Delivering the Systems and Expertise You Need to Confidently Make Great Hiring Decisions
Derek Jeter is one of the most well-known and well-respected players in all of Major League Baseball. This year, at the age of 36, his contract is up for renewal. As the Captain of the Yankees, many fans expected the Front Office to give him whatever he wanted so that he could finish out his Hall of Fame career in pinstripes.
But there’s a fly in the ointment: the Front Office does want to keep Jeter but Derek’s Agent is suggesting that he be paid $23-25mm per year for the next 5 years. His agent has said that Jeter can’t be valued the same way as other shortstops because of his leadership qualities. Why is that a problem?
- A Player is “in their prime” between the ages of 29-32. They’ve got more maturity, they understand how to keep their bodies healthy through 162+ games and they have enough youth still in them to match up against the strength of a 25 year old.
- There are only a handful of players making over $20mm per year – the list gets even smaller when you add the filter of being 36 years old or older. Oh, and the stats of Derek don’t come close to matching those of the players who are at this altitude.
- The 2nd highest paid shortstop in the Major Leagues is Hanley Ramirez who is 10 years younger, hit 30 points higher and hit 21 home runs to Jeter’s 10.
How does this situation possibly impact you?
More and more I’m seeing Business Leaders who are making what I believe to be a major mistake: they’re hiring people who are currently unemployed and offering them significantly less than what they were previously making. They Leaders are feeling quite proud of themselves because people are accepting the positions. Karl Scheible is a close friend of mine and a Sales Guru. For years he’s pounded into my head that people make decisions for 2 reasons:
- To run TOWARDS pleasure
- To run AWAY from pain
The pain of unemployment is more prevalent than the pleasure of waiting for the perfect role for many people today. Here my words of caution to the people hiring the unemployed at drastically reduced rates from 12, 18 or 24 months ago: THEY WON’T STICK. Why? Because people place a perceived value on themselves that is based on both reality (their top pay throughout their career) and their distorted sense of what they think the market should pay them. As an employer, if you’re not within 10% of what they have previously earned, I don’t think they’re going to hang around because we live in a hedonic society that encourages us to live beyond our means. If that new employee is accepting a 20% pay cut, it’s unlikely they’re going to be able to reduce their lifestyle costs by that same amount. They’ll live in pain and will want to run away from it the second they believe the economy has turned around or someone calls them and offers them even $1,000 more per year to change jobs. Don’t believe me? Check out this survey that was conducted 14 months ago (and the trend is going up). It suggests that 67% of people will look for a new position as soon as they think the market shows interest in their skills.
Bottom Line: While you may think that someone is only worth $X, if that person has earned $Y before and takes your job, expect them to be gone within 18 months or less.
Patrick Thean is the author of Execution Without Drama and in June 2010 I got the opportunity to hear him share some of his thoughts on creating specific scorecards for Manager Level talent and, because I get so many questions from hiring managers and business leaders about this exact topic, I felt like a blog post to share his suggestions was worthwhile. Here they are:
KEY PERFORMANCE INDICATORS FOR MANAGERIAL SCORECARDS:
RELATIONSHIPS & PEOPLE
- Voluntary Attrition
- Keep Smart (learning, furthering themselves)
- Employee Net Promoter Score
- Dry Powder
- Burn Rate
- # of Months of Cash (Runway)
- Quality & Bugs
- Supplier Mistakes
- Project Health Index (actual vs. plan)
- Sales against plan/quota
- Pinkie Report (Patrick’s idea for his sales team – if this deal doesn’t close I get your pinkie)
- A/R Quality
- # of days to Close & Report
I had the good fortune of hearing Cameron Herold today while I am in Boston for EO’s Entrepreneurial Masters’ Program. His topic was “Leadership at 100 MPH” and a lot of the focus was on hiring with predictability and not making mistakes that really could really hurt your company.
For 2010 we’re proud to sponsor Cameron because we agree with what he teaches to Entrepreneurs and Business Leaders around the world. While I’ve heard him speak a number of times I always get a few new things each time I hear him. Here’s some quick thoughts from today that hopefully you can benefit from:
- Culture’s hard to build and easy to destroy. One of the fastest ways to destroy it is to not fire people who clearly can’t do the job they’re in. Not only that, you’re doing that “problem” employee a disservice by asking them to live on pins and needles while you’re “too chicken” to let them go.
