Rodney Johnson - Without Warning

Are your incentive plans working for you, or against you? Do you really know? Every business leader needs to question the incentive plans they have in place or are considering. For starters, you need to ask yourself,

• Are the incentives achieving the right behaviors?  
• Are there any short-term or long-term consequences tied to the incentives?
• Are the incentives fair?
• Are the incentives really needed to achieve the desired outcome?

 If you’re a regular reader of this blog, you’re possibly aware of my concerns, and their connection to Silent Problems. Last week I came across an interesting artice over at Business Week that takes another stab at this important topic. It states:

“The inescapable flaw in incentives, as 35 years of research shows, is that they get you exactly what you pay for, but it never turns out to be what you want. The mechanics of why this happens are pretty simple: Out of necessity, incentives are often based on an index of the thing you care about—like sound corporate leadership—that is easily measured. Share price is such an index of performance. Before long, however, people whose livelihoods are based on an index will figure out how to manipulate it—which soon makes the index a much less reliable barometer. Once share price determines the pay of smart people, they’ll find a way to move it up without improving—and in some cases by jeopardizing—their company.”

“Incentives don’t just fail; they often backfire.”

Bottom Line: Many companies and their boards must question their incentive compensation plans, and ask this important question. “Are incentive plans you have in place an asset, or a liability?”

What do you think?

Do you have a Thanksgiving memory where a potential disaster almost derailed the Thanksgiving feast? Earlier today, I was listening to WGN Radio in Chicago and listeners were calling in about their memorable Thanksgiving meal distasters. Stories about a cat that licked the frosting off of the pumpkin pie minutes before being served. A story about a dog that started to lick the ham before b eing served. A story about ovens that weren’t tured on, etc. In the middle of the program the talk show host made this observation. There is a common theme here. Upon discovery of their problem, most took the simple, “Shhh… Don’t Tell Anyone.” tactic. What they don’t know sn’t hurt them. It will be our little secret.

Interestingly, this is analagous to what happens inside organizations. “Shhh… Don’t tell anyone. It will be our little secret.” Unfortunately, these “silent problems” can and often are dangerous and damaging.

Happy Thanksgiving.

In May, I wrote a story about Maria Carstarphen, the superintendent of St Paul Public schools that had recently announced her departure. Shortly after her announcement, the floodgates of stories, innuendos and accusations started to surface. Doug Belden over at the St Paul Pioneer Press wrote an artcle titled, “Is She a Bully, or Just a Bold Leader.” It stated,

More than half the top administrators in place when Meria Carstarphen became St Paul Public Schools superintendent in 2006 have left. At the same time, the senior administration has expanded, fueling a 20 percent jump in salary costs for that group. To Carstarphen’s critics, these numbers reflect a bullying management style that has driven away valuable staff, combined with costly administrative reorganizations of questionable value. Carstraphen declined to comment for this story, but her defenders say the turnover is typical for an organization undergoing change…

I stated in my article: From my viewpoint, the bully and bold leader statements fit. In public, my experience supports that she is brilliant on every count. Charming. Outgoing. Engaging. Personal. Decisive. Her vision for a new future bold and proactive. But behind closed doors, stories referenced in the news article and listening to top lieutenants in the district also appear to be true. Words that describe this side include; brutal, forceful, demeaning, autocratic, toxic, intimidating and micromanager. And the mere fact that this story surfaces upon her departure is similar to many silent problems and without warning events.

Today, the school is finally getting around to nominating a new superintendant. This morning, an article detailing the first round of interviews for the position appeared on the front page of the Pioneer Press. I couldn’t help but notice a comment at the end of an article.

And there have been consistent compliants, more public since her departure, that key relationships in the district were damaged during Carstarphen’s tenure. As the search consultant summarized it, based on conversations with district starff and community members “Frayed relationships between teachers and administrators, buildings and central office, and the school board and administration were consistently reported. It is clear that considerable work needs to be done in order to reconstruct a trusting, healthy working environment and improved relationships between different constituent groups of employees.
David Belden, November 14, 2009

The toxic leader/employee is a silent problem that exists inside organizations around the globe. Their reach and impact can be far and wide. And as this story illustrates ( It is clear that considerable work needs to be done in order to reconstruct a trusting…), their impact can be felt for years after their departure. And yes, Bold Leaders at times are also Bullies, which makes them so difficult to understant, and move out of the organization.

From Bloomberg - Reed Says I’m Sorry for Role in Creating CitiGroup: Lawmakers were wrong to repeal the Depression-era Glass- Steagall Act in 1999, Reed said. At the time, he supported overturn of the law, which required the separation of institutions that engaged in traditional customer banking services from those involved in capital markets.

“We learn from our mistakes,” said Reed, who wrote an Oct. 21 letter to the editor of the New York Times endorsing a division of banking activities. “When you’re running a company, you do what you think is right for the stockholders. Right now I’m looking at this as a citizen.”

John Reed, the lead draftsman for the creation of CitiGroup, which combined CitiCorp (a commercial bank) with Sanford Weill’s Travelers Group back in 1998 was considered a blockbuster merger at the time . Now just 10 years later, CitiGroup has lost $27.7 billion in 2008, took  $118 billion in writedowns and is now 34% owned by the US Treasury Department. When the deal was announced, it was the blockbuster news of the decade. It was going to change everything. Instead, it became a story about how the winner ultimately became the loser. It’s about how the law of unintended consequences can and often does reign supreme. It’s a story about how complexity trumped anticipated synergies.

The formation of CitiGroup was well intentioned and a story we should learn from. And the first lesson is for leaders to ask a simple question before they head into merger mania once again. That question is: How will the deal impact the complexity of running the business?

If you can honestly state that the merger will not complicate the business - great. If you have a few reservations when answering this question, then take a second, third and fourth look. Complexity is killing many businesses and making them impossible to lead. This is one of the reasons why complexity is No. 2 on my Silent Problem warning list. It states:

2. When there is a willingness to embrace complexity, while simultaneously sacrificing transparency. Symptom: The business becomes too convoluted and complex to understand. Nothing makes sense anymore.

Complexity is killing industries and businesses. It makes leading them complicated and transparency was sacrificed. I’m certain that John Reed would agree that combining Citicorp with Travelers made sense on paper, but the complexity it brought to the business was a killer.