An organization consists of people; people are all different. For an organization to function effectively, it must fulfill the needs of the people in it--workers, supervisors, managers--and the people that work with it--customers, suppliers, financiers, regulators.
[[[ 12 -- Different people looking for different things ]]]
People are attracted to work they like, and organizations they like. Fortunately, while all people are different, there are strong consistencies between what people like to do and their motivations and aptitudes. An extreme example of a consistency is that very few acrophobes work as window washers on skyscrapers. There are also many subtler and much more important consistencies.
Beyond this, work affects people. They will pick up habits and attitudes that let them do their work better. Software developers, for instance, tend to be quiet, concentrated, very analytic people. These traits are emphasized by the nature of the work--it is repetitious, concentrated, logical detective work that emphasizes exploring all possibilities. A person doing software development will tend to be this way while they are doing the development, even if they are not that way at other times.
Sales people, on the other hand, tend to be expressive and very time-conscious. Again, these traits are emphasized by the nature of the work. It consists of meeting people, listening, coordinating, recommending, and generating enthusiasm and a sense of urgency. A person selling will tend to be this way while they are selling even if they are not at other times.
If a person moves from software development to selling, their personality traits will adapt to that change. For example, when I was chief salesman for Computerland, I started remembering people's names after hearing the name only once or twice. Before and since then, I'm one of those people who has trouble even remembering my own kids' names. Conversely, when I get deep into a software project, I turn into a "spook". I walk around glaze-eyed and become nocturnal. The kids start forgetting my name because they never see me anymore.
People are habitual: when they have learned how to do something well they keep doing it the same way because it becomes easier and faster the more they practice. Work habits, motivations, and personality traits are also habit-forming for the same reason. It is easier to act and think as we have in the past than it is to change. "We are what we eat" is a common expression for diet enthusiasts, I would like to add my own version dedicated to behaviorists:
"We are how we act."
People all act differently. This is due to a healthy mixture of different in-born traits, mixed with many unique experiences, and leavened with the different perspectives of age.
People change. They change with their work; they change with age and experience; they change as their place in society changes (for instance, getting married and starting a family makes for big changes). As they change, people's personality traits and motivations change. Many technical people, for instance, move from technical work into sales and management positions as they age. As they do, their personalities, work styles, and motivations change to match their new positions.
As a result every person in an organization is a complex overlay of: experiences at different jobs, different habits, different personality types, and different motivations.
Given the complexity of backgrounds, it is not surprising that all people want and expect different things from the organizations they work for. As our society becomes richer, we can expect it's inhabitants to become more and more diverse. As they become so, the organizations that make up society will have to make themselves attractive to more diverse people than they have in the past. Organizations dealing with pioneering technologies in particular face this challenge today because they work with the newest class of worker--knowledge workers--and because they are growing rapidly so they attract people from many different backgrounds.
Organizations have done some adapting to different motivations. We don't compensate everyone in the organization the same way. Salesmen, for instance, are often paid differently than managers; managers and supervisors are paid differently than floor workers and laborers. But organizations could be doing a lot more to adapt compensation plans. Most still axiomatically tie the compensation to the job title. For instance, most consider it intolerable for a Supervisor to make more than a Vice President. Even if they will tolerate it, few will talk about it.
Let's examine the basic methods of compensation available to an organization from the organization's point of view. Then we will look at them from the recipient's point of view.
From an organization's point of view, compensation is an expense that must be paid to gain a worker's production, loyalty, and initiative. It is a trade, and the organization is looking for the least costly combination of expenses to attract the people it needs to perform its function. Compensation to the organization looks like various combinations of the following: piecework, hourly, salary, perks and benefits, deferred compensation (including equity participation), and specific incentives.
Piecework is the most primitive form of compensation. It is in many cases, the easiest to account for and the least subject to abuse. Its advantage to the organization is that it holds labor cost per unit constant over a wide range of production rates, production can be easily ramped up or down, and, in theory, the system promotes maximum production out of each worker.
The practice is not well-suited to situations where production depends heavily on team cooperation--where it is impossible to separate out a single individual's contribution to production. But its biggest disadvantage is that it's hard on morale. Piecework engenders no lasting bond between a person and the company. There is no incentive for long term commitment (in terms of compensation) for either the company or the employee, so people on this kind of compensation plan move easily from one organization to another.