- When you’re hiring someone new onto a team, don’t ever let your team’s “average performance” drop. More pointedly: if you’ve got 6 people on your marketing team and you’re about to hire a 7th, make sure that the person you’re hiring is at least more qualified and better than 3 or more of the existing team members to keep raising the bar.
- Ensure that you’re very clear on what your needs are when hiring and then make sure you can “smell the right person from a mile away”. Cameron used the example of going duck hunting with his grandfather as a child. Early in the morning, as the sun was coming up, small V’s of ducks would appear on the horizon and even as they were just specs a mile away Cameron’s grandfather would be able to tell whether or not they were the right ducks for them. “Nope, put your gun down” he’d say. When pressed to explain why he would clearly describe wingspan, formation of the flock and altitude. The business application isn’t a hard jump to make: it’s easy to get excited when you’re in the thrill of the hunt but you have to be very clear about what you’re hunting.
- Staying with the aforementioned parable, when Cameron was out duck hunting they’d always bring decoys to go by their blind. To an amateur, a decoy is a decoy. However, to the experienced sportsman, the use of decoys will make or break your time on the water. Choose the right decoys with the proper placement and you’ll have plenty of opportunities but choose the wrong one and you won’t attract a single target to shoot at. Business application: if you walk outside your office and look at the front door and you’re not impressed with the look, what’s an A-Player going to think? If your reception area is unattractive and your office sounds like a funeral home, how’s that 28 year-old superstar going to feel when they show up to learn more about your company culture? The morale of the story: if you’re not using the right bait, you’re going to end up eating really nasty fish or not eating at all.
- Are all of your Hiring Managers fully aware of the background that you’re looking for in team members 2 years from now? If you’re hiring for the people that your company needs TODAY, and with the scorecards of the performance targets they need to hit this month, you’re likely not attracting the A-Players who will move your company forward. Instead, they’ll be the people who will keep your company stable. Are your Hiring Managers guardians of your culture? Are they clearly aware of your company goals?
- Tread carefully during negotiations with top performers and try to avoid including profit sharing as part of their compensation plans. When you’re growing like crazy, profit-sharing can be a great bonus for people for their work but if your key players rely on profit-sharing bonuses to pay their bills and maintain their lifestyle they’ll bail as soon as the company hits any rough spots – and that’s when you’re going to need them the most. Build compensation packages that key team members feel is fair for the work that they’re doing and then have any profit-sharing programs be the cherry on top.
And lastly, Cameron shared the matrix of Jack Welch at GE used when evaluating his teams. Nicknamed “Neutron Jack” for his often rash and emotionally-devoid decisions, he was also widely regarded as one of their very best evaluators and developers of talent. In fact, Jack was the first CEO to implement executive-level Topgrading. This simple 4square was his way of slotting and categorizing talent that he already had on his team. I found it both really easy to understand/remember while also profound.
Here’s the image:
- F = FIRE THEM. NOW.
- C = COACH THEM – THERE’S STILL A CHANCE.
- H = HANDCUFF THEM. MAKE SURE THEY”RE LOCKED UP FOR THE NEXT 5 YEARS.
Tags: A-Player, A-Players, Brad Smart, hire better, hiring, hiring manager, Interview, jack welch, job description, recruit don't absorb, Retention, Scorecard, talent acquisition, Topgrading, topgrading methodology
If you’ve read this blog for any length of time you’ll know that the impact of incentive-based compensation on recruiting and retention is something that I’m both passionate and opinionated about. I’ve often referenced Dave Kurlan as being one of the top thinkers of our time with regards to sales-based compensation. But only a small portion of the typical company’s workforce is their sales team.
People in Sr. Leadership and Human Resources are likely familiar with the studies that have come out about how, on a list of the Top 10 reasons why people take or stay in a role, money typically ranks 9th or 10th. Thanks to Henry Sauer (the Dean of Rackspace University), a friend who I’ve recently had the privilege of getting to know better, I received the book DRiVE. He sent it to me because it had a profound impact on him and the way that Rackspace is working to retain their culture of “Fanatical Support” as they continue to grow.
I began reading this book as I was on a plane last week headed up to visit with a client in the Boston area and recognized quickly that this was going to be a page-turner but its information was not going to be easy to digest (and even harder to implement). On the same flight I read a new report that Dave Kurlan just released about the tenure of salespeople and how tough it is to retain them.
I wanted to share some snippets of both the book’s most compelling findings in its first 100 pages as well as interesting things from Dave’s white paper.
