Should executives receive incentive pay? Should anyone?
Last week’s KJR explored the logic behind incentive pay, and concluded it doesn’t hold up to scrutiny (I nearly said “close scrutiny,” which contrasts with the distant scrutiny that’s so popular these days).
Incentive pay shares a characteristic with at least four other well-established business practices — recruiting, performance appraisals, outsourcing, and software development — namely, the widespread certainty that when they don’t work, the problem is with the details of execution, not the fundamental concept:
Recruiting: As my friend Nick Corcodilos of Ask The Headhunter fame has been pointing out for years, the industry-standard recruiting practice of posting a position description, screening resumes based on skill-to-task matching, and so on fills fewer than one out of every ten open positions. And yet, most companies continue to pretend it works, even though, based on the numbers, it’s obviously broken.
Performance appraisals: Okay, I don’t have any documented numbers to back this opinion. Based on what I’ve seen, over the past few decades the performance appraisal process (really, practice) has become increasingly bulky and time-consuming for both managers and those they manage.
The payoff for the additional time and energy diverted to this activity? So far as I can tell, managers hate it, few employees find it valuable, and there’s no evidence that better employee performance correlates with more extensive and intensive performance appraisals.
Outsourcing: As documented in Outsourcing debunked (me, 2011), the only constant in the outsourcing industry is its failure rate. Commonly, three years into most outsourcing deals the contracting company finds itself either renegotiating their contract or terminating it altogether. Overall the numbers seem to show that between 30% and 70% of all outsources fail, depending on whose numbers you’re reading and the type of outsource they’re writing about.
But the numbers you read almost certainly underestimate the failure rate. Here in the Minneapolis/St. Paul metro, for example, it’s widely known that Best Buy is quietly unwinding its high-profile outsource to Accenture, but nobody in either Best Buy or Accenture publicly admits the whole venture was a failure.
Software development: For at least two decades, waterfall development wasn’t a way to develop software. It was the way, even though the way that preceded it (or at least one of the ways) — frequent informal conversations between business managers and programmers, with programmers showing business managers their results as soon as there was something to show and the business managers providing feedback that led to quick course-corrections — demonstrably worked.
I say demonstrably because the near-universal pre-waterfall outcome was stable, tailored-to-the-business, feature-rich applications, unlike waterfall, with its notorious 70% across-the-board failure rate.
Isn’t it interesting that when you read the Agile Manifesto, it sounds a whole lot like nostalgia for the pre-waterfall days?
At least with software development, as an industry we finally acknowledged that waterfall doesn’t work, although we needed a couple of decades dominated by dismal failure to accept this.
Too bad the Agile Manifesto hasn’t kept up with the times. It’s about software delivery to customers at a time when (1) there are no internal customers, and (2) the point isn’t software delivery, it’s successful, designed, planned business change.
Incentive pay, recruiting, performance appraisals, outsourcing, and software development. Five very different concepts. In all five cases, the business community has spent decades assuming the problem was with execution, not in fundamentally flawed concepts.
Here’s the irony: If an assumption was to be made, flawed execution was the right one. It’s the Edison Ratio in action.
Edison, you’ll recall, explained genius as being one percent inspiration and ninety-nine percent perspiration. Given this 99:1 ratio, logic dictates that when something goes wrong, it’s 99 times more likely to have been with the sweat than with the idea … with the execution, not the concept.
So the issue isn’t that business leaders, faced with failures, focused their attention on execution. Quite the opposite, this was admirable. It means they recognized that there’s no substitute for sweating the details.
No, the issue is how long it should take to figure out that the problem is the core concept after all.
In this, business leaders would do well to accept the advice of the source of so much wisdom, W.C. Fields: “If at first you don’t succeed, try, try again. Then give up. There’s no use in being a damn fool about it.”