This kind of compensation is logical for occupations like hand-picking produce where there is little training involved and neither the employee or the employer want to make a long term commitment. But, curiously, it is also the compensation used often for a much more sophisticated group: company salesmen. The curiousity of this choice is that here is a group that is quite important to the company. A group upon which a lot of time and effort is lavished, and yet they are compensated in a way that says "we have no committment in you. If you don't produce either steadily or extravagantly, we don't want you." This implication is further emphasized by the various sales contests and perks that are part of a saleman's usual compensation package. Standard packages are ruthless on the bottom 75% of most sales forces. It should not be surprising that sales forces tend to be quite volatile: they are compensated as though they are.
Hourly wages are used where a job requires enough cooperation with others that it can't be easily pieceworked or where the job changes functions so frequently that output is hard to measure.
Hourly compensation is easy to measure, but it is not as easily tied to production as piecework. There is more long-term commitment here than in piecework, but basicaly a worker is being paid for work done now, so there is still not a lot of commitment to the organization being generated by the compensation.
Salaries are offered where more initiative is expected from an employee than is expected from an hourly or piecework employee. There is also more commitment expected. The pay is not linked directly to production, so there can be more lapse between payment and recognized reward to the company.
Salaries can create a lot of mutual commitment between employee and employer. Neither knows exactly what has been bought, but both trust that the deal has been good.
A salary should cost a company less for an employee of particular qualifications than piecework or hourly. This is because the company is shouldering more of the risk and providing a very desirable feature for many (but not all) workers: a steady, predictable income.
Perks and benefits satisfy the social and ritual needs of a person. From the company perspective they are a whole bunch of unknowns. Some will be important, some will not. Some will work well, some will cause tremendous problems. Some will do both. They are important, but devilishly hard to predict or figure out. They are hard because they are usually non-standard, and not talked about a lot. How important is a club membership to a top executive, for instance? How much trouble is risked if that club is a men-only club in these days? How important is a free hamburger now and then to a short order cook? How much trouble will he get into if the boss finds out? How much will it affect employee morale when they watch the grocery store manager tote his own groceries home? How will the owners of a company react to the acquiring of a company airplane? These are just a few examples of how touchy they can be.
But, the people that get them, love them--especially if they are the first ones to think of them. They offer great ego boosts and they are great enthusiasm extenders. So that is why in spite of their problems they survive.
When an employee earns something, but is not paid until much later, this creates a great deal of commitment between company and employee. This is an ideal compensation when both the company and the employee want to be mutually committed for a long period. It makes things like long-term training and sabbaticals look like reasonable investments in a person.
Deferred compensation includes things like retirement plans, pensions, and profit sharing. A company dealing with deferred compensation faces two problems. The first is keeping the cost down while actually committing to something. The temptation is to keep the cost down by committing to nothing--such as enacting a pension or profit plan that doesn't vest for many, many years. The second is that not all employees are so future-oriented that these plans are important to them. For those that are not, whatever expense incurred is wasted--it will cause no increase in commitment.
These are compensation plans that are directed towards specific goals: sales quotas, production goals, ROI (Return on Investment) goals, etc. Their intent is to improve productivity by giving managers a specific goal to shoot for. They are powerful tools, very flexible, and directable towards almost any measureable standard, but they must be used carefully for they are easily abused.
In practice these plans act like sophisticated piecework compensation. They don't engender any company loyalty, and they can be hard on the morale of managers that don't make the goals, especially if they see another manager making his goal by sacrificing cooperation with other departments.
[[[ 13 -- Charateristics of Compensation ]]]
An organization is composed if individuals. It is individuals that do the work of the organization. It is individuals that must received the benefits the organization offers and turn them into tangible or intangible benefits to themselves. Let's review how this change in perspective changes how valuable various forms of compensation appear to be. Let's examine performance incentives in particular.
Many organizations try to enhance the performance of their managers by having part of their compensation tied to meeting certain specific goals--production managers getting paid a bonus for increased production or reduced burdened costs; publications managers for staying under budget; general managers for keeping the ROI (Return On Investment) high.