From Dave & The Objective Management Group:
My most recent study and analysis has shed light on some of the characteristics that determine longevity, or to use a more familiar concept, turnover prevention. Turnover, whether voluntary or involuntary, occurs when one party, either the employer or employee, is unhappy with the other. More often than not, the turnover is voluntary, and the employee resigns when income, culture, degree of difficulty or management practices are not to the salesperson’s liking. Involuntary turnover occurs less often because most sales managers are too patient, accept mediocrity, and avoid confrontation, especially a potentially uncomfortable termination.
We live in an era where employees no longer remain with a company for most of their lives. It is not unusual for a younger employee to work for several companies before they turn 30. Today, turnover is inevitable and when you consider the unique dynamic of the odds of a salesperson succeeding, the risk of expensive turnover increases dramatically.
He goes on to talk about the 5 Factors that he’s identified that are the leading indicators in predicting longevity and success for a salesperson:
- Figure It Out Factor (FIOF): In the case of retention, those who achieve overnight success tend to look for the next challenge more quickly than those who are slow and steady. Showing these talented salespeople a career path with growth opportunities, more responsibility, and promotions can offset the risk of losing “A” players too quickly.
- Sales Quotient (SQ) [Author's note: the proprietary score assigned to a candidate based on the OMG pre-hire assessment test]
- Supervision: Sales Managers must be able to effectively coach, mentor, motivate, challenge and develop these salespeople to increase their levels of success and earnings.
- Experience: Salespeople with experience – at least 5 years – are much more likely to be retained for 5 years than salespeople with less experience.
- Compensation: Salespeople who are compensated mostly by commission are twice more likely to be retained than salespeople who are compensated mostly by salary.
When you consider that salespeople are often classified as “wired to sell”, incentivized to chase deals/revenue and are often have the opportunity to earn uncapped income when they are successful dangled before them, it’s easy to think that it is because they are motivated by money. However, after reading DRiVE, I don’t believe that it is necessarily the money that is motivating them.
Here are some examples of why (taken directly from Daniel Pink’s book DRiVE):
*Author’s note: Mr. Pink references “Motivation 2.0” throughout the book. Motivation 2.0 is defined as follows: 50,000 years ago we were trying to survive as a species. Our motivations were obtaining food, running away from saber-toothed tigers and copulating – an early operating system called Motivation 1.0. As humans formed complex societies that required cooperation to get things done, M.1.0 was inadequate because it was based purely on biological drive. We developed a second drive: to see reward and avoid punishment more broadly. Motivation 2.0 was based on the theory that the way to improve performance, increase productivity and encourage excellence was to reward the good behavior and punish bad.
The trouble is that Motivation 2.0 assumes we’re the same robotic wealth-maximizers I was taught we were a couple of decades ago. Indeed, the very premise of extrinsic incentives is that we’ll always respond rationally to them. But even most economists don’t believe that any more. Sometimes these motivators work. Often they don’t. And many times, they inflict collateral damage. In short, the new way economists think about what we do is hard to reconcile with Motivation 2.0. What’s more, if people do things for lunk-headed, backward-looking reasons, why wouldn’t we also do things for significance-seeking, self-actualizing reasons? If we’re predictably irrational – and we clearly are – why couldn’t we also be predictably transcendant?
Bruno Frey, an economist at the University of Zurich, has argued that we need to move beyond the idea of Homo Oeconomicus (Economic man – the fictional wealth-maximizing robot). He suggests that the new model is Homo Oeconomicus Maturus (Mature Economic Man). He says that this figure, “is more ‘mature’ in the sense that he is endowed with a more refined motivational structure.” He goes on to write, “Intrinsic motivation is of great importance for all economic activities. It is inconceivable that people are merely motivated solely or even mainly by external incentives.”
Consider, the revelations that he revealed above were within the first 30 pages of the book. Fortunately, he’s got another 185 pages beyond this that continue to drive home his point. I’ll be blogging more in the future about many of his theories and also attempting to integrate them into the HireBetter Team’s culture and performance-centric environment. For now, if you’re not ready to go out and buy the book, I’ll share with you one other area of thought that, for me, was when I began to realize he was really on to something and that nearly all employees, even salespeople, are being motivated to perform and produce for reasons that aren’t monetarily driven. Rather, monetary reward becomes the proverbial “cherry on top” that is the result of the intrinsic motivational factors that pushed the employee to perform.
“An object in motion will stay in motion, and an object at rest will stay at rest, unless acted on by an outside force.”
