Poking through 11+ years of posts I find information that’s as useful now as when it was written.

Golden Oldies is a collection of the most relevant and timeless posts during that time.

It’s said that money is the root of all evil, but there are plenty of evil people with no money and lots of wealthy people who do enormous good. I think it’s more accurate to say that greed is the root, since people will do anything to satisfy it. And often, what they do is perfectly legal — but legal doesn’t mean either ethical or moral.

Read other Golden Oldies here.

I’m no happier about the AIG and other bonuses paid to screwed up Wall Street banks, but I’m not sure why any of us are surprised.

“In the largest 25 corporate bankruptcies between 1999 and 2002, while hundreds of billions of dollars of investor wealth and over 100,000 jobs disappeared, the Financial Times found the “barons of bankruptcy” made off with $3.3 billion.”

Giant compensation packages, guaranteed bonuses and platinum parachutes are excused by Boards and executives as necessary to attract the “best and brightest,” but here’s what’s really going on.

The ‘names’ demand outsize compensation/stock options/guaranteed bonus/etc. in order to validate their ‘brand’.

Those responsible for hiring not only meet the demands, but even exceed them in an effort to attain or sustain the company’s reputation as a better home for ‘stars’ — the more stars you have the greater the bragging rights — mine’s bigger than yours in high school locker room talk.

Now let’s consider the folly of this attitude.

Those hiring often seek a name brand in the mistaken belief that the brand comes with a warranty that guarantees good results.

But no matter who you hire you’re actually paying for their past performance, which is always influenced by

• • circumstances—boss and company positioning in its market and industry
  • environment—culture and colleagues;

and let us not forget that minor factor

• • the economy.

The hiring mindset is that everything the brand accomplished was done in a total vacuum and dependent only on the brand’s own actions, therefore changing every single surrounding factor will have no impact on performance.

Put like that it sounds pretty stupid, doesn’t it.

This is one of the prime reasons that so many CEOs bring their ‘own team’ over when they move, as do managers all the way down the food chain—they know they didn’t do it alone.

CEOs aren’t like movie and rock stars whose very names draw consumers into spending money—nobody ever bought a product from GE because Jack Welch was CEO, nor do they carry Jobs iPods—so why pay them that way?

Moreover, assuming that performance occurring during an expansion is a valid yardstick for performance in general, let alone a downturn, is sheer idiocy.

You have only to remember the difficulties faced by people whose management skills were honed between 1991 and 2000, the longest expansion in our history. When the recession hit in March of 2001 they had no experience whatsoever of how to drive revenue or manage in a down economy.

That recession and the previous one in 1990 lasted only 8 months each. The longest recession we’ve had was 2 years, January-July 1980 and July 1981-November 1982, and that one had a 12 month break in it. This means there are a very small number of managers with any actual experience managing in anything even close to what’s happening now.

The current recession officially started in December 2007, so it’s already 15 months old and the end isn’t in sight.

What experience makes these folks the ‘best and brightest’ for today’s world?

Just why the hell are companies still guaranteeing oversized compensation and exorbitant exit packages when now is definitely the time to pay for future performance—no guarantees.

Image credit: flickr

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

Tuesday I cited a post by Scott Belsky on Medium talking about how employees are often conned (my word) by founders, especially unicorns, when it comes to the wealth that is supposed to flow from their ISO.

As pithy as the post was, some of the comments were even pithier. I especially like this one from  colorfulfool (21st comment)

If profitability were proportional to hypocrisy, there would be no failed startups in the Valley.

Not just true, but succinctly and elegantly stated.

Founders love to talk about the importance of transparency, trust and authenticity.

However, their stock plans and pitfalls thereof exhibit such a high degree of opaqueness and caveat emptor that they kick a hole the size of Texas in the fabric of the founders’ authenticity.

Another prevalent piece of hypocrisy is “change the world.”

Do you really believe that another dating app or being able to evaluate a new restaurant or a better way to buy your groceries will change the world?

