PM績(jī)效管理講座

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January14,2008

PerformanceManagement:

EnhancingExecutionThroughaCultureofDialogue

PeterisChiefExecutiveOfficerforamedicalsupplymultinationalthatrecentlycraftedanewstrategytocountercompetitivethreats.Theplanstressedtheneedtocutcycletime,concentratesalesonhigher-marginproductsanddevelopnewmarkets.

Fourmonthsaftercirculatingtheplan,Peterdida“walkaround”toseehowthingsweregoing.Hewasappalled.EverywherePeterturnedpeople,departments—wholebusinessunits—simplydidn’t“getit.”

Firstsurprise:Engineering.Thegrouphadcutproductdesigntime30%,meetingitsgoaltoincreasespeed-to-market.Good.ThenPeteraskedhowmanufacturingwouldbeaffected.Itturnedoutthenewdesignwouldtakemuchmoretimetomake.Totalcycletimeactuallyincreased.“Ourstrategicplanmessageisnotreallygettingthrough,”P(pán)eterthought.

Secondsurprise:Sales.Thenewstrategycalledforashift—emphasizehighmarginsalesratherthatpushingproductdownthepipelineasfastaspossible.ButjustabouteverysalespersonPeterspoketowasmakingtransactionalsalestohigh-volumecustomers;hardlyanyonewasbuildingrelationshipswiththemostprofitableprospects.Salesisdoingjustwhatit’salwaysdone,Peterthought.

Worstsurprise:Evenhistopteam,thepeoplewho’dhelpedhimcraftthestrategy,wasnotstickingtoplan.Peteraskedateammember:“Whyareyouspendingallyourtimemakingsurethenewmachineryisworkinginsteadofdevelopingnewmarkets?”

“Becausemyunit’schiefgoalwastoimproveon-timedelivery,”heanswered.

“Butwhataboutcompanygoals?”saidPeter.“Wecameupwithagoodplanandcommunicateditveryclearly.Butnowhereitisn’tbeingcarriedout.Why?”

Manyorganizationscreategoodstrategies,butonlythebestexecutethemeffectively.FortunemagazineestimatesthatwhenCEOsfail,70%ofthetimeit’sbecauseofbadexecution.“WhyCEOsFail,”byRamCharanandGeoffreyColvin,Fortunemagazine,June21,1999.

Weakexecutionispervasiveinthebusinessworld,butthereasonsforitarelargelymisunderstood.WhyisitthatnooneinPeter’sorganizationwasactinginsyncwiththestrategy?Unlessweunderstandthereasons,wecan’thopetosolvetheproblem.

Imaginesomeonehittingatennisball.Whenthebrainsays“hittheball,”itdoesn’tautomaticallyhappen.Themessagetravelsthroughnervepathwaysdownthearmandcrossesgapsbetweenthenervecells.Thesegaps,or“synapses,”arepotentialbreaksintheconnection.Ifneurotransmittersdon’tcarrythemessageacrossthegap,themessagenevergetsthrough,oritgetsdistorted.Whenthathappens,eitherthearmdoesn’tmoveatall,oritmovesthewrongway.

Creatinga“cultureofdialogue”

Justlikeanervoussystem,organizationsalsohavegapsthatblockanddistortmessages.Thesecrettoeffectivestrategyexecutionliesincrossinghierarchicalandfunctionalgapswithclear,consistentmessagesthatrelaythestrategythroughouttheorganization.Soundsimple?It’snot.Thereasonisthatthe“neurotransmitters”inorganizationsarehumanbeings—executiveteammembers,seniormanagers,middlemanagersandsupervisors—whosejobitistomakesurethatpeople’sbehaviorisalignedwiththeoverallstrategy.Doingwhatittakestoachievealignmentisverydifficult.ItiswhatRamCharancalls,the“heavylifting”ofmanagement,andit’sthekeytoexecutingstrategy.