Newton’s first law of motion is elegant and simple – which is one of the reasons why it is powerful. Everyone can understand it. Motivation 2.0 is similar because at its heart are two elegant and simple ideas:
Rewarding an activity will get you more of it. Punishing an activity will get you less of it.
Newtonian physics runs into problems at the subatomic level. Down there – in the land of hadrons, quarks and Schrodinger’s cat – things get freaky. The cool rationality of Isaac Newton gives way to the bizarre unpredictability of Lewis Carroll. Motivation 2.0 is similar in this regard, too. When rewards and punishments encounter our third drive, something akin to quantum mechanics seems to take over and strange things begin to happen.
Of course, the starting point for any discussion of motivation in the workplace is a simple fact of life: People have to earn a living. Salary, contract payments, some benefits, a few perks are what I call “baseline rewards”. If someone’s baseline rewards aren’t adequate or equitable, her focus will be on the unfairness of her situation and the anxiety of her circumstance. You’ll get neither the predictability of extrinsic motivation nor the weirdness of intrinsic motivation. You’ll get very little motivation at all.
But once we’re past that threshold, carrots and sticks can achieve precisely the opposite of their intended aims. Mechanisms designed to increase motivation can dampen it. Tactics aimed at boosting creativity can reduce it. Programs to promote good deeds can make them disappear. Meanwhile, instead of restraining negative behavior, rewards and punishments can often set it loose and give rise to cheating, addiction and dangerously myopic thinking.
I’ve been sitting on this blog post for a while thinking that its efficacy would get better and better as the economy and job market failed to recover at the pace that the economists thought (hoped) it would. It looks like my hunch was right.
Nine months ago, the Wall Street Journal published an article called “Only the Employed Need Apply“. The premise of the article was that many employers were only interested in talking to people who were already employed – even if the candidate who had applied had lost their job even after performing at a high level.
Bobby Fitzgerald, a partner in five restaurants in three states, says these days he gets two dozen or more unsolicited résumés each day at one of his Phoenix restaurants, the White Chocolate Grill. But Mr. Fitzgerald says his top candidates, for jobs ranging from servers to management, usually are people who are employed elsewhere. He currently has 50 openings across his five restaurants and has told recruiters to bring in only people who are working.
When you consider that in March 2010 our unemployment rate is still on the precipice of 10% and the average time that someone is unemployed is still over 1/2 of a year, it would appear that Business Leaders like Bobby Fitzgerald aren’t alone.
At Hire Better, we’ve seen a significant up-tick in the number of clients who want us to assist them in hiring salespeople. For those salespeople who we see as applicants, the statistics are NOT in their favor if they’re applying for a role in which Hire Better is involved. Here’s what we’ve found:
In a typical hiring cycle, assuming that we have 100 people to consider for a role:
- 82-85 will be Direct Applicants
- 12-15 will be People who are “headhunted” or from our Network
- 1-3 will be Referrals from internal employees at the client company
When we get down to the Top Three Finalists, they’ll look like this:
- 1 Direct Applicant
- 1 “headhunted” Candidate
- 1 Referral
And when the finalist is hired: The chance of the Direct Applicant goes DOWN exponentially as the salary and responsibility goes UP.
For a Sales role, the prospects of a Direct Applicant are even WORSE. The same statistics will apply to the Candidate pool as before but I have to expand the pool to 5 people when you look for Finalists:
- 1 is a Direct Applicant
- 3 are “headhunted”
- 1 is a Referral
And when this is the case, the Referral has more than a 50% chance of getting hired and the Direct Applicant has less than a 10% chance. In the case of sales candidates – I believe these stats are just about right. And they’re justifiable! If you’re considering hiring an unemployed salesperson or sales manager, you should be asking yourself “Why would a good salesperson be unemployed?”
If you have a 12 month sales cycle and an 8 month learning curve, it will take nearly 2 years to get your new salesperson producing consistently. In that 2 years, maybe you’ll pay out close to $150,000 in subsidies.
Using your average margin, how much revenue must be gemerated to offset that subsidy?
How much revenue must be generated to produce a satisfactory ROI?
How long must the salesperson stick around in order to produce that ROI?
To bring it all back together, if a prospective sales candidate (who, for the sake of this blog post is unemployed) has found him/herself in a new sales role every 2-3 years, what are the odds that anyone who is hiring them is going to experience a positive ROI?
