Excerpt from “Talent: Making People Your Competitive Advantage”
The excerpt below is reproduced with permission of the author from: “Talent: Making People Your Competitive Advantage” (Jossey-Bass, April 2008) by Edward E. Lawler.
Lawler is Director of the Center for Effective Organizations at the University of Southern California and distinguished professor in the USC Marshall School of Business.
Named one of the country’s leading management experts by BusinessWeek magazine, Lawler is the author or coauthor of more than forty books; his writings have appeared in Harvard Business Review, Fortune, The Wall Street Journal, USA Today and the Financial Times, as well as many academic journals.
For more on Lawler’s views, read a related interview.
Challenges Facing Executives
One of the biggest challenges facing executives in a Human Capital-centric organization is the distance — real and implied — between the corner office and the bulk of employees. Senior executives often travel a great deal; their compensation packages encourage and facilitate a lifestyle that includes a variety of special perquisites and amenities. Private jets, private offices, country club memberships, executive dining rooms, the list can go on and on.
None of the perquisites that executives typically receive are by themselves necessarily bad or inappropriate, but in combination they can create a major separation between executives and the people who work for them. In essence they can undermine the opportunity for executives to experience their organizations and the external world as others experience them. Executives can end up having little contact with most employees, and as a result, communication is limited. In an HC-centric organization, inadequate communication can be a fatal flaw.
Large differences in rewards between the top and bottom of an organization can undermine the credibility of executives when they try to lead by talking about what “we” have to do to make this organization successful. It also can happen when they try to provide an inspirational message about their commitment to the organization and how others can contribute to it. This is particularly true when they ask individuals to make a sacrifice in difficult times or to give exceptional service to win over customers. As one Home Depot employee put it, commenting on the high pay of CEO Robert Nardelli, “All of us felt that the raises we should have gotten were going into Nardelli’s pocket.”
Consider the distribution of stock ownership. It is one thing for CEOs to talk about how “we are all in this together” when everyone owns stock in the company. It is another for them to talk about it when they have large numbers of options and stand to gain millions of dollars if the stock does well while others have little or no ownership in the company.
Financial ownership and psychological ownership go hand in hand. Managers who are good leaders recognize this and provide themselves with a credible platform when they talk about what people need to do for the organization to be successful. The bottom line is that senior executives in HC-centric organizations need to work actively to minimize the gap between them and their employees.
I believe it is particularly important for the CEOs of high-involvement organizations to remain close to their employees when it comes to rewards and perquisites. High-involvement organizations depend very much on the sense of a common fate for everyone in the organization and everyone being committed to a common goal. As noted, when senior executives profit disproportionately or in ways that are not available to the rest of the organization, it makes it particularly difficult for them to walk the talk of a high-involvement organization.
Customer service organizations, it is worth noting, are a special case when it comes to having a minimal reward distance between senior levels and the rest of the organization. Best Buy, Starbucks, and Whole Foods all have CEOs who recognize this and have kept their salaries relatively close to the rank and file, and as a result, have employees who respect the CEO and the company. As a result of their feelings toward senior management, employees are less likely to feel like second-class citizens and communicate this in their service behavior. They are also more likely to follow the lead of their CEO.
Global-competitor organizations require a different approach to rewards for executives than do high-involvement organizations. Since these organizations are often talent meritocracies that must attract senior management talent, having relatively high rewards for senior managers may in fact be functional. Good rewards at the top can be critical in attracting and retaining the kind of very competent senior management that global-competitor organizations need.
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