Inspiring When There’s Less to Invest
In tough times, companies are continually challenged with how to attract, motivate and retain good people. Good thing HOW Online contributor Steve Kerr’s new book, “Reward Systems: Does Yours Measure Up?” (Harvard Business Press, 2009), explores how companies can realign reward systems to improve performance. Kerr also previously gained crucial insight when he led the leadership development centers for GE and Goldman Sachs as chief learning officer.
Now a senior advisor at Goldman Sachs, Kerr has also served on many prominent university business school faculties, including the University of Southern California, where he was dean of the faculty and director of the Ph.D. program.
In our continuing “First Person” series, where leaders give us their firsthand knowledge and experience on various issues, HOW Online asks Kerr: “Is it more important to design effective reward systems during hard times than in prosperous times?”
- Read Part 1 of the series
- Part 2 of the series
Kerr
Steve Kerr: Tough times don’t affect the importance of designing an effective reward system, but they make it more difficult to do so. Money is a great forgiveness reward; that is, in good times, you can overpay people, and if other aspects of the job are unattractive, they may forgive you because the money is good.
As the money dries up and people don’t get the financial returns — or in occupations where large sums of money are generally not available, as is the case with teachers, soldiers, nuns and in non-profit organizations — you have to use the so-called “non-financial rewards to attract, motivate and retain good people. You have to be thoughtful and creative about how you give these people a reason to be excited and stay in the industry.
This is not just textbook theory because if you look at the motivation levels, you find that some of the occupations with the lowest financial rewards typically enjoy levels of motivation that Wall Street firms would kill to have in their own employees. So, clearly, it’s not impossible to do it, and it reaps high rewards when you do it successfully.
This is often referred to as “inspirational leadership.” Dov [Seidman, CEO and chairman of LRN and a HOW Online contributor] makes the same point in his book ["How: Why How We Do Anything Means Everything...in Business (and in Life)"] that I just made: Even when you have good times and lots of money, why on earth wouldn’t you try to inspire people and permit them to be secure about the work and be invested in the importance of what they do — rather than just say, “Here’s a lot of money, don’t worry about the other stuff.” It’s highly desirable in any circumstance, but it becomes particularly critical when the money isn’t there because if you don’t know how to make effective use of non-financial rewards, what have you got left?
Unfortunately, I’m more aware of companies that have used award systems ineffectively in times of crisis, than of ones that have used them effectively. But there are companies, for example, who have the courage to say, “Every recession in history has ended; this one will, too. We are not going to be diverted from our mission.” And these are the companies that have continued to emphasize and provide incentives for customer service, ethical behavior and for treating their fellow employees responsibly.
I worked for Jack Welch [the chairman and CEO of GE between 1981-2001] for a long time. Welch would always say, “In tough times, you need training more, not less.” So unlike most firms, where at the first sign of economic hardship they jettison their professional development and training programs, Welch would tell his people: “I’ve got budget cuts I need from you. You’ve got to give me 10 percent — but don’t tell me you’re cutting research, and don’t tell me you’re cutting training.”
The best leaders continue to treat employees responsibly in hard times and continue to invest in them. In hard times, there’s less to invest, but people are not children. Employees know that there’s less money available for salary, bonuses and perks. They will understand if you tell them, “I’m going to continue to invest in you, but there’s less money in the pot.”
The definition I have in my book is that a good reward system is one that gets you what you want. It’s not about pleasing me. If, for example, you want rivalry among your people, then it’s not an error to reward inter-unit competition. You may be wrong for wanting it, but if you get what you want, that’s not a bad reward system.
For example, the leader of one of the most profitable businesses in GE installed a reward system that promoted fierce rivalries among the businesses he ran. He encouraged competition, and he would embarrass the unit managers who trailed the others in return on investment and operating margins. You might not like it, but the point is it was not a bad reward system because it encouraged the behaviors he wanted to see. Most people profess to want teamwork; however, most people want collaboration, and the mission statements and visions of these organizations usually reflect that — yet they use rewards and measurements that, however unintentionally, discourage teamwork. They employ ranking systems, quartiling, they fire the bottom 10 percent or they grade on a curve. These things are not inherently bad, and they’re not illegal, but why would you use them if you profess to be interested in teamwork?
When you grade on a curve, the students do not form study teams. At a well-known business school, they may hire four new people at the assistant level and then say, “In seven years, one of you may be granted tenure — good luck.” Then you find that these four professors don’t write articles together and don’t pursue grants together — because the reward system has turned them into rivals.
And in hard times, the effects are particularly severe because the limitations on available resources make the zero-sum games more intense. If you start ranking and quartiling people, they are likely to become antagonistic toward one another because they’re competing for what have become very limited resources.
Last 5 posts by Steve Kerr
• Offensive Speech - March 17th, 2008
• Hypocrite or Human? - October 17th, 2007
July 14th, 2009 at 11:13 am
[...] Read Part 2 of the series Kerr [...]