Threekeystomanagingperformance

Acultureofdialoguedoesn’thappeninstantly,anymorethanafluidtennisstrokedoes.Ittakespractice,persistenceandhardwork.Sohowexactlycanleadersensurethatstrategymessagesgoallthewaydowntheline—thatthetennisballgetshitcorrectly?Thethreekeystomanagingperformanceeffectivelyare:

Achievingradicalclaritybydecodingstrategyatthetop.Manyorganizationsthinktheysendclearsignalsbutdon’t.Insomecases,managerssubordinatebroadstrategicgoalstooperationalgoalswithintheirsilos.That’swhathappenedwithPeter’stopteam.Elsewhere,topteammembersoftenhavetoomany“top”priorities—we’veseenasmanyas100inonecase—whichresultsinmixedsignalsandblurredfocus.Strategydecoderequireswinnowingprioritiesdowntoamanageablenumber—aslittleasfive.

Settingupsystemsandprocessestoensureclarity.Oncestrategyisclear,organizationsmustcreateprocessestoensurethattherightstrategymessagescascadedowntheorganization.Theseinclude:strategy-centeredbudgetandplanningsessions;staffandteammeetingstodiscussgoals;performancemanagementmeetings;andtalentreviewsessions.Dialoguedrivesalltheseprocesses.Eachrepresentsa“transmitteropportunity,”wherestrategicmessagesareconveyedandbehaviorisalignedwithgoals.

Aligninganddifferentiatingrewards.Leadersmustmakesurerewardsencouragebehaviorsconsistentwithstrategy,whichsoundseasybutisn’t.Differentiationisaboutmakingsurethatstarsgetsignificantlymorethanpoorperformers.Butalmosteverywheremanagersdistributerewardsmoreorlessevenly.Aswe’llsee,lackofeffectiveperformancedialogueisakeycontributortodysfunctionalrewardschemes.

Linktocompanyvaluation

Companiesthatmanageperformancewell—GeneralElectriccomestomind—havehighermarketvaluations.Why?Because,moreandmore,institutionalinvestorsviewstrategyexecutionasavitalfactorinfluencingstockprices.

Justafewyearsagoinstitutionalinvestorsreliedalmostexclusivelyonfinancialmeasuresforcompanyvaluations.Now35%ofamarketvaluationisinfluencedbynon-financial,intangiblefactors,accordingtoastudybyErnst&Young.BasedonastudyconductedbySarahMavrinacandTonySiesfeldfortheErnst&YoungCenterforBusinessInnovation.

Thestudyshowedthat“executionofcorporatestrategy”and“managementcredibility”rankednumberoneandnumbertwoinimportancetoinstitutionalinvestorsoutof22non-financialmeasures.JohnInch,amanagingdirectorandanalystatBearStearnsnotesthatinsomesectors,suchasdiversifiedindustrialcompanies,intangiblesaccountforevenmore—uptohalfacompany’svalue.“Youcantakeevenamundaneassetandinjectgoodmanagementandhavesomethingprettystrong,”saysInch.

1.AchieveRadicalClaritybydecodingstrategyatthetop

Thefirststepinsuccessfullyexecutingstrategyisachievingclarityonthetopteam,whichisfrequentlythesourceofgarbledsignals.

LackofClarityattheTop

ArecentHayGroupstudyHayGrouppartneredwithRichardHackmanofHarvardUniversityandRuthWagemanofDartmouthCollegetoidentifythedynamicsoftopexecutiveteamsandtheirimpactonperformance.Fromaninitialgroupof48teams,theresearchersnarrowedtheirstudyto14teams,manyfromlargeglobalorganizations.Eachteammemberrepresentedtheheadofanorganization,amajorbusinessdivision,oramajorgeography.

showsadisturbinglackofclarityontopteams(organizationalclaritymeasurestheextenttowhichemployeesunderstandwhatisexpectedofthemandhowthoseexpectationsconnectwiththeorganization’slargergoals).Thechartbelowshowsdramaticallyhigherlevelsofclarityonoutstandingvs.averageteams.Infactthebiggestsingledifferencebetweengreatandaveragetopteamsandtypicaloneswasinthelevelofinternalclarity.SeeFigure1.