These plans are very effective. They send a very clear message from the company controllers to the managers about what they want accomplished. The problems arise because a company's goals are generally broader than the compensation incentives enacted. The problem becomes acute when the company's goals or market situation change and the incentives are no longer in line with what the company needs to accomplish.
For instance:
As you see, these very strong incentives, unless properly applied and monitored, can create a marked divergence between company and personal interests--the exact opposite of what they were intended to do. As my New York aunt would say, "Better this employee should have been collecting a straight salary than to give him silly goals that make him fight with his own common sense. (It was a man, dear, wasn't it? They wouldn't do anything that silly to a woman, would they?)". If incentive plans tied to specific performance goals are used, they must be monitored closely, and both the managers and management must expect them to change frequently.
This is an example of how a compensation plan can look different from an employee's view than from the organization's view. Trying to reach an employee and get him or her to perform effectively is called movtivation. Lets now take a longer look at motivation in general.
A person looks at an organization as a way of trading skills and labor for the necessities and pleasures of life. Some of these necessities and pleasures are extrinsic to the organization, like providing food for the table: some of these are intrinsic, like satisfaction of being president of a multi-million dollar corporation.
A person looks for an organization that can provide him or her with a satisfactory combination of intrinsic and extrinsic compensation. It may not be the optimum combination, because it takes a lot of effort to change from one organization to another, but it will be a satisfactory one.
In recent years there have been many people studying motivation scientifically. One of my favorites is Fredrick Herzberg. He has written that there are two kinds of motivation that a person is sensitive to, and that these two factors are independent of each other. The first kind are factors that need to be present for a person to be happy, and the second are factors that actually make a person happy. The two are different. Herzberg calls these hygiene factors and motivation factors. Air, for instance, is a hygene factor. We take it for granted, but without it we don't function. Sunshine, on the other hand, is a motivation. Being able to lay out in the sunshine on a sandy beach basking in a fresh sea-breeze makes us feel good. Herzberg reduces all motivations into components of these two categories.
I see two major weaknesses with Herzberg's hypothesis. First, why stop at two orthogonal continuums? Why not more? Why not a continuum for something like, say, patriotism?
Second, strong Herzberg "motivators" will mask problems with "hygiene." Look at the terrible conditions people have to endure when enlisting and fighting wars, or even going on a Boy Scout outing. The hygiene factors are rotten, but participants don't complain--if they've had an exciting and fulfilling time while on the trip. So here is
When there is dissatisfaction, it's expressed first as complaints about hygiene -- even though hygene may not be the cause of the complaint.
Does fixing the hygiene stop the complaints? Sometimes, but solving the motivational issues that were the root of the complaint may also solve the problem, and in a much more effective way.
In terms of motivation the big difference between Business and War or Boy Scout outings, is how long the situation is supposed to endure. Boy Scout outings last a few days. Wars are supposed to last only a few months (and never through Christmas). Jobs are supposed to last for many years. The longer the expected time frame, the more important hygiene matters become. In marriage and jobs-for-life, hygiene issues are paramount.
[[[ 14 -- Motivation/Hygiene ]]]
Each of us as people has differing needs and desires. And each of the people studying motivation has come up with their own list of important considerations. Maslow was another person who studied motivation. He came up with a different way of describing our needs. He described them as levels of attainment: security, social, ego, and self-actualization, and his list of motivators has spread even more widely than Herzburg's. Maslow has a wide following in popular science and sales circles.
But Mazlow's list also has it's problems. According to Mazlow each item on the list must be taken up in turn. A person starts solving security needs. When those are all taken care of, then the person moves on to solving social needs. The problem with this theory is that people in practice tend to move around on the list and solve problems at various levels of the hierarchy in an almost random fashion. Consider the person trying to decide between installing a burglar alarm system--which satisfies a security need--and taking French lessons--which for most Americans is self-actualization. According to Maslow, there should be no question deciding which to buy first since security is a more basic need that self-actualization, but I know of a lot of people who bought burglar alarms after taking their French lessons. Basic Maslow doesn't take into account the concept of marginal utility as part of the motivational mix.
[[[ 15 -- Maslow's Hierarchy ]]]
Now the purpose of the above discussions was not to discredit the works of Herzburg or Maslow, but to point out that there is still a lot about motivation that is unexplaned. Science in these areas is still quite soft. And while it is so soft, I would like to add my impression.
