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Golden Oldies: Incentive Doubleheader

Monday, July 24th, 2017

It’s amazing to me, but looking back over more than a decade of writing I find posts that still impress, with information that is as useful now as when it was written.

Golden Oldies are a collection of what I consider some of the best posts during that time.

Companies constantly talk about what they are doing to incentivize productivity and innovation. Incentives are supposed to help drive performance. Recognition is very important as are financial rewards — as long as they are seen as fair. If not, they act more as disincentives, as seen in the first post.

The second focuses on sales incentives.Maximizing revenue generation, AKA, sales, is a top priority for every business, from micro startups through the Fortune 10. Commissions have always played a significant role incentivizing salespeople  — until they don’t.

Read other Golden Oldies here.

The Reward Should Fit the Act

1095615_success_wayAre you familiar with the saying “let the punishment fit the crime?”

It’s a valid approach, but it’s just as true that the reward should fit the action.

A friend of mine works for a Fortune 1000 company in a tech support role. He’s well respected lead tech in his group.

Last year he developed an idea on his own time and gave it to his company.

As a result, he was flown to annual dinner and presented with an award and a $5000 bonus.

Sound impressive?

His idea will save his company $5 million or more each year.

Still impressed?

My friend isn’t.

He has a friend who is very impressed, but that’s because his company doe nothing; no recognition whatsoever.

My friend feels that a $5K reward for saving the company $5M or more every year, while being better than nothing, is still just short of an insult.

Other than being disappointed what’s the fallout?

He likes his job and his boss, so he’s not planning on leaving, but…

He has another idea that he’s not going to bother developing.

He’s still one of the most productive people they have, but that extra edge is gone.

What do you think his employer should have done?

Join me tomorrow for another look at how, to quote another old saying, companies keep cutting off their noses to spite their faces.

Image credit: dinny

 

Ducks in a Row: Incentive Stupidity Knows No Bounds

http://www.flickr.com/photos/finsec/354260437/Yesterday I told you how a company squashed my friend’s initiative by giving him a bonus that had no relationship to the value he provided them in annual savings.

This reminded me of something that happened back in the early 1980s when sales was truly dependent on the skill, relationships and reputations of salespeople.

Another guy friend, another incredibly stupid company.

In a nutshell,

  • Guy outsold every salesperson both internally and at the competition. He had years of experience; relationships with customers that didn’t quit and unmatched skill at understanding customers and convincing them that his company (whichever it was) had the best solution available.
  • One day guy was called into the CFOs office and told that his commission was being capped.
  • He was on track to earn more than the president and that was unacceptable; he asked if they were sure that was the only solution and told yes.
  • Guy proceeded to write a resignation letter on a sheet of paper he borrowed from the CFO.
  • He left the offices without speaking to anyone.
  • By the time he reached home there were three name-your-own-terms offers from competitors on his voicemail.
  • He started with his new company the next day.

Over the years I’ve found that actions like these usually come from the company’s bean counters. (In this instance, ‘bean counters’ is definitely a derogatory term.)

Apparently, some bean counters involved never learned to do the math.

In both cases the actual cost was zero, since they were funded from direct actions well beyond anything expected of the employees involved.

The lesson here is that you never cap a commission and the reward for saving $5 million annually should be at least 1% of one year ($50,000) as opposed to .001% ($5,000).

I realize it’s difficult for some financial types, executives and managers to understand, but that is why bonuses and commissions are called incentives—not disincentives.

Image credit: Finsec

Golden Oldies: Pay For Performance

Monday, April 17th, 2017

It’s amazing to me, but looking back over more than a decade of writing I find posts that still impress, with information that is as useful now as when it was written.

Golden Oldies are a collection of what I consider some of the best posts during that time.

Money. Everyone’s favorite subject that no one wants to talk about. Especially when it comes to work, as in, “what were you making previously” and “what are you looking for now?”  

Tomorrow’s post focuses on a new law enacted in Philadelphia and New York City that has the potential to change that entire, unwanted conversation, forcing managers/companies to focus on the future, as opposed to history.

Read other Golden Oldies here.

starIn 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

Image credit: sxc.hu

There were several interesting comments on the original post; check them out.

