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Archive for the ‘Compensatin’ Category

Compensation Overboard

Sunday, October 18th, 2009

Silent problems are not a one way street! Therefore at times, one can see them coming and going. Such is the case and current ferver over compensation. If you’ve read my blog or my book Without Warning, you realize that compensation is an area where silent problems commonly reside. This is no surprise, after all money has been referenced as the root of all evil since the beginning of mankind. So one might wonder, with 1000s of years of experience, why can’t we get it right?

This is a fair question, and one with few answers. In fact, if you read the news, compensation in recent years is simply out of control. Is this simply hype or reality? From my perspective, its a bit of both. Its easy to get on the “compensation is unfair” bandwagon. After all, it’s such a big deal today that we have a compensation czar, Kenneth Feinberg (appointed by the Obama Administration) to set the salaries and bonuses at seven firms at the heart of the financial crisis. And guess what they’re finding? They’re finding compensation plans that appear inequitable. For instance, financial instituions that had lost Billions of dollars in the past year paid out Millions to senior management in additional compensation. For what - performance? 

However in this ferver, many things get distorted. They’re all thugs mentality is beginning to set in. There is no doubt that many compensation/incentive/bonus/retirement plans may not make much sense. There are billions of dollars being pushed to business executives that may not deserve it. However, as much as the system might be broken in places, it doesn’t need to be dismantled and thrown away. A tune-up, yes. Thrown away, no. And it’s the responsibilty and duty of corporate boards to realign compensation plans that produce long-term results, not short term events.

As I state in my book, “too often the behavior (derived from incentive plans) delivers an outcome you weren’t expecting and didn’t want.” Compensation/incentive plans are a powerful tool. However at times, it can become a destructive tool. I encourage you to live by this maxim. A poorly designed incentive plan is worse than none at all. Be certain to get it right.

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Job Accountability & Compensation

Thursday, April 23rd, 2009

When I started my authorship venture several years ago, I stumbled across a concept which I eventually typecast as “Silent Problems.”  In my book Without Warning, I identify 5-key areas where silent problems exist in an organization. They are:

  1. Compensation
  2. Communication
  3. People
  4. Systems
  5. ISMs (race, gender, age…)

So it’s of little surprise that much of this blog reinforces and expands on the ideas offered in the book Without Warning. As an avid reader and silent problem scout I come across articles that expand and further refine the concepts. For instance, I received my S + B (Strategy & Business) newsletter today and two articles of interest were included.

Getting Rid of Grades to Boost Performance
Most companies grade their employees’ jobs using some kind of ranking or rating system based on job evaluation. The grades assigned are intended to assess fair pay for people doing the same work, and are usually public, like the letter grades of schools. In theory, these systems are supposed to help people manage their careers, by providing a comparison of jobs and individuals’ competence across a large organization. But in practice, they have a terrible side effect (a silent problem): They end up adding to the costs of bureaucracy, frustrating employees, and undermining leadership development… 

The second article relates to compensation. It is a working paper over at the Harvard Business School. Here is the intro over at S + B titled Incentives and Unintended Consequences. 

What if the current financial crisis were a result of poorly conceived goals? By paying mortgage brokers and loan originators on commission and then encouraging them to meet unrealistic sales goals, could banks have unwittingly precipitated their own demise? The authors of this paper believe this may be the case, and suggest that the tendency to focus too much on setting and attaining goals may be more common, and more dangerous, than we realize. Whether it’s quarterly revenue targets for sales executives or publishing quotas for tenure-seeking professors, performance goals are one of the most widely used tools for motivating employees. Citing examples such as the Enron Corporation scandal — which was set in motion when traders were remunerated for manipulating the energy markets to increase revenues for the firm — the authors argue compellingly that placing too much emphasis on performance goals may encourage unethical or unnecessarily risky behavior. They show that unattainable stretch goals can demoralize employees or encourage them to focus on one narrow part of their business at the expense of others. Although the authors agree that setting goals is an effective method to track achievement, they suggest that it be used in moderation.
Here is the full working article over at Harvard Business School titled Goals Gone Wild.
As history has illustrated and the future will continuously demonstrate, silent problems are a challenge inside every organization and are a primary factor behind economic failures around the globe. The sooner mankind accepts that silent problems are a normal part of our economic landscape and then put into action tools to ferret out and fix them the better.
Note: I identify several tools in the book Without Warning which is available at Amazon here to help achieve this desired outcome.

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