When we look at candidates through this lens we find it’s a lot easier to not find ourselves getting “sold” during an interview by someone who has all kinds of great excuses for why “things just didn’t work out” at that last job they were in…
Tags: A-Player, A-Players, bad hires, Baseline Selling, challenges of hiring salespeople, Dave Kurlan, hire better, hiring, hiring manager, Interview, Kurlan, mediocre salespeople, Objective Management Group, recruit don't absorb, Recruiting, recruiting salespeople, Salespeople, talent acquisition, unemployment, unemployment rate, virtual bench
I’ve just returned from the EO President’s Meeting in Dallas, TX and one of the biggest topics that they were discussing was the significance of delivering value to members. The major reason why value is so important: retention of members. Like most organizations and companies, acquiring a new member (or customer) is very expensive and time-consuming. It seems obvious that, once you’ve acquired them, retaining members should be a heavy area of focus for any leadership team. As the discussion continued it began to shift to the age of our members and the risks/rewards of eliminating the ceiling that is currently placed on new members.
I found myself sitting in this large conference room with 100+ other business leaders reflecting on the amount of preparation and time that had gone into evaluating this topic. The most amazing thought I had was that the collective revenues of these 100+ businesses represents the GDP of a fairly significant nation and this was the most important thing on their minds.
When EO was started just over 20 years ago, it was created for Entrepreneurs who were under the age of 40. When I joined EO 5 years ago it was called the Young Entrepreneurs’ Organization (YEO). At the time, the average age of a member was about 37. Today, the age limit of 40 has been eliminated and the average age of a member is now 41. To put it in a more simple perspective: every year that I’ve been part of this organization, the average age has gone up by 1 year. This is quite indicative of our entire population as well as a major challenge for businesses around the US.
Something we’ve been looking at a lot here at Hire Better is directly related to this particular topic. The area of focus for us: as businesses continue to grow and mature, they’re worried about the retention of their employees as well as the age of their teams. Jason Dorsey, widely known by the business word as the GenY Guy, has some incredible data points that he’s been publicizing to business leaders around the world. Here are a few:
- For the first time ever we have FOUR generations working together in the same workplace (GenY, GenX, Baby Boomers and “the Mature” Generation)
- The average life expectancy of a Baby Boomer is about 78 while the “retirement age” is still 65
- GenY’ers are the first generation in history that will likely need to WORK for 65 years (that’s retirement at 87-90 years old)
On top of these points, here are a couple of other really scary ones (if you’re a business leader)
- While Baby Boomers are finally comfortable with email and are actively learning about Facebook, GenY’ers aren’t using those mediums much any more because they’re cumbersome and/or they’re no longer “cool” now that their parents are part of the community
- GenY’ers believe that long term tenure in a role is 13 months. Baby Boomers want to give them employee reviews once a year.
- GenY’ers aren’t really motivated by money as a “carrot” the way most previous generations have been. Why? Because their parents (those same Boomers) have given them a credit card to pay for things like gas, groceries, vacations, etc.
Driving retention, loyalty and performance from the GenY population is becoming a real challenge for businesses around the US. This is a generation that is affordable and hard-working as well as passionate about their work but they can’t be relied on to work diligently from 8 AM to 6 PM every day. They aren’t interested in sitting in meetings to talk about the next meeting. And they’re no longer even “tech savvy” (Jason calls them “tech dependent” because they don’t have any idea how their smart phone works – they just know they can’t live without it).
What in the world are you supposed to do as a business when you wake up and realize that the future of your organization depends on leveraging this new population of workers that you can’t relate to? Here are a couple of quick suggestions:
- Accept that while Work/Life Balance is something that Baby Boomers dream about and GenX’ers talk about, GenY lives it. You won’t be able to keep them around if you expect them to sacrifice their friendships and social time. Create a workplace that inspires them and encourages hard work in short spurts and then downtime to go “be a kid”.
- Let them work in teams as often as possible. This is a generation that was raised playing soccer, baseball and other team sports starting at age 3. They were on tournament teams starting at age 8. When then went to these tournaments, even if they finished in 8th place they all got trophies. If you’re asking them to work solo and independently without praise, they’re not going to stay engaged.
- Start with the outcome and then work backwards to to talk about the steps. This is counter-intuitive to the way most people are used to teaching and also to how our educational system has educated every generation for the last 5 generations. By starting with the big picture and driving universal awareness of the challenges, GenY will embrace the challenge and buy-in to the goals instead of zoning out at step 4 of a 200 step process.