Ducks in a Row: the High Value of Consistency

Tuesday, March 29th, 2016

https://www.flickr.com/photos/infomastern/11128219076/

An interesting article in the Washington Post focuses on a study that shows people are less stressed if their boss is consistently unfair than if she is unfair one minute and fair the next.

“Intuitively, you would think the more fairness you get, the better,” said Fadel Matta, a researcher at Michigan State University and the lead author of the paper, in an interview. “But that’s not what we demonstrated. It’s better if supervisors are a consistent jerk than if they’re fair sometimes and not fair other times. People want to know what they can expect when they come into work.”

Reading that reminded me of something I wrote back in 2009.

The action is inconsistency and the primary effect is fear. Secondary effects include intimidation and insecurity. (…) It’s not knowing that really gets to people—even more than expected abuse. (…) That fear grows exponentially once it takes root and distrust typically increases at the same rate.

As far back in history as you care to go, no matter the circumstances — work, personal, relationship, religious — inconsistency has always been a negative.

What also seems to be a constant, in this case in the workplace, is the inability for bosses’ opinions of themselves to accurately reflect their employees’ take on the same subject — although the disconnect does embody a kind of consistency.

In short, when evaluating your own actions for consistency don’t ask yourself, your boss, or your peer.

Ask the people who actually experience you every day of their lives.

Ask your team.

Flickr image credit: Susanne Nilsson

Ad Blockers are Bad Business

Wednesday, September 16th, 2015

https://www.flickr.com/photos/streamishmc/5974012920The other day I was thinking about downloading an ad blocker, because the auto-video ads make me crazy.

But even before I read about the Washington Post blocking people with ad blockers from reading their articles I decided not to.

Why?

Because I know that, as the saying goes, there’s no such thing as a free lunch.

“Many people already receive our journalism for free online, with digital advertising paying only a portion of the cost. Without income via subscriptions or advertising, we are unable to deliver the journalism that people coming to our site expect from us.”

No one expects to get a free car or for even Amazon to give away books, but when it comes to content on the Internet they cry, “That’s different!

Copyrights are suddenly meaningless and any effort to generate revenue to pay for the creative talent, technology and other expenses required pollutes the experience.

Even sites that are built on user-generated content have expenses.

You deserve to be paid for your work and your company deserves to generate revenue to pay you — and so do they.

Think about that before you block ads or complain about pay walls.

Flickr image credit: Jason Tester

 

Pay Them Less; Demand More

Monday, October 6th, 2014

https://www.flickr.com/photos/rychlepozicky/4845362055

WalMart is moving to improve your shopping experience.

No, not lower prices or expanded inventory.

Certainly not more women and minorities in management roles.

But soon, all ‘associates’ will greet you wearing collared shirts and khaki bottoms.

That’s right. Walmart wants to implement a dress code—but not pay for it.

The annual cost is probably around $50, which is a lot considering the pay.

Richard Reynoso, a Wal-Mart employee in Duarte, Calif., representing a campaign called Organization United for Respect at Walmart said in a letter to the company’s management: “I’m getting paid only about $800-$900 a month. The sad truth is that I do not have $50 lying around the house to spend on new uniform clothes just because Wal-Mart suddenly decided to change its policy.”

If pushed the action is likely to generate additional class action lawsuits, not to mention fan public outrage and generate a significant backlash.

But that isn’t what troubles me.

In the 21st Century our largest employers are the likes of Walmart and McDonald’s.

They pay $8 to $12 an hour and would pay less if they could get away with it.

Businesses on and off-line are working to improve your shopping experience, but most are unwilling to do what Henry Ford did 100 years ago.

Pay people enough that they can afford to consume.

(For more information see previous posts No Help Wanted and Workforce USA)

Flickr image credit: rychlepozicky.com

The Lowdown on Voices

Wednesday, May 1st, 2013

http://www.flickr.com/photos/aasg/1398431198/If you’re a guy how do you get more promotions and more compensation?

Pitch your voice lower.

Sheesh.

What matters to people never fails to amaze me.

I remember when John Kerry was running for president and there were more comments about his hair than his policies.

It’s bad enough that humans are predisposed to gravitate to attractiveness, but now voice tone is in the same class.

They wanted to find out whether deep voices correlated with success, since prior research has shown that Barry White-like bass is often preferable when it comes to selecting a mate.
A separate Duke study last year also found that voters favor political candidates with deeper voices.

