Saturday, September 06, 2003

Very interesting post in an already interesting blog from Fast Company

Bob Nelson is the guru of employee recognition. It's the simple idea that people perform better when they are recognized and rewarded for their ideas and contributions. It's a shame that we live in a world where someone like Bob can make a living doing this. But it's true, and Bob does a terrific job in advising companies and leaders how to do this extremely well. He's the author of a couple of books, including "1001 Ways to Reward Employees," that burst with great ideas.

The rest is also very interesting. As a manager I always try to get the maximum compensation for my team, sometimes at the expense of my own. That is often worth the effort because with a good team I get to keep my position and my compensation. It is too bad that the pay of managers, especially top managers, is not at all tied to the salary of the people who work for them. Tying CxO compensation to the stock market performance was an idea intended to build a tight correlation between their compensation and company performance. The two miscalculations seem to have been as follows (if they were honest miscalculations at all):

  1. With the tremendous amounts of money being made, Corporate Officers were able to lawyer their way around any significant downsides to their performance, while increasing their potential upsides by seemingly cheap option grants. The obession with paying a CEO an "above industry-average package" spiraled compensation out of this world by the sheer law of averages.
  2. That the stock market performance is the only performance that matters. In some ways it is true - over a course of a hundred or more years. It is probalby true even in a shorter term if one is a shareholder for short and medium term. However, this is not really true for the company itself. Successful companies are running multi-decade marathons, not 2-year sprints. And packages that allow someone to be a chairman or CEO for a year and cash out with 50 or a 100 million dollars encourage just that. "After me, the flood!

Not so many years ago two partners sold their memory firm, Kingston, I believe, to the Japanese. They took half the money they made and gave bonuses to all the employees. Averaging in the thousands, some approaching six figures for regular long-term employees of the company these bonuses were their way of saying, "thanks for your hard work."

Some more chilling quotes from the Fast Company article:

"....these days, merit increases, bonuses, promotional increases and adjustments are minimal...In the minds of senior management, the right to compensation has been replaced by the privilege of having a job. This has actually been verbalized repeatedly within my firm.

"With the right to compensation neatly put aside, senior management grasps onto organizational behaviorial theory catch phrases like "money is not a motivator" and forgets the conditions assumed in that statement..

How bloody true. Money is not a motivator when choosing between two relatively equal and well-paid positions. It is a very important motivator when choosing between two jobs in which one is just not well-paying. But then this problem is solved easily when there are no other jobs available.


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