Notice that the needs presented by Maslow and Herzburg bear little or no relation to the job to be performed by the individual for the organization! From a motivational standpoint there is no reason why compensation can't be tailored directly to the needs of the person receiving the compensation rather than matched to the job function. This is important because one of the prime goals of an organization is motivating its members. If the organization feels it must tie compensation tightly to the job, it is missing a motivational opportunity.
Lets look at a couple of examples of what people need, and divorce it for the moment from what they are doing.
Examples: Joe Yuppie and Frank Mormon
Let's take a pair of stereotypes. I will use stereotypes for the very reason it is not good to rely on them exclusively when dealing with real individuals--they let me say a little and let you, the reader, extrapolate a lot from what I say.
Let's examine how their motivations are different, and how the organization they work for could adapt its compensation plans accordingly. Let's presume our two stereotypical workers are Joe Yuppie and Frank Mormon.
Joe is 25. He just graduated in Electrical Engineering from State U, and rents a studio apartment from his uncle. He is thinking of getting married (someday) and has a passion for computers, cars, and skiing. His skills are in demand, so he expects to get paid well, but his basic living expenses are very low, so most of his income is purely discretionary.
Frank is 35, married, living in suburbia, and supporting a wife and four kids. He is paying for his house, saving for the kids' education, and, thanks to the loving attention of his wife and church-going neighbors, he is more into quiet weekend parties at home than raising hell at singles bars.
Both Joe and Frank are intelligent, aggressive hard workers. Both are expected to perform meaningfully for their company. But, there are vast differences between them, and what is going to motivate them.
Joe is going to be present performance-oriented, regardless of what position he holds with the company. He is new to the work force. He is learning a lot, and he needs enough supervision to make sure he is learning the right lessons. He may stay a while with the company, but he may not. His primary interest is self-advancement and self-achivement--Right now! He is also a risk-seeker at a risk-seeking stage of life. Retirement is not high on his list of concerns. The ideal compensation package for Joe might look something like this:
Company car (Corvette or BMW)
Comparatively small salary plus potentially big semi-annual bonus based on company sales or personal goals achieved.
Health Insurance
Time at company condo at Snowbird if he finished a big project on time.
Company-paid vacation to Cancun if he finishes early.
Frank, on the other hand, has several fixed obligations to meet: house payments, kid's education, supporting his folks. He's older, and he's worked longer. He knows the ropes and can work on his own. He's also looking further into the future--at retirement. His ideal compensation may look something like this:
Comparatively large salary
Comprehensive insurance package
Deferred compensation to cover kids' education
Hefty retirement plan
Scholarship program
Note that neither of these plans depends upon what Joe's or Frank's duties at the company are: they are based on the needs and motivations of the individuals. Note that nothing has been said of the total amount of compensation -- the goal of this exercise was to optimize the way compensation is delivered to match individual needs.
As a result of this optimization Joe's package looks a lot like a salesman's compensation package because he is willing to take a lot of risk -- risk-taking is part of his current life-style. Joe could be a salesman, an engineer, or a janitor, but this mix represents best how he would like to be compensated. The same applies to Frank's compensation plan. Frank could be the sales manager, floor worker, or president, but he's at a point in life where he's got plenty of risk being generated just by raising his family--he doesn't need his compensation plan to add more. He wants steady, plannable, income including income earmarked specifically for his kids' education--these are his motivational hot buttons.
Conversely, when compensation is determined only by the job title or function, we direct people towards or away from certain jobs. Frank would shy away from the sales manager's job, and Joe would be attracted to it. Traditional salesmen's compensation -- commission and perk oriented -- attracts risk-oriented, present-oriented people, regardless of whether or not they are doing their best for the company when they are being a salesperson. If compensation is more flexible and tied to the person's needs and motivations, then they will be more flexible about where they work, and should work more profitably for the company because they are better motivated.
Many companies have balked at doing more with creative compensation because they have felt it would be too expensive, and many because they didn't know what to expect from it in the way of results. Further, compensation acts in many ways like a highly-regulated industry. It suffers from constant vigilance by the IRS, EEO, other government organizations, unions, stockholders, and numerous other interested groups. Current practices reflect the melding of a long standing series of stereotypes about how compensation should be structured within limits set by all the vigilante organizations watching for improprieties.