- Give employee reviews all the time – 10 minute check-ins every week or two are significantly more powerful than an annual review. Let this new generation know what they are doing right, give them praise, offer corrective actions and make minor adjustments all the time instead of hoping they’ll be around for their 1st annual review.
Continuing with the theme of evaluating the behaviors of Major League Baseball Teams and trying to tie their contracts, incentives, etc into those of a business, I thought it would be beneficial to look at an interesting article that was just published called, “How One Cy Young Vote Could Be Worth $21 Million“.
Written by Derrick Goold of the St. Louis Post Dispatch, Mr. Goold pulled back the curtain on the Baseball Writers Association of America (BBWAA) by suggesting that they were politically motivated (or de-motivated) when casting their votes for this (and previous) Cy Young award winners.
If you’ve read this blog for any length of time you’ll know that I’m a huge fan of Steven Levitt (Author of Freakonomics). In his blog that he writes for the New York Times entitled “The Hidden Side of Everything” he said:
Most people, given the opportunity, would like to have a say in what other people earn. If someone is nice to me, throw a little extra Christmas bonus their way. If they are rude and surly, how about a 3 percent pay cut?
So I find it interesting that the Baseball Writers of America (BBWAA) recently approved a rule which says that any player who has an incentive clause based on an award voted by the BBWAA (e.g., the Cy Young award) will not be eligible to win that award. The proximate cause of this decision is Curt Schilling’s contract, which pays him $1 million if he gets even a single third place vote for the Cy Young. When he joked about paying off a writer to throw him a vote, that was the last straw.
I understand that the politics of voting for the Cy Young award may not make all that much sense to you if you’re wondering why I’m bringing this up so I’ll get to my point. Topgrading has long suggested a Scorecard by which you can measure the performance of an employee using statistics, accountabilities and accomplishments. This is something that baseball has been doing for over a decade. Granted, it’s a lot easier to measure OPS (On Base Average Plus Slugging Percentage), ERA (Earned Run Average), WHIP (Walks & Hits per Inning Pitched) or VORP (Value over a Replacement Player) than whether an HR Manager was able to improve the coaching skills of middle management, but the idea is the same.
For a baseball player, when millions of dollars are at stake, would you rather have someone demand $10 million per year in guaranteed pay with no performance incentives (hint: the sales guy who wants a base of $150k) or would you be more inclined to sign the player who said, “Pay me less than the market but if I perform, you’re going to need to back a bank truck up to my house”? As a business owner, I’m MUCH more inclined to risk the chance of paying a lot more in the long run to get stellar performance because, if the employee performs at a level a lot higher than what I anticipated, our company will be better for it.
Here are some additional thoughts from Derrick Goold on Adam Wainwright, the Runner-Up for the 2009 Cy Young Award in the National League:
Wainwright’s deal is packed with a two-year option for 2012 and 2013. Both years are triggered at the same time and the base value set for them is $21 million. Wainwright’s two-year option vests like [Matt] Cain’s [a pitcher with the San Francisco Giants]. If Wainwright finishes the 2011 season healthy — i.e., not on the disabled list with an arm injury — then the option vests if he has pitched a total of 400 innings in the previous two years or finished in the top five of Cy Young voting in the previous two seasons.
Consider that for a moment in light of what happened Thursday [the voting for the NL Cy Young].
If Wainwright finishes in the top five of the award in either the 2010 or 2011 season and he finishes the 2011 season healthy, a $21-million option vests for him and the Cardinals. We saw yesterday two voters make two votes that put two pitchers in the top five. That was it. One vote and a healthy arm could equal $21 million.
While I can see the point of Mr. Goold, I’d also argue that paying someone like Adam Wainwright, if he can pitch 400+ innings in the two years leading up to a contract extension and he’s getting votes for the Cy Young, is a VALUE at $21mm. He’ll be about 30 years old (the middle of a Pitcher’s Prime), he’ll have shown stability, he’ll be leading the pitching staff and he’ll have thrown well enough to have earned some recognition.
CEO’s who find themselves worried about Performance-based and Incentive Pay are only worried because they’re incentivizing the wrong things. If you can get your incentives truly aligned with moving your organization in the right direction – they make all the sense in the world.
Earlier this year, Dave shared his opinions on the 5 Steps To Motivation. We Tweeted just this past week about ensuring that you’re worrying less about Motivation as a Leader and more about De-Motivating your employees.