While they may impact one’s personal world, they certainly don’t have the impact of something like Mine Kafon.

What is proportional to the Valley’s hypocrisy is its sheer greed.

Actually, when I stop to think about it, the greed probably exceeds even the hypocrisy.

Image credit: HikingArtist

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

A couple of years ago serial entrepreneur Matt Weeks wrote about the Startup Social Contract founders have with their people, with a focus on stock options.

Having worked with startups since the early Eighties I’m intimately aware of how fragile this contract has become and how often it has been totally disregarded in the last decade.

The result should come as no surprise.

Any time a group of workers feel they are being taken advantage of someone will always step up, marshal resources and organize them, especially when the workers are highly educated.

That’s why founders have only themselves to blame for the uprising among the people they need the most.

Employees at startups are being taken advantage of, said Chris Zaharias, who was joined by rally partner and stock option counsel Mary Russell. Founders and venture capitalists make the negotiations around equity (or how much of the company employees own) intentionally confusing.

Equity fairness and transparency is the reason we developed Option Sanity.

While I don’t agree with all the content in the “Startup Employee Equity Bill of Rights,” it certainly reflects how badly the Startup Social Contract is being abused, if not totally disregarded.

And, as Matt says, “If the workers and/or the exec team come to disrespect, disbelieve or ignore this social contract, the company is lost.”

Image credit: HikingArtist

Many founders talk about the desire to build truly open cultures.

Then they start adding exceptions and caveats, especially when it comes to compensation—whether dollars or stock.

Sharing compensation information is usually discouraged and discussing stock options or salary may even be considered a firing offense.

While there are startups opting for openness, what happens over time?

Based on Whole Foods nearly 30-year trial salary openness can work.

Whole Foods co-CEO John Mackey introduced the policy in 1986, just six years after he co-founded the company. In the book, he explains that his initial goal was to help employees understand why some people were paid more than others. If workers understood what types of performance and achievement earned certain people more money, he figured, perhaps they would be more motivated and successful, too.

It takes solid planning and a culture with a real commitment to transparency and developing people over time to make it work.

By making it’s financials, including profitability, available to all it employees, so they could see not just what everyone was paid, but where else the money went, Whole Foods created a true feeling of ownership along with the knowledge that promotion was available and the support to make it happen.

The company’s openness even drew recognition from the Federal Government.

In fact, in the late 1990s the widespread availability of so much detailed financial data led the SEC to classify all of the company’s 6,500 employees as “insiders,”

Building openness into your culture requires support and full buy-in from your senior staff.

And that means being willing to pass on people who have the right skills, but not the right attitude.

Flickr image credit: Paul Downey

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

1. How fair is your company’s compensation plan?
2. Do you have a compensation plan for both salary and stock?
3. Do you pay your “stars” more, whether cash, stock or both?
4. Do you offer it to lure them in the door?

If you answer ‘yes’ to questions 3 and 4 then you must answer ‘no’ to 1 and 2.

Winging it with no plan is a major ingredient of financial disaster.

Offering high salaries and/or giant stock options before knowing how well a person will perform at your startup is a recipe for talent disaster—history may not accurately predict the future.

One of the key determinants of satisfaction — or dissatisfaction — with compensation is how employees feel their pay package compares to others, according to Wharton management professor Matthew Bidwell. “No doubt if somebody thinks he or she is doing the same work as another who is paid a lot more, this leads to resentment and ultimately to disengagement.”

And the last thing you need in a startup is resentment and disengagement.

Image credit: HikingArtist

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

People never cease to amaze me even though I know that what you see isn’t always what you get.

“Pete” is a great example of that.

Pete is an entrepreneur and a friend of mine works for his company.

My friend raves about the great culture. He says it is merit-based, treats everyone fairly and has very little of the politics and favoritism he has seen at other companies. He likes the values and Pete’s attitude to giving back to the community.