Allowing these presumptions to continue unexamined has been expensive to organizations because "competitive" compensations--the catch-phrase touted by all personnel departments when they are recruiting--fit no one well. Thus workers are not as fully motivated as they might be. The stereotyped compensation also tends to determine where people will work in the organization. It presumes, for instance, that a good sales person will want to work for commission. If a person of good potential doesn't want to, the organization will never find out what they are missing because the person will work somewhere else in the organization.
Conversely, a person with mediocre selling abilities and strong technical strengths may be tempted into a selling position by the promise of earning enough on commissions for a Corvette in the first year on the job. Once into the program the person discovers that the Corvettes only go to those with outstanding sales abilities, and these take some time to develop. The person gets discouraged and leaves the company under a cloud. The compensation plan has cost the person and the organization what could have been a strong fit in the engineering area, and even a mediocre fit in the sales area.
One veneer that has worked well in overcoming the problems caused by too-specific compensation (as well as numerous other problems) is sublimation. Sublimation is the process of overcoming problems caused by entrenched interests and procedures through providing a "higher" cause to work for. "God's Work" (especially as lampooned in the movie The Blues Brothers), working to "Beat the Hun" or "Kill the Jap" during WWII, are examples of sublimation--getting people to cooperate who would otherwise not feel it worthwhile to do so. In Herzberg terminology: it is using strong motivation factors to mask weak hygiene factors. Sublimation should always be part of an organization's motivation, but it works best to the extent that participants can be convinced there is a major crisis at hand and that reaching an easily defined goal will end the crisis. Jerry Ford's WIN (Whip Inflation Now) campaign is an example of a sublimation campaign that failed dismally.
An example of a business organization that has handled motivation well, including sublimation, is IBM. They have grown large, and they have grown rapidly. They have had the opportunity to grow as large and rapidly as they have because of the opportunities presented by the computer industry they serve, but the fact that they have done so is strictly due to their ability to motivate people in the organization to take advantage of the opportunities presented. IBM relies heavily on sublimation and institutional recognition of personal achievement as its keys to success--people work for the higher company goals, and receive a great deal of formal recognition from the company when they succeed.
There are many, many ways of dividing people into groups to show that they react differently in similar situations because they have different motivations. While training to be an insurance agent, I learned a practical one that I will pass on to you.
It is possible to segregate people into groups that are each motivated by different drives. The ranking is done by dividing people on two scales relating to their responsiveness to other people and their assertiveness when dealing with other people. Responsiveness measures a person's need to respond to other people's emotions outwardly. Assertiveness measures a person's need to show their own emotions outwardly. These two traits are independent of each other, so people fall into one of four categories.
[[[ 16 -- Williams Chart ]]]
Now, the purpose for learning this in insurance school was to help us as insurance salesmen relate insurance policy features to the emotional needs of all kinds of different people. Each of these kinds of people responds to a different mix of emotional needs. For instance:
But, consider this: What is good for selling insurance policies ought to be good for promoting all kinds of personnel and management policies as well. Insurance salespeople and managers are both trying to get goals accomplished by enlisting the aid of other people. If people are looking for different things out of life, then an organization should be flexible enough to offer different things to different people. If it cannot, then that's a good reason to have two organizations. The second may not be any more flexible than the first, but it will be different.
One of the great mysteries to me is why an organization will take its most powerful motivator--compensation--and treat it like an outhouse--something you know is there, but don't show in public. How can an organization expect to have its members communicate meaningfully about important company issues when the most important personally is taboo? This is especially true when compensation packages are complex and performance-related. Compensation is too important to most people to be left in the closet. It leads to people doing perfectly rational things that appear to be totally mysterious to others.
For instance, I heard a story about a meeting at a company that was implementing a new computer system. One of the managers was totally dead-set against it; he came up with a hundred reasons why it wouldn't work, and no one at the meeting could figure out why.
Finally, hours into the meeting, it came out that if the new computer were installed it would amount to a pay cut for him because of how his compensation package was structured. He walked out, and that was the end of the meeting.
How much easier it would have been on all the people at that meeting if they had known that fact at the beginning, or even before the meeting started. From there they would have known what problems to attack.
