Published in the San Diego Union-Tribune, April 23, 2018
Jack Welch, the former CEO of General Electric, famously argued that leaders should fire the bottom 10 percent of their workforce each year — cull the herd, cut the least effective members of the team and then bring in new ones. This is the “up or out” model of Wall Street and the investment banking racket. That is certainly one way to motivate people. (And you wonder where the concept of “cutthroat/greed is good” may have originated.)
Here is another motivation tool from a famous movie, “Glengarry Glen Ross.” The real estate sales manager explains to the sales team the prizes for the new contest. “First prize is a Cadillac Eldorado, second prize is a set of steak knives, and third prize — you’re fired.” Notice the caring, nuanced and thoughtful way the assignment is being framed.
The effectiveness of these systems depends on how fair the employees perceive them to be, according to research by Susanna Gallani, assistant professor of business administration at Harvard Business School. Motivation and incentive performance statistics consume a lot of managerial thinking, and in the end, the successful key to the puzzle needs to be a perception that the game is not rigged, meaning that the CEO has not pre-determined the outcome and that the metrics are reasonable — and particularly that they are achievable.
This last one is important. When I negotiate with an employee and set some kind of economic bonus, I need to make sure it is achievable for him. I know more than the employee, I know all the numbers, I am in charge and I can probably get him to say yes to a deal — which is impossible for him to win. That is a trick and it is the worst kind of CEO behavior. This is often the case in the stock option game, where the employee takes less money in salary in exchange for stock.
I can tell you that less than 5 percent of the time does the employee actually understand the math, the “fully diluted” cap table, the real value of the stock, etc. In other words, it is incumbent, it is required, it is mandatory for the leader to set it up so the employee has a real, fair shot at getting his bargain. Otherwise, you are setting up for a mutiny.
Now, there is another way to motivate performance and that is the tool of giving a reward of some kind of a bonus. The thing I like the best is the surprise bonus, not the one that is mathematical and in the employment agreement, but rather the spontaneous, unexpected, “are you kidding me” bonus.
One of my clients comes to me and says that one of his employees, Mr. Smith, is probably being underpaid and is becoming unhappy. The CEO knows that Smith is important to the team, but burn rate and fixed overhead argue against simply raising his salary. The solution is simple — walk down the hall and hand him a check for $10,000 and pat him on the back. That out-of-the-blue acknowledgment of his value and contribution is worth 10 times the check size.
Gallani says, “If you feel you are being given a gift more than you thought you would (or should) earn, then you tend to go above and beyond to restore this balance.” You give back to the company greater than you received. The gift is not always money; it can be tickets to an event, a spa day, a dinner for you and your spouse, whatever. The key is that by giving something out of the blue, you are directly saying to the employee, “I know you exist, I think about your needs, and this small token is designed to show you my appreciation for your efforts.”
However, what happens when an employee “expects” a bonus and doesn’t get one or the size he was anticipating. Not good things. He feels “cheated.” The default feeling is that there was bias against him. He feels an “implicit punishment.” It all comes down to managing expectations.
The problem with contests is that the results are often objective, numerical — while in fact, what is required to make them fair is a subjective evaluation, “to even out the factors outside the employee’s control.” The problem with creating “winners” is that you also create de facto “losers” — potentially ending up with a zero-sum game.
Rule No. 557: Heads I win, tails you lose.