The company isn’t new, but it is still private, so when my friend heard that Pete was thinking of issuing stock he sent a link to Option Sanity and introduced me.

Long story short, we had an extensive conversation; Pete talked about his belief in the importance of fairness and merit and giving back and I explained how Option Sanity™ would strengthen his culture and work to ensure the fairness that seemed so important to him.

And because Pete was so emphatic about the importance of giving back I told him about 1% of Nothing, started by Shervin Pishevar and Matt Galligan, with the goal of getting startups to donate 1% of their equity to a charity of their choice.

Pete ended our conversation saying he wanted to think about it and work with the Option Sanity demo.

I just received an email and I thought it ironic that it came on Thanksgiving.

Although he dressed up his response in complimentary language, the upshot of what he said was that both Option Sanity™ and 1% of Nothing were naïve ideas.

He said that he wanted to have complete freedom when awarding incentive stock as opposed to committing to a methodology, even though he structured it. Some employees were relatives or good friends and he wanted the ability to give them more. He wasn’t worried about performance, because he could always rescind the grant or fire them.

With regards to 1% of Nothing, although he planned to give to some of the proceeds of an eventual sale to charity there was a good chance that certain products in development would substantially increase the value of the company.

He had a specific dollar amount in mind for charity and saw no reason to possibly exceed that by giving the 1%.

I was totally floored.

Option Sanity™ is authentic

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: HikingArtist

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

Today is not another rehash of the Zynga fiasco or CEO Mark Pincus’ follow-up email to the troops.

What I found fascinating is that the entire problem could have been averted by using Option Sanity™.

Seriously.

Yes; I know; every founder believes his or her product is the perfect solution in its nitch, but rarely are we gifted with such a high profile, real-life demonstration.

Rather than simply firing under-performing employees and handing unvested options over to the replacement, Pincus often likes to find another position within Zynga where the employee might still be able to contribute. But because that new position was often lower down the corporate totem poll, Pincus basically wanted to cut the person’s compensation by reducing his or her number of unvested options (vested options were not touched).

Some say bad hires just shouldn’t happen, while others accept them as a normal part of business and believe fast hire/fast fire is the right approach.

I believe Pincus’ approach to a miss-hire is valid; in the heat of a high growth hiring frenzy managers do hire good people for the wrong positions, oft times because candidates oversell their experience and/or managers are desperate to fill their openings.

Think of it as a people pivot—repositioning talent for the good of the company.

The problem is that any unexpected changes made after the fact, no matter how valid, breach the social contract and, in doing so, break trust.

The hiring errors and the associated stock grants should have been corrected as soon as they were identified. Waiting until just before the IPO significantly exacerbates the damage to both Zynga’s and Pincus’ street rep and puts employee morale in the toilet.

It’s a different result when incentive stock grants are based on a transparent, fair, structured methodology that everyone understands, especially when it’s rooted in the company’s stated values/culture.

A methodology that

• assigns positions to levels based on its ability to influence the company’s success as opposed to urgency or charm and history of the candidate;
• assigns an ISO baseline to each level that dictates both the initial hiring grant and
• the Annual Stock Bonus, so that a significant portion of each person’s stock rewards are based on the actual success of the company over time, as measured against quantified annual goals approved by the Board;
• allocates based on the current risk level as defined by set milestones; and
• spells out what happens for both promotions and demotions

It’s easiest to put that structure in place at the very beginning when it’s just the founders.

That’s why we provide Option Sanity™ free for six months to any startup with fewer than four people.

(Feel free to email me or call 866.265.7267 for more information or if you are just curious.)

Option Sanity™ prevents Zyngavitis

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: hikingartist.com

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

Do clichés annoy you? There’s a good reason some of the tired, old clichés stay around—namely, they work. They say what needs to be said in a way that isn’t left open to interpretation, like ‘walk your talk’ as opposed to ‘authenticity’.

I was reminded of this after listening recently to an entrepreneur.