Figure1:OrganizationalClimateandTeams

58%

18%

Figure1:Measuresorganizationalclimatedimensionsforoutstandingtopteamsvs.typicalones.Foreachdimensionofclimateweaskedhowtheteamwasperforminginrealityandhowitshouldbeperforming.Thenwemeasuredthedifferenceor“gap”intheiranswers.Gapsover20%hurtperformance.The“clarity”gapfortypicalteamswas58%comparedwith18%onoutstandingteams.

[ChangeHay/McBerto“Source:HayGroup,Inc.”infinalversion]

AndaLackofClarityBelow

Workersatlowerlevelsstronglyfeelthislackofclarity.Figure2looksatsatisfactionlevelsforworkersplanningtoleavetheirorganizationswithintwoyearsversusthoseplanningtostaylonger.Thisstudyshowedthatakeyreasonpeopleleavetheirjobsisthattheyfeeltheircompanieslackdirection.Evenamongemployeesplanningtostaymorethantwoyearsattheircompanies,only57%felttheirorganizationshadaclearsenseofdirection.

Figure2:Keyreasonswhyemployeesleavetheircompanies

Total%SatisfiedSource:HayGroup,Inc.TheresultsarefromourEmployeeAttitudeSurvey,whichsampledsome300companiesrepresentingmorethan1millionworkers.Oursurveyqueriedmanagement,professionals,salespeople,informationtechnologists,andclericalandhourlyworkers.The“gap”referredtointhetableisthe“satisfactiongap”betweenworkersplanningtoleavewithintwoyearsandthoseplanningtostaylonger.

Satisfactionwith:

Employeesplanningtostaymorethantwoyears(%)

Employeesplanningtoleaveinlessthantwoyears(%)

GAP

(%)

1.Useofmyskillsandabilities

83%

49%

34%

2.Abilityoftopmanagement

74%

41%

33%

3.Companyhasclearsenseofdirection

57%

27%

30%

[NOTE;HIGHLIGHTSECTION3;MAKEITPOPGRAPHICALLY]

Claritymatters

Whydoemployeescraveclarity?Thinkaboutit.Whatcouldbemoredemoralizingthantherealizationthatyourhardworkisnotcontributingtooverallcompanygoals?Employeeswanttodothe“right”thing,buttheycanonlydosoiftheyknowwhattherightthingsare.

“Don’tyouguysrealizethatifwecan’tcutourrefiningcostsbythreecentsagallon,they’regoingtoshutusdown?”hesaid.

“Isthatallyouneedustodo?”repliedtheteammembers,takenaback.Unitedbyacleardirectionandsharedownershipofthecause,teammembersenthusiasticallycutcostsbyfivecentspergallonoverthefollowingyearwhilecontinuingtomaintaingoodsafetyandenvironmentalrecords.

Narrowingpriorities

Havingtoomanyprioritiescanleadtolackofclarity.AeroMexico,forexample,hadworkedwithastrategyconsultingfirmthatdelivereda249reportlistingkeyperformanceindicators(KPIs)formeasuringprogressbytheenterprise.ThegoodnewswasthattheKPIsgavethetopteammetricsformeasuringsuccess.Thebadnewswasthattherewere100ofthem,andtheyweren’tprioritized.

“Itwasclearthatexecutionwouldsufferunlessweidentifiedthemostimportantones,saysAeroMexicoCEOArturoBarahona.“Sowediscussedwhichonesconnectedmostdirectlywithourstrategicprioritiesandwherewewereinthebusinesscycle,andeachteammembersettledonfivechiefgoals.”Bygainingclarityonkeyobjectives,theteamgreatlyincreasedtheoddsthatsignalswouldtransmitclearlydowntheline.

Gettingbuy-inatthetop

Hayresearchonteamshasshownthatit’snotuncommonforteammemberstonodtheirheadsinagreementwhennewstrategiesaresetinmeetings,thengobacktotheirdivisionordepartmentandcarryonexactlyastheyhadbefore.Ineffect,theyendupsabotagingtheplan.That’swhygainingbuy-inisessentialtoeffectiveexecution,anddialogueiswhatmakesithappen.

