they had to work without supervision. The team that came together produced a highly successful company, and it was not because of high pay, or performance bonuses (there were none). The team stayed together, and performed, because of mutual respect, trust, appreciation, and consideration—people were ‘valued.’ To me, this is the truest form of ‘pay for performance.’”

I agree that trust was one of the key ingredients in what Bob accomplished, but it wasn’t the only one—or maybe I should say that it needs to be based on fairness and honesty.

Bob says the pay was ‘sub-standard’, but I assume that it was universally sub-standard relative to position and experience. If he had chosen to pay part of the team, say 10% more than their peers, the team wouldn’t have coalesced.

And that is exactly why I disagree with the idea of paying top performers, AKA stars, big sign-on bonuses or higher salaries than their peers.

• Based on my own experience, 98% of star performers become stars as a function of their management and the ecosystem in which they perform. Change the management, culture or any other parts that comprise that ecosystem and the star may not survive.

• Just as a chain is as strong as its weakest link there is no star in any sport, business, media, etc., who can win with a team that is subject to constant turnover and low morale.

Consider this common example.

Two people are hired at the same time with the same background, same GP0 and similar work experience, but with the one exception. One graduated from a ‘name’ school and the other from a community college. Starting salary is $50K, but the manager adds a 20% premium to the first candidate’s offer on the basis that she must be better to have gone to that school.

Neither candidate lived up to their potential because the manager made poor choices. In doing so he set both up to fail but for different reasons; one thought she had it made and the other that he was low value.

Merit bonuses fairly given for effort above and beyond acceptable performance levels make sense as long as they don’t come at the cost of developing new talent.

But one problem with ‘pay for performance’ is the pay often comes before the performance, but there are others and I’ll discuss them more Thursday. In the meantime, here are links to five posts from 2006 that give more detail on the trouble with stars.

Stars—they’re in your MAP

More about stars and MAP

Rejects or stars?

Star compensation

Retaining Stars

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Alexander Kjerulf over at Chief Happiness Officer shared a fascinating write-up (one of the case studies for his new book) about Wim Roelandts, CEO of Xilinx, managing through his eighth recession. During 2000 recession Wim decided there was a better way than the standard Silicon Valley of repetitive rounds of layoffs—and he proved there was. He called his strategy “Share the pain;” it was completely voluntary and 2799 out of 2800 employees opted to take the graduated pay cuts. He held fast in spite of opposition from both his Board and Wall Street analysts and it worked.

Next is a new book by Dave Hitz who co-founded $3 billion NetApp, number one of Fortune Magazine’s 100 Best Companies To Work For. How To Castrate A Bull & Other Corporate Survival Tips looks like a great read. Enjoy!

Last but certainly not least are two takes on Tony “A company’s culture and a company’s brand are just two sides of the same coin” Hsieh, the guy who built a billion dollar company on its culture. Both are takes on his keynote talk at SXSW 2009, but bring out different points. The one from Fast Company includes seven steps to incorporate Zappos core values into your company; the other is The Onion’s Baratunde Thurston via CNET.

Have a wonderful weekend!

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