Here are the salient points of the conversation,

• he had built a culture based on fairness, trust and authenticity;
• he worked hard to hire the smartest people available;
• salary and stock options were based on necessity, i.e., he did what he had to do to land the best candidates.

I asked him what would happen when people learned of the discrepancies between their package and a peer’s; that the approach seemed to fly in the face of his “fairness, trust and authenticity” statements.

He replied that

• people trusted him to do what was best for the company;
• he was fair to each person based on their individual expectations;
• any effort to implement a uniform compensation (salary and/or stock) policy would hobble his ability to hire stars; and
• it was a non-event because nobody knew anyone else’s package.

I have to admit, the naiveté of his final point cracked me up (I managed to control my hilarity).

Basically, he seems to believe that fairness, trust and authenticity have flexible meanings and that expediency trumps them all.

What do you believe?

Option Sanity™ ensures stock grants walk your talk.

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: kevinspencer

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

Influence isn’t about your online ranking or the strength of your brand, although they contribute.

Influence is about effect.

The effect your words or actions have on those exposed to them.

Yesterday I linked to an article in which Penelope Trunk said that it’s a bad idea for founders to be of different genders and because of her influence dozens of founders are probably rethinking their startup plans.

There is a common arrogance among influencers to generalize their opinion and present it as a fact applicable to all and the more successful the influencer the greater the arrogance.

But from day one every founder has influence, before success and beyond the expected, so even a casual word can cause trouble.

A founder CEO I know, whose original education years before was engineering, had a habit of occasionally strolling through engineering to see what was going on. One day he commented that he wouldn’t do a design the way the team was doing it. It was a casual, throw-away comment, one he had forgotten five minutes later, but it devastated the design team. The CEO had no clue to the havoc he wrought and it took the vp of engineering, who was co-founder, hours to settle them down. He then told the CEO not to talk to the team and banned him from the department.

What those on the receiving end of influencers need to realize is that no matter how brilliant or experienced someone is they are still voicing an opinion. And as valuable as the opinion may be, it should never be swallowed whole, because opinions are subjective.

They are the product of that individual’s MAP, which itself is a product of upbringing and experience. Even someone else having exactly the same background and experience would not have identical MAP because each person processes differently and has different inherent characteristics.

Influence comes with responsibilities—how well do you handle yours?

Option Sanity™ reflects your influence.

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: kevinspencer

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

You may run a startup, but that doesn’t negate the value of a new study (includes link to the full study) by Unum and Monster.com that says culture is more important than compensation.

Number one on candidates’ list was a company “that truly cares about the well-being of its employees.”

The next three are

1.  A challenging and fulfilling position, which 84 percent of respondents identified as very important.

For the person attracted to the startup world this is a given, but it requires good interviewing skills to ensure that the attraction is real and not a product of media-driven startup fever.

2.  Job security, rated very important by 82 percent.

Many denizens of the startup world will scoff and stop reading at the words “job security,” but there is such a thing in startups. Startup job security is a function of a clear vision backed by knowledge of the target market; good business planning as opposed to shooting from the hip; strong financial controls from the beginning; good hiring practices, instead of “try it and dump if you don’t like it.”

3.  An attractive benefits package, which 74 percent of those surveyed rated very important.

Benefits are different strokes for different folks; for those in the startup world ‘benefits’ translates most frequently to equity, but that doesn’t eliminate the value and need for health insurance; people engage more fully when they aren’t worried about their families.

And salary seems to still be in fifth place just as it was 30 years ago.

• An attractive benefits package and an ethical, transparent culture were more likely to be viewed as very important in attracting and retaining staff than were a high starting salary and job security.
• Being a company that cares about the well-being of its staff was twice as likely to be viewed as very important in attracting and retaining staff as providing a high base salary.

Like it of not, benefits of any kind are concrete proof of caring and how those benefits are distributed is a reflection of an ethical, transparent culture—or not.

Option Sanity™ is integral to an ethical, transparent culture.

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: Bun in a Can Productions