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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.

Bill O’Reilly On Loyalty

Wednesday, January 11th, 2017

https://www.flickr.com/photos/donkeyhotey/5335084162/

There is much talk about Megyn Kelly’s announced move from Fox News to NBC last week, but that’s not what this post is about.

It’s about Bill O’Reilly’s twisted thoughts on what constitutes loyalty.

“I’m not interested in making my network look bad.”

Later that day, he continued the thought in a commentary on his own show in which he appeared to question Ms. Kelly’s loyalty to Fox by saying, without naming her: “If somebody is paying you a wage, you owe that person or company allegiance. If you don’t like what’s happening in the workplace, go to human resources or leave.”

Agreeing with O’Reily means that if your boss hits, grabs, gropes, insults, harasses, etc., your only recourse is to tell a person/department that too often has little-to-no power, and sometimes no interest, in fixing the problem or get out of Dodge — even if it means breaking your contract.

Read anything about professional loyalty and you’ll find that it is the company’s responsibility to give people a reason to be loyal.

Reasons include a workplace that don’t tolerate any type of harassment no matter who it is from — up to and including the CEO.

Additional reasons include fairness and respect, although there are many others.

We do owe loyalty (and protection) to ourselves, but I don’t believe anyone owes loyalty to a a person or company where they have to constantly look out, whether for a knife in the back or death by a thousand cuts.

Flickr image credit: DonkeyHotey

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

 

Managed by Q: No 1099

Wednesday, March 18th, 2015

managed-by-q

I’m not a lover of the so-called 1099 economy, primarily because I think the concept and the unicorns it’s spawned have been successful at gaming the system — so far.

But that’s unlikely to last.

More importantly, a company called Managed by Q is proving it doesn’t need to.

Managed by Q provides on-demand cleaning services for offices using an iPad, which it installs for free, and also offers other services like restocking the fridge or office supplies. With on-demand and subscription services for customers — and now 150 cleaners in New York — its services have become pretty popular: They’re used by other startups like Flatiron Health, Elite Daily, and Uber.

Managed by Q hires its “operators,” as it calls them, as employees, offering full-time and part-time employment with benefits and stock options. The work is flexible, and Managed by Q works with operators’ schedules.

I find it ironic that Uber, poster child of the 1099 model, hires a company that proves you can make money and still do traditional hiring, treat all employees well, draw investment and make money.

I’ve said it before and will continue saying it because it’s true, a company is like a three legged stool with investors, customers and employees being the legs. If one leg is longer or more robust than another the stool will tip over.

Managed by Q is part of the minority of on-demand services that is paying attention not just to its clients, but to the people carrying out its day-to-day work. And that’s what sets it apart.

Sets it apart, gives people a future, isn’t looking at lawsuits and seems to have missed the startup greed train.

All I can say is read the article and three cheers for Q, the anti-1099 heroes.

Image credit: Yelp

How Do People Know Their Salary Is Fair?

Monday, March 2nd, 2015

https://www.flickr.com/photos/tomsaint/3385894038/

What exactly do people mean when they say they want to be paid fairly?

Generally speaking, people define “fair” relative to themselves and those around them.

Developers working in a small company don’t compare their salaries to the developers at Google or even to their bosses.

The comparison they do typically has two steps.

  • First, they compare themselves to their peers, i.e., similar job, background, title, company, industry and location.
  • Second, they compare their salary with the salaries of those they see as peers.

The comparison is possible because, no matter what company policy says, compensation is never really secret.

As long as salary differences are based on factual points, as opposed to charm, politics, or managerial whim, people will believe they’re being treated fairly.

Because they are.

Flickr image credit: Rennett Stowe

The Uber Worms Are Turning

Wednesday, February 4th, 2015

http://401kcalculator.org

As has been pointed out in every media outlet on the planet, Uber is arrogant, pugnacious, obnoxious and plays fast and loose on matters from privacy to government regulations to customer charges to “contractor” relations and compensation.

Uber, in the person of CEO Travis Kalanick, has so enraged various officials that the company has been kicked out of cities, domestic and foreign, and entire countries.

Even Matt Kochman, Uber’s founding general manager in New York, left in disgust.

“Discounting the rules and regulations as a whole, just because you want to launch a product and you have a certain vision for things, that’s just irresponsible.” 

Kalanick pushed, denied problems and claimed that everything that disagreed with Uber’s plans was anti-progressive or nit-picking.

But in January the tone changed.

In January, Mr. Kalanick delivered a speech in Munich filled with talk about compromising with regulators he once sparred with, wanting to “make 2015 the year where we establish partnerships with new European cities.”

A couple of weeks ago I wrote of clouds on the horizon in the form of a class-action lawsuit from 2009 that could affect not only Uber, but every business based on so-called contractors.