Does a deep voice just open doors or is it more than that?

That benefit proved true even when controlling for a leader’s experience, education, dominant facial features and other variables that might sway decisions of recruiters and compensation committees.

Well, that’s depressing.

Just how big a deal is this?

BIG.

The median CEO, with a  125.5 Hz vocal frequency, earned $3.7 million, ran a $2.4 billion company and was 56 years old.

Not bad, but researchers found that executives with voices on the deeper (that is, lower-frequency) end of the scale earned, on average, $187,000 more in pay and led companies with $440 million more in assets.

(For a reference point, James Earl Ray’s voice is around 85Hz.)

Another question is whether what’s sauce for the gander applies equally to the goose, but there’s no way to answer that one.

Mayew says he would like to assess the voices of women executives as well, but he says there aren’t enough for a statistically meaningful study quite yet. At last count, there were just 21 women CEOs in the Fortune 500.

Welcome to the modern Stone Age world of corporate America.

Flickr image credit: MyAngelG

Ducks in a Row: Arrogance and Empathy

Tuesday, October 30th, 2012

http://www.flickr.com/photos/marionenkevin/3455573553/Years ago I worked with “Craig,” who, as vice president of engineering, managed a large organization that was responsible for research and development of a complex hardware/software product; a product that required a varied mix of skills, including hardware, software, quality, systems, etc.

Craig was the second best manager I ever worked with.

His people trusted him, knew he was completely fair and wouldn’t tolerate politics.

He understood culture, building teams and was expert at hiring people who would thrive in the environment he provided.

His boss, peers, subordinates and everyone with whom he interfaced including vendors considered him extremely competent—which he was.

And therein lay the problem.

For those who didn’t know him well the competence came over as arrogance, because Craig was missing one very important capability.

Craig was missing empathy.

He handled this by adopting a professorial style where emotion wasn’t required, which worked well in long-term situations, but not short-term ones.

Short-term acquaintances found him arrogant—except for those who really were arrogant. They noticed nothing different from themselves, but Craig saw them as arrogant.

We talked about it once and Craig explained that he had always been cerebral, never emotional, even in his personal life.

I asked him if he was Vulcan.

As to the absolute best executive, he had everything Craig had plus empathy. (More about him next Tuesday.)

Flickr image credit: Kevin

The Reward Should Fit the Act

Monday, August 13th, 2012

1095615_success_wayAre you familiar with the saying “let the punishment fit the crime?”

It’s a valid approach, but it’s just as true that the reward should fit the action.

A friend of mine works for a Fortune 1000 company in a tech support role. He’s well respected lead tech in his group.

Last year he developed an idea on his own time and gave it to his company.

As a result, he was flown to annual dinner and presented with an award and a $5000 bonus.

Sound impressive?

His idea will save his company $5 million or more each year.

Still impressed?

My friend isn’t.

He has a friend who is very impressed, but that’s because his company doe nothing; no recognition whatsoever.

My friend feels that a $5K reward for saving the company $5M or more every year, while being better than nothing, is still just short of an insult.

Other than being disappointed what’s the fallout?

He likes his job and his boss, so he’s not planning on leaving, but…

He has another idea that he’s not going to bother developing.

He’s still one of the most productive people they have, but that extra edge is gone.

What do you think his employer should have done?

Join me tomorrow for another look at how, to quote another old saying, companies keep cutting off their noses to spite their faces.

Stock.xchng image credit: dinny

If the Shoe Fits: Fairness

Friday, July 8th, 2011

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

3829103264_9cb64b9c62_mI hear a lot from founders about the importance of fairness.

But when it comes down to unfair actions, mostly what I hear are all the reasons that “this is different,” AKA, rationalizations.

There are very few attitudes that qualify as universal truths, but this is one of them, so if you truly want to build a winning company, make this your mantra:

There is never an acceptable reason to treat anyone (employees, customers, investors) unfairly.

How do you know when you’re being unfair?

You know, whether you admit it to another living being or not, deep down you know when you are being unfair.

You can ignore your actions and the comments they incite; practice extreme awareness avoidance regarding your reasons, rationalize them as necessary, but you know.

The solution is simply to stop; no app, fancy action list, books to read, or research to do.

You know when you do it, so you’ll know when you stop.