IBMcreatedanexecutiveteamconsistingofsixPh.D-leveltechnicalleadersatanappliedresearchunit.Theirmission:buildstrongrelationshipswithtopresearchuniversitiessothatIBMcouldrecruitinnovativescientistscapableofdevelopingbreakthroughproducts.TheproblemwasthatthePh.Ds,allworld-classscientists,wereusedtocompetingforresearchdollarsanddismissingeachother'sideastoadvancetheirown.Gettingthemtoworkjointlyandbeheldaccountableforbusinessresultswasgoingtobeverydifficult.

Inthefirstgroupmeeting,thevicepresidentsimplyassignedaccountabilitiestothevariousteammembers."Icouldseethescientistsdiggingintheirheels,saysHarrisGinsberg,aninternalleadershipconsultantwhoattendedthemeeting."Noonewasgoingtodictatetothemwhattheyshoulddo."Evenifthey'dsaidyestotheVP'sdirectives,addsGinsberg,theywouldneverhavefollowedthrough.

Ginsberg,whohelpsIBMbusinessunitsclarifyandexecutestrategy,knewthekeywastogetthescientiststalkingtoeachother.Sohecoachedthevicepresidenttochangeherbehaviors.Ratherthanhandoutdirectives,hesuggestedwaysshecouldstimulateteamdialogueabouthowtomeetobjectives.Ginsbergalsocounseledotherteammembersabouttheneedfora"consensusprocess"onaninterdependentteam.

Theyall"got"it.AtthenextmeetingtheVPsaid,"Ourmandateistocreatebreakthroughproducts.Withoutaccesstotalentatthetopuniversities,wewon'tsucceed.Howarewegoingtogetit?"Atfirst,Ginsbergrecalls,shemetsilence.Finallyoneteammemberraisedherhand.Shewaswillingto"getouttheretotheuniversities,andbemorevisible,gooutwiththerecruiterandtheseniorhumanresourcespeople,"saidGinsberg.Shealsoagreedtohelpsomeup-and-comingscientistslearnhowtodeveloprelationshipswithuniversities.

Asecondteammembersaidhewould"helphermakesomecalls."Theicewas

brokenandalltheteammemberseventuallytookongroupresponsibilities."It

wasallaboutdialogue,"saysGinsberg."Untiltheindividualleadersembracedtheunifyingelementsofthestrategyforthegoodoftheenterprise,theyonlyattendedtotheirownmission.Thedialoguehelpedthembuy-in,agreetosomesharedactivities,andbegintoworkmorecollaboratively."

2.Setupsystemsandprocessestocreateclarity

Whyisexecutingstrategysodifficult,evenwhentheplanisclear?Becausegoodexecutiononlyhappenswhenemployeebehaviorisalignedwithstrategy.Andmanymanagerscan’t,won’tordon’tcreatethe“transmitteropportunities”requiredtogetpeopletodotherightthings.Managers:can’tbecausetheydon’tknowhowtotalkwiththeirsubordinatesaboutchangeand/orpoorperformance;won’t,becausetheyfindituncomfortabletogivecandidfeedback;or,simplydon’trealizethatsuccessfulstrategyexecutionwillneverhappenwithoutongoingperformancedialogue.

Partofthesolutiontothisproblemiscreatingsystemsandprocessesthatforceperformancedialogue.GeneralDynamicsDefenseSystems(GDDS)inPittsfield,MA,isonecompanywherecreatingsuchsystemshascontributedtodramaticresults.From1999to2001,attritionamongitsvaluedsoftwareengineersdroppedfrom20percentto2.4percent.Uniongrievancesdroppedfrom57tozero,savinghundredsofthousandsofdollars.And,bestofall,earningsandprofitmarginsdoubled.

WhatGDDSdid

In1999the$200millionplusdefensecontractorchallengeditsemployeestoimprovethecompany’snegotiatingleverageonbids,andtherebyincreasemarginsandprofitability.Toaccomplishthisgoal,seniormanagementdirectedalldepartmentstochaseoutcosts,andcreatednumerousprocessestotransmitthecost-cuttingstrategydownthemanagerialranksrighttotheshopfloor,whichiswheretheyfeltmanyofthebestcost-cuttingideaswouldcomefrom

CarmenSimonelli,directoroffacilitiesandsecurity,sayshisdepartment’sgoalwastopushlaborcosts5percentbelowbudget,witha“stretch”goalof6percent.Thatwasambitiousgiventhatdirectappliedlaborcostshadbeenrunning10-15percentoverbudget.ButSimonelli’steamslashedappliedlaborhourstoanunthinkable20percentbelowbudget.Annualsavingsamountedtoabout$440,000ona$2millionbudget,ornearly$10,000perworker.