This is not an isolated case. Keeping secrets is contagious. Once the practice starts it's hard to stop. And when it starts the flow of solid information between people in an organization drops dramatically; politics and rumors quickly replace company goals as the prime organization motivators because there isn't enough real information to make proper decisions on. People will continue to make decisions, but they are more likely to be faulty, and look comical to an outsider because they are based on hearsay and wild speculation.
The compensation a person is paid is a major factor in a person's motivation. The amount, how it is paid, and how others in the organization are paid all affect a person's motivation. Hewing to a philosophy of keeping compensation a secret throws away all the positive things compensation can do for a company. It is part of the total information flow that is so important to organizations dealing with new technology.
[[[ 17 -- Get compensation out of the closet ]]]
It seems that one of the one of the hardest things for an organization to do is keep its employees motivated. They often just don't seem interested. The fact of the matter is that for many there is no reason to be interested. For a person to be meaningfully interested in an organization, they must feel like they are a part of the decision making process. They can't feel that way if vital facts are withheld.
If management is keeping secrets, and rebuffs an employee for trying to get involved, then one of the natural employee responses is "Well screw 'um. I'm only in this for the money anyway"--and that may be the last the management hears from an employee in the way of initiative. It will not be the last of the employee's initiative, though. That will show up as moonlighting, union activity, empire building, or one of a hundred other ways that are not nearly as beneficial to the company as direct involvement would be.
[[[ 18 -- This job is so secret... ]]]
If any secrets are kept, then there must be a decision-making process for deciding who gets access to what secrets. This can be developed, but it is an expensive, delicate process. If it is not handled well and maintained vigilantly, the results will be a rapid sapping of initiative and morale, until the organization develops a rigid bureaucracy with political cliques--where secrets and rumors are the stock and trade of information flow.
A better course in many cases, especially in small flexible organizations, is to accept that secrets will get told. And that what is most important is that they get told to the right person first. After all, what organization is better equipped to take advantage of the information being generated than the organization that is working to generate it? Think of any security system as a variant on the 80/20 rule--a study in cost/benefit tradeoffs. When deciding to implement a security policy be sure to consider how many significant pieces of beneficial information will be lost, delayed, or mishandled, for each valuble piece withheld from the "wrong" hands? Be particularly concerned with those cases involving intuition--where neither the recipient or the sender know for sure whether the information will be useful, but one or the other has a hunch it might be.
The best way to make sure that information flows freely is by having no secrets. This axiom applies to compensation just as much as any other vital piece of information. If it is not a secret then all sorts of beneficial side effects open up. It can be treated as a goal. Advertise the goals for compensation, and meet them! Treat them just like the company does goals for production or any other organizational activity. Compensation can become a group motivator, instead of a necessary evil.
Compensation is a major motivator. Organizations and managers should spend more time working with it. They should be more flexible in how it is paid out. This is so because an organization will consist of different kinds of people with many different kinds of motivation. Cafeteria benefit plans are the start in this direction--more should be done. More will be done if employees are encouraged--if they are given more control over how they are paid as well as how much they are paid.
An employee's compensation needs to be liberated from the job being performed. As salesman should not have to be paid "like a salesman", or a factory worker "like a factory worker". People in the organization should be paid according to the benefits and risk they wish to assume. The total amount they are paid can be determined by their expected contribution to the organization, but just how that resource pie is divided should be up to the individual.
This will not only provide better motivation, it will improve job flexibility as well. A person can move between functions in an organization and the organization can add new job functions, without worrying about how it will affect compensation.
A company or organization should go to great lengths to avoid keeping secrets. There should be a policy that no piece of information is a secret, unless so identified. If there is no question that questions should be asked, then rumors will cease, and all the associated time-wasting problems with things like "hidden agendas" and office politics will be reduced.
This is especially important in areas where intuition must operate -- creative areas. Solving intuitive problems means gathering information from many unrelated sources, and making or finding a relation -- this can't happen where information doesn't flow.
If information does flow freely, not only will many more people be intuitive, but many more people will see the logic behind hard choices. They will be much more supportive; change will come faster and with less friction. The organization will pull together; there can be sublimation -- that all-important super-motivator.