Option Sanity™ ensures fairness

Come visit Option Sanity for an easy-to-understand, simple-to-implement stock process.  It’s so easy a CEO can do it.

Warning.
Do not attempt to use Option Sanity™ without a strong commitment to business planning, financial controls, honesty, ethics, and “doing the right thing.” Use only as directed.
Users of Option Sanity may experience sudden increases in team cohesion and worker satisfaction. In cases where team productivity, retention and company success is greater than typical, expect media interest and invitations as keynote speaker.

Image credit: Kevin Spencer

Ducks in a Row: Avoiding Ego-merge

Tuesday, May 18th, 2010

ducks_in_a_row

Sunday I quoted Colin Powell on this subject and it reminded me of this article. I don’t remember where it was originally used, but it dates back to the dot-bomb recession.

It’s “And” Not “Because”

Last week I attended a quasi-social business function and found myself in conversation with a very knowledgeable and polished executive. When I asked him what he did he said, “I’m not working, I’m looking for my next opportunity.” His answer floored me and I asked again. His initial reaction was to repeat himself, assuming that I hadn’t heard him (it was noisy), but my continued look of inquiry finally brought a second answer, “I’m a CFO.”

It’s sad enough that people choose to define themselves based upon how they earn a living, and very bad when, as in the conversation mentioned above, employment becomes the career validation without which the career ceases to exist. However it’s much worse when people take another step and subconsciously merge their identity with that of their company—I call it ego-merge.

I coined the term in the eighties to describe a state of mind that is not only unhealthy for individuals, but also damaging to the companies for which they work.

Ego-merge is the result of melding “me” and “my company” in the mind of the employee, whether worker or manager. It’s most obvious in tough times and most noticeable in conversation when people use “because” instead of “and,” thereby crediting the company or manager for their skills: “I’m great because my company/manager is great.” instead of, “I’m great and my company/manager is great.”

At first glance ego-merge might actually seem to be a positive for companies, but it’s not. When employees’ egos merge with their company’s, they often blame themselves for the company’s problems even when they have little power and may not have any line responsibility. Worse, it can be a major productivity sapper when times are tough—employees with ego-merge have a difficult time believing that they are good enough to help turn the company around, since in their minds their skills are good because of the company.

Ego-merge is often the by-product of the best companies/managers, where people are very involved, have high esprit de corps, and are passionate about their mission and success. It also happens with more Machiavellian managers who try and foster this attitude within their organization as a retention tool. Ego-merge does, in fact, encourage people to stay, but it also cripples them and reduces their long term value to the company.

It’s every company’s/manager’s responsibility to help their people grow and become stronger, not to subtly cripple them in the hopes that they won’t leave. Better, it’s in both the manager’s and the company’s best interest to become people-builders.

Why? Because reputation, both the manager’s and the company’s, is everything when hiring, and being known for your great G&S (grow and strengthen) policies will help you attract, develop and keep the best and brightest. Sure, you’ll lose them now and then when they’re ready for the next challenge and you can’t provide it, but the benefits resulting from their ultra-high productivity and creativeness during the time they’re with you will far outweigh the loss when they do leave.

How? Through some simple actions. G&S isn’t rocket science, nor does it have to be costly.

  1. Treat everyone on your team and in your company with the same level of respect you want.
  2. Listen to your people. Encourage and assist them as much as possible in developing the skills they need to take their next step—even when it makes your life a bit more difficult.
  3. Always remind them that for all their successes, challenges, and failures it’s “and” not “because.”

But what if you’re a manager pushing G&S down while your own manager is either blind to it or the type who sees ego-merge as a plus? What can you do as just a worker with no control or leverage?

Awareness is the best protection against ego-merge. Recognize that it exists, understand what it is, know its symptoms and whether you’re prone to it, then monitor yourself, always remembering that the opposite of ego-merge is not arrogance.

  1. Post a watch for the first symptom of ego-merge: when your glow of accomplishment for an exemplary project you did is quickly quenched by negative internal news or media coverage. The greater the offset the greater the ego-merge.
  2. Listen to yourself. When describing a project (successful or not) or coup (large or small), listen to how you describe it and where and how you attribute its success or failure. Adjust accordingly.
  3. Offset and reduce ego-merge in others by publicly giving full credit to those around you at all levels up and down for their contributions.

Flickr photo credit to: Svadilfari on flickr

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