Howdidtheydoit?Thekey,Simonellisays,wastheprocessesthecompanyputinplacetoenhancedialogueandcarrythemessagetotheshopfloor.Forexample:

TheLearningMap

Thecompanymadeiteasyforemployeestounderstanditsbroadgoalsbycreatinga“l(fā)earningmap,”whichgraphicallyoutlinedhoweachdepartmentandteamlinkeddirectlytocoreobjectives.Allemployeessawataglancehowtheirjobsfitin.SupervisorsandassemblersinSimonelli’sgroup,forexample,couldreadilyseethatbyreducingappliedlaborhoursinaproject,GDDScouldincreasemargins,shortendeliveryschedulesandraisethechancesforwinningnewcontracts.

TheScorecard

ManagersanddirectreportsatGDDSmeetoneononetocreateScorecards,whichsetoutfivetosevenpersonalannualgoals.Forexample,thegoalsforshippingandreceivingsupervisorTomMolleursincludedplanstocaptureallincentivepaymentsforearlydeliveryandtocutdirectcosts5%.Onceamanagerandsubordinatereachagreementgoals,theybothsigntheScorecardasifitwereacontract.Fromtheworker’sperspective,thiswasadramaticshift,saysNewell“Tom”Skinner,atthetimedirectorofproductdelivery.“Inthepastwejustsetthegoalsandbeatupemployeestotrytomakethem,buttheyprobablydidn’tevenknowwhywehadthatgoalinthefirstplace.”

Scorecardsare“transmitteropportunities”thatclarifyexpectationsandlinkday-to-dayactivitytocompanygoals.Andtheywork.Molleur’sgroupendedupcuttingdirectcostsby50percent—notjust5percent.Whatwasthekeythingthatmadeithappen?Molleurspointstohisweeklyprogressmeetings.Whentheywerebehindschedule,Molleursusedthemeetingstomakesuretheworkersunderstood,throughtheLearningMapandScorecardsandotherprocesses,howmeetingorbeatingdeliveryschedulescouldincreasecompetitivenessandwinmorecontracts.

Topmanagementdidsimplethingstomakesurestrategymessagesweregettingthrough.Forexamplethepresidentheldmonthly“pizzameetings”witheveryonewhosebirthdayfellthatmonth.Atthese“transmitteropportunities,”hewouldaskattendeespeopletolisttheirtopthreegoals,andtheirboss’topthreegoals.Withinmonths,everyonecouldanswerthequestions.

Wheneffectivedialoguepushesstrategicimperativesdownwardinanorganization,extraordinarythingshappen.Skinnerextendedanopeninvitationtoanyemployeewhowantedtoattendhisweeklybudgetmeetingwithhissupervisors.Onedayanassemblershowedupandsaidapartdesignwasforcingassemblerstoworkbyhandwith“dozensoftinyscrews,lockwashersandnuts.”Skinnerhadtheassemblermeetwithprocesscontrolengineersforaredesign.Theresult:ajobthathadtaken12hourswascuttofour.“Thebestideascomefromthepeopledoingthejob,”saysSkinner.Oncethe“conversation”gotstarted,ittookonmomentum.Soon,peoplewerecomingintoSkinner’sofficewithoutwaitingfortheweeklytodiscussmisalignmentofstrategyandbehavior.Workersthemselveswerecreatingtransmitteropportunities!

It’saboutbehaviorchange

Sometimesyouhavetogetitwrong,thenmakecorrectionsthroughfeedbackanddialogue,beforeyougetitright.OneNorthAmericaninsurancecompanyembarkedonanewstrategytoexpandsaleswithexistingcustomers.Thepresidentcreatedninecorevaluestatementsandbroadcasttheideasrepeatedlyorganization-wide.Soon,everymanagercouldrecitethembyheart.Employeesevenhadcardswiththecore-valuestatementsrightattheirdesks.