Turns out they weren’t clouds, but a full-fledged storm.

A legal storm.

The Boston law firm representing Uber and Lyft drivers, Lichten & Liss-Riordan, won a 2009 decision that Massachusetts exotic dancers were employees because the club could set their shifts, and fire them. Judges in New York and Nevada followed that reasoning last year.

It will be interesting to see what happens in the California courts.

If the drivers win, it will be even more interesting to see how all the startups based on the 1099 business model play when the field is level.

Image credit: 401kcalculator.org

A Hitch In The 1099 Economy?

Wednesday, January 21st, 2015

https://www.flickr.com/photos/headovmetal/2264140208

Last fall I asked if the 1099 economy might crash and burn considering the IRS rules governing freelancers and contractors.

I think that companies, like Uber and Instacart, etc., whose success is built on the basis that their workers aren’t actually employees are in for a shock one of these days.

But it’s more than my opinion.

Way back in 2013 a group of strippers brought a class-action lawsuit claiming employee status — and won.

Rick’s, a chain of “upscale adult nightclubs serving primarily businessmen and professionals” based in Texas, argued that its dancers were independent contractors, more akin to stand-up comedians than fry cooks. But Judge Engelmayer was not persuaded. He said the list of rules Rick’s laid down could be described as “micromanagement.”

Rick’s provided “Entertainer Guidelines,” including required heel height and when to strip; the company also set prices.

Uber tells its drivers what to wear, car requirements and sets prices, as do other 1099 employers.

One day soon, a few fed-up drivers are going to file suit and their lawyers will likely cite the judgment against Rick’s.

When that happens, compensation will change, as it did years ago with Microsoft’s contract developers (who were also awarded stock retroactively), and, hopefully, the playing fields will be leveled.

I, for one, am looking forward to it.

Image credit: HeadOvMetal

If the Shoe Fits: When “Caveat Emptor” Becomes “Operarius Emptor”

Friday, November 7th, 2014

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

5726760809_bf0bf0f558_mThe so-called 1099 economy, where your workers aren’t actually employees, brings up questions.

  1. Is worker welfare a valid consideration in terms of the bottom line?
  2. How fair is it to reduce compensation, but maintain publicly that earning power is the same?
  3. How ethical is it to encourage workers to take on substantial debt based on those unlikely earnings?

If you answered 1) not really, 2) fine, 3) no problem then you’re in line with Uber management.

…reliably ruthless Uber is in the thick of it. Two “partners” in Uber’s vehicle financing program are under federal investigation, but Uber hasn’t slowed its aggressive marketing campaign to get drivers with bad credit to sign up for loans.

Following in the footprints of the mortgage brokers who sold houses to people who couldn’t afford them, thus creating the subprime housing mess, Uber is aggressively pushing new cars and subprime auto loans to its drivers with bad/no credit.

One comment stood out for its clarity and applicability to Uber and the rest of the 1099 world.

Uber corporate gets venture capital and stock options. Uber drivers get subprime loans. Sound like pretty standard American-style capitalism. –buonragazzo

Sound familiar?

Image credit: HikingArtist

Kip Tindell and The Container Store

Wednesday, October 29th, 2014

https://www.flickr.com/photos/tomergabel/4963539052

The hourly base wage for fast-food workers in Denmark is $20USD, yet McDonald’s, Burger King, etc., are still profitable.

Try to sell a minimum wage increase to just $15 and you’ll be told that it would destroy jobs and close businesses.

But, as the song goes, it ain’t necessarily so.

Despite starting out with just a $35,000 investment in 1978, The Container Store founder and CEO Kip Tindell has grown his business to one that has 67 US locations and rings up annual sales of nearly $800 million.

Equally impressive is the fact that he’s done all that while paying his retail employees nearly twice the industry average.

So what does Tindell know that other bosses of retail businesses don’t? You get what you pay for…

  • “The 1=3 rule,” i.e., one great employee is as productive as three OK employees, so he gets three times the productivity of an average worker at only two times the cost.
  • Turnover is lower substantially reducing hiring and training costs.
  • Annual raises up to 8% of their salaries, based on performance, but
  • encourages managers to evaluate employees based on their value to the company.

The result is the average Container Store retail salesperson makes nearly $50,000; about double the national average for retail.

When it comes to wages, Kip Tindell is the Twenty-first Century’s Henry Ford.

Ford astonished the world in 1914 by offering a $5 per day wage ($110 today), which more than doubled the rate of most of his workers. (…) The move proved extremely profitable…

The minimum wage war should become a lot more interesting when Tindell takes over as chair of the National Retail Federation.

It’s a lot harder to argue with success.

Flickr image credit: Tomer Gabel

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