Below are some of Dave’s thoughts. Of note: he suggests that various people react to these in different ways. I found that doing a Communication Builder with my Sr. Team and Executive Assistant was really valuable (thanks to the suggestion of my Mentor Lois Melbourne). Knowing how each of them wants to receive information and how they want to be Praised/Critiqued was really valuable but I still have found that the #1 item on his list is the most valuable. I’ll only (personally) use #2-5 as the situation gets more dire.
“I believe that motivation is very misunderstood. You can’t motivate by being a cheerleader, nor can you motivate by reciting somebody else’s inspirational quotes. Motivation comes from within and you must find out what your people’s internal motivators are. Why are they doing this thing called selling?
The other thing that’s important to know is that everyone reacts differently to motivation and motivation takes many forms. For instance, perhaps you have some people who respond to one of these methods when trying to get them to perform:”
- Challenge them (I have a challenge for you…do you think you’re up to it?)
- Feign that you’ve lost faith in them (Tell them that you don’t think they can do it)
- Encourage them (I just know you can do this!)
- Demand that they perform (You are required to do this)
- Ultimatums (If you don’t do this you’ll be out of a job)
Tags: A-Player, A-Players, Baseline Selling, challenge, Dave Kurlan, demand, encourage, Fortune, hire better, job description, lois melbourne, lose faith, motivate, motivation, Scorecard, Twitter, ultimatum
I’m a HUGE St. Louis Cardinals (and baseball) fan. It struck me with a huge amount of disappointment when the Redbirds announced that they had voided a contract that they signed with a 16 year old from the Caribbean who they had been working to sign for quite some time.
Why would they void a contract after beating out a dozen other teams and offering $3.1mm (a record for the Cardinals in signing an Amateur)?
Because, as it turned out, his Agent lied about the fact that the young man had a degenerative eye disease that was robbing him of his vision. They hid it in the hopes that he could get signed fast enough to just start playing and put the money in the bank.
Yes, I understand that most business owners and hiring managers aren’t dealing with salary numbers anywhere near the millions BUT, if someone’s been unemployed for a period of time, has a mortgage that’s overdue and has bill collectors calling every day, how honest do you think they’re being during their interviews?
Some things that you should be closely evaluating to be sure that you’re getting as close to the truth out of prospective employees during the evaluation process:
- Do your Job Descriptions give away too much about the job? In other words, if it was a personal ad, does it explain too much about your likes and dislikes so that someone could “fake it” on a first date?
- Are your interviews structured and planned in advance? If you’re making up your interview questions on the fly based on the answers you’re getting, are you getting to the meat of what you need to learn about a prospective employee or are you having great discussions about all of their strengths and letting them withhold their weaknesses?
- Are you conducting INTENSE Reference Checks? I’ve gotten a ton of positive feedback from a blog post from a couple of weeks ago about how to dig in during the Reference Process. Without really pushing to talk with previous hiring managers, are you getting the truth from candidates or just their half of the story?
- Are you running Credit History Reports on candidates to evaluate if they’re in such dire straights that they are more likely to tell you whatever you want to hear?
People in tough situations will often be pushed to do things that they normally wouldn’t do. Many times, we’ve seen that this includes bold-faced lies during their interviews and on their resumes. A prime example: just this past week we had an applicant suggest that she had 10 years of Business to Business Marketing Experience. She had such a good story that an inexperienced interviewer probably would have ‘bought’ it. Because the Hire Better Team Member who was interviewing her knew how to dig in further it was discovered that her 10 years were really only 9. And that B2B experience: working as the Office Manager for a Flower Shop that had a local relationship with 1-800-FLOWERS and a $500/month budget for Google AdWords.
Bottom line: expect the best from people but, especially in this kind of economy, don’t just accept what you’re hearing as the truth.
A few months ago I wrote a blog post about how disgusted I was by the news of the Postmaster General and his compensation of nearly $1mm in 2008 even when the USPS lost so much money. The primary reason for my frustration in that post was because of TARP and the restrictions that the Government (which is leaning more and more left every day) wanted to place on incentive-based pay for executives at banks.
A couple of very significant things have happened since that blog post (which was written on March 2nd).
The first: GM, after receiving billions of dollars in federal “loans” because they were deemed too significant to fail (by elected politicians who receive massive support from Unions and the Auto Industry), finally went bankrupt. Anyone who didn’t see that coming back in November simply didn’t want to admit to the harsh reality of a company that was ultimately doomed unless it could shed its massive financial obligations and return to a management structure of fiscal prudence and actually providing a product that people wanted to buy.