Themessage,however,wasn’tsinkingin.Anoutsideconsultantsawoneofthevaluestatementsonanunderwriter’sdeskthatread“Neverknowinglyundersellacustomer.”Buttheconsultantlistenedtoseveralofhercallsandrealizedthatsheconsistentlyfailedtoexplorecustomerneedsortrytoup-sell.“Thecompanyhadtoldherwhattodo,butdidn’tfollowthroughwiththenecessaryrationaleandappealsthatwouldresultinbehaviorchange,”saystheconsultant.“Asaresult,herbehaviorwasoutofsyncwiththecompanystrategy.”

Sotheinsurerputtogetheratrainingsessionandcoacheditsunderwritersonwaystoexplorecustomerneedsandbroadenthesale.Whentheconsultantvisitedthesameunderwriterafewmonthslater,henotedthatshewassendingbirthdaycardstocustomersandcallingduringtheyear—notjustatrenewaltime—toidentifyunfulfilledcustomerneeds.“Itwasonlyafterrepeateddialogue,includingfeedbackandcoaching,thattheunderwriter’sbehavioralignedwithcompanygoals,”explainstheconsultant.

Figure3:Thecoachingstyleontopteams

[EDITOR’SNOTE:Verticalor“Y”axisneedstobelabeledas“Percentindicating”

Cutline:Teamsthatrelyona“coaching”managerialstylegetbetterperformance—percentageofteammemberswhoobservedtheteamleaderusinga“coachingmanagerialstyle.

Creatingopportunitiestotransmitstrategydown

Organizationscommittedtoexecutingstrategydeviseinnovativewaystomakeconnectionsandcirculatekeymessages.Alberto-CulverNorthAmerica,the$600milliondivisionofa$2.5billioncompanywhoseprofitstripledin1994-2000,chose70“growthdevelopmentleaders”(GDLs)fromalllevelsofthecompanytocreateclarityaboutstrategy.

Onestrategicgoalwastorecruitbettertalent.TheGDLsmovedthroughtheorganizationtoseewhatpeoplewereactuallydoingtomeettherecruitmentobjectives.Theyfoundseriousdisalignmentbetweengoalsandbehaviors,saysJimChickarello,groupvicepresidentofworldwideoperationsandoneoftheGDLs.Forexample,whenjobcandidatescameinforinterviews,nobodygavethemabasicoverviewofthebusiness,Sometimescandidateswouldbeleftstandingaroundbecausehand-offsbetweenvariousinterviewerswerepoorlycoordinated.Andnoonehadconsolidatedinterviewerevaluations,sotherewasnocentrallocationwhereAlberto-Culvermanagersseekingnewpeoplecouldgetasnapshotofallcandidatesthecompanyhadinterviewed.

“Hand’s-off”managementmeansnotbeing“on-message”

Foryearsexpertshaveemphasizedtheimportanceofdialogueinperformancemanagement.Buttoomanymanagersavoidit.Oneveteransaysannualperformanceappraisals“arelikedeliveringanewspapertoahousewithagrowlingdog.Youthrowthepaperontheporchandgetawayasfastaspossible.”

“Managersdon’twanttodealwithconfrontation,”saysCharlotteMerrell,seniorvicepresidentforBoston-basedJackMortonCompany,aleaderineventmarketing.“Evenwhenemployeesarenotdoingtherightthings,they’reusuallyworkinghard.Managersareconcernedtheymightdemoralizetheemployeeorcausethemtoleave.”

Infact,theexactoppositeistrue.Employeesgetdemoralizedwhentheydon’tgetcandidperformancefeedback.Whenitcomestoannualperformancereviews,theissueisnotwhatgoesunsaidonthedayofthereview,butwhatgoesunsaidtheother259workingdaysoftheyear.Ironically,withtherightkindofperformance-baseddialogue,managerscouldeliminatetheonerousannualperformancereviewaltogether.Inatruecultureofdialogue,feedbackisgivencandidlyandconsistentlyinsmalldoses—likeanIV—andtheannualreviewbecomesanon-event.

Don’toverlookthepeoplefactor

3.Makingrewardscount

Strategyandexecutionsignalsgetdistortedwhentopteamslackclarityandwhenmanagerslack—ordon’tusecorrectly—systemsandprocessestoforceperformancedialogue.Wrong-headedrewardpoliciescompletethetriple-whammythatcripplesstrategyexecution.

AligningRewardsWithStrategy

Itsoundsobviousthatrewardshavetobealignedwithstrategy.Infacttheideathatacompanywouldrewardbehaviorthat’s“outofsync”withthecompanystrategyseemsludicrous.Butithappensallthetime.Thereasonisthatcreatingrewardsystemsiscomplex,andthecriticalimportanceofreward,whichisjustonepieceofthestrategicequation,isoftenoverlooked.

Ahealthcareinsurancecompany,forinstance,wantedtoimprovecustomerservice,soitinvestedheavilyinaprogramtotraincustomerservicerepresentatives.Therepslearnedbettervoicetechnique,interviewingskillstoferretoutcustomerneeds,andupsellingskills.Butthecompanykeptthesamerewardsystemasbefore,basingincentivepayonthenumberofcallscompleted.Whenmanagementgotitsfirstsetofcustomersatisfactionsurveys,theywerebleakreading.Customerwidelyagreedthatalthoughthestaffwascourteous,itwasremarkablyunhelpfulinresolvingproblems.Why?Because,asonerepsputit,“Ifwespendmorethanfourminutesonacallwewouldnevergetourbonus.”Thestrategyrequiredthatrepsengageinlonger,morein-depthconversationswithcustomers.But,asthereppointedout,thedysfunctionalrewardsystempunishedrepsfordoingso.

BeforeAeroMexicohadclarifieditsstrategy,ithadarewardschemethatunintentionallyrewardedthewrongbehavior.Pilotsgotmeritpaybasedonon-timearrivalrecords.ThisincentivehelpedgiveAeroMexicothebeston-timerecordofanyairlineinNorthAmerica.Butthisgoodoutcomecamewithunintendedconsequences.Pilotssometimesleftthegatebeforescheduleddeparturetimestoensuretheirbonuses,leavingpassengersstrandedandangry.AeroMexicolaterchangedthekeygoaltooverallcustomersatisfaction,withon-timearrivalasjustonecomponent.Continualdialoguepreventssuchmissteps.

Differentiatingrewards

Standardmanagementtheorysayshigh-performingworkersshouldgethigherrewardsthanaverageorbelow-averageworkers.Butatmanycompaniesitrarelyworksthatway.Figure4showsthenarrowdifferenceseparatingthemeritpayofhigh-performers—stars—fromtheaverageinaHaysurveyof75U.S.companies.

Figure4:AverageMeritIncreases:2001Source:HayCompensationReport,involvingsome75companiesintheU.S.

2001

Increasetohighestperformers(Stars)

6.07%

AverageIncrease

4.10%

Difference

1.97%

(Cutline:Despiteallthetalkabouttheimportanceofdifferentitationinrecentyears,organizationsstilldonotdifferentesalaryincreasesverymuch

AHayEmployeeAttitudesurveyshowsthetragicconsequencesoffailingtodifferentiaterewards.Insurveysconductedat335companiesworldwide,only35%ofemployeessaidtheybelievedthey’dearnmoreiftheyimprovedtheirperformance.

Figure5:Ifmyperformanceimproves,Iwillreceivebettercompensation.

[EDITOR’SNOTE”Verticalor“Y”accessneedstobelabeledas“Percentindicating”;Series1andSeries2mustberemoved.Also,scaleneedstobe1-100]

Top-performingcompaniesbelievethatwell-differentiatedrewards—evenforcedrankingofemployees—leadstobetterstrategyexecution.FormerGECEOJackWelch,forexample,saysinhismemoirthattopperformers—“TheAs(thetop20%)—shouldbegettingraisesthataretwotothreetimesthesizegiventotheBs.Bsshouldgetsolidincrease