GM has stayed in the news because they’ve got a massive overhaul to return to significance and it’s going to take a herculean effort by their new CEO to pull it off. What the government hasn’t bothered to really look at, because of its fear that if they have highly compensated executives at an organization like GM their constituents won’t vote for them, is that Incentive-Based pay, with HUGE performance bonuses, is exactly what their CEO needs. At the end of the day, why is he going to be punished for the sins of his predecessors?
Forbes had a brilliant article written at the end of May by Jack Dolmatt-Connell that you can find here. In it, he suggests that the CEO should have a four-pronged compensation structure that is based on:
- Cash Compensation that is limited to no more than $500,000 in base pay
- Equity Compensation tied directly to increasing the market cap of GM over a long period of time. The argument, if the CEO can turn around a company with a market cap of less than $1B and return it to its former prominence of $18B, they should be justly rewarded.
- Severance & Change in Command: if there’s a crisis, the CEO is an At-Will employee. They’re not entitled to a massive golden parachute if they get fired for cause. However, if the CEO can turn the company around and sell it, they should receive a significant bonus on the money that is left over after the taxpayers are repaid.
- Stock Grants: give them skin in the game that encourages prudence and gives a sense of ownership.
The second: I met with a long-time mentor of mine: the Honorable Carolyn Gallagher. Carolyn happens to be the Chairman of the Board of Governors for the United States Postal Service. I asked her some very blunt questions about the news surrounding the compensation package that Mr. Potter had received as the Postmaster General.
WOW! I was more than just a little surprised by her answers.
Because she had just returned from testifying in front of Congress, her understanding of the topic was very strong. Her argument for the justification of Mr. Potter’s pay was based on these points:
- He’s the CEO of one of the largest Companies (in both revenue and workforce) in America. Add to that, it’s a “quasi for profit” organization that leads all others in the mailing and delivery business.
- Over the past 7 years, he has reduced annual costs by more than $1B per year while facing a reduction in business that is unprecendented in the 234 years of the organization’s existence (15% alone in 2008).
- The pace with which mail volume has declined in the past 18 months has outpaced their ability to reduce costs because of the operational and financial restrictions that the government places on them.
- He’s been responsible for leadership that eliminated 50 million hours of paid labor in 2008 (approximately the equivalent of 25,000 full-time employees). He’s also proposed further cost reductions as well as a contraction of mail delivery from 6 days to 5 (a move that would save nearly $4B per year). That’s quite a bit different from our current government’s perspective of looking at anything but service cutbacks to get our budgets in line.
All of these points were both valid AND significant. They helped me better understand why Mr. Potter was likely under-paid (a mindset I would have never imagined leaving with) in 2008. But none of them had the impact on me that her last point did – and this should both SHOCK and ANGER you as a citizen of America:
“Adding to this unprecedented financial challenge is the requirement passed in the Postal Accountability and Enhancement Act of 2006 that the Postal Service make payments of $5.4 billion or more per year to fund future retiree health care obligations. In fact, if not for this payment, the Postal Service would have earned a profit of $2.8 billion in 2008, an exceptionally challenging year.”
In case you’re wondering, the USPS is the ONLY organization affiliated with the US Government that is required to fund their future retiree health care obligations. While I believe that a model like this is fiscally prudent (though I don’t believe in pensions and retiree health care), it’s ridiculous to think that we could come anywhere close to predicting what the cost of healthcare will be 20 or 30 years from now.
I realized at this point, that our Postmaster General is not only deserving of incentive-based pay, he should be considered as a viable candidate for President of the United States. Not only is he running a massive organization that is profitable during a period of intense market pressures and decline in demand, he’s doing so while having to deal with heavy governmental criticism and oversight that is akin to him having to fight with one hand tied behind his back while at the same time improving customer satisfaction and delivery rates.
To you Mr. Potter and to you Mrs. Gallagher: BRAVO.
You can read the full transcript of the Honorable Carolyn Gallagher’s testimony in front of congress HERE.
Tags: 234 year history, align pay with performance, bankruptcy, barack obama, Carolyn Gallagher, congress, employee retention, fiscal prudence, forbes, fritz henderson, GM, Honorable Carolyn Lewis Gallagher, incentives, Jack dolmatt-connell, Jack Potter, John Potter, pension, performance bonuses, Postal Accountability and Enhancement Act of 2006, postal service, Postmaster General, reduce mail delivery from 6 days to 5, retiree healthcare, stock grant, TARP, testify in front of congress, testimony, united auto workers, United States Post Office, USPS