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|In: Leadership|Last Updated:

Poor Joe Torre.

George Steinbrenner’s offer would allow most Americans to retire in comfort after a single year of work. Add the incentive payment for success and their children could retire too.

Torre was, he said, “insulted” Steinbrenner wanted to connect his pay to his performance. (He didn’t, of course, phrase it quite that way.)

Not that I’m siding with Steinbrenner. I have a firm policy: When rich people negotiate, I don’t choose sides. Joe, George, anyone else in this position: Don’t tell me how unfair the other party was. Don’t tell me about the other side’s greed. Don’t tell me you’re insulted, hurt, generous, undemanding, or anything else.

Stop complaining in public — it’s undignified, serves no purpose, and annoys everyone. You negotiated and didn’t get what you wanted. Grow up and shut up. Nobody cares.

While we’re at it … could we have less complaining about what players earn? They might not do anything important. They might look more like employees than executives or investors. They did, on the other hand, work very hard to reach the top of their craft, and negotiated well. Not my business either.

Ridiculing Accenture for choosing Tiger Woods as its non sequitorial celebrity symbol is, on the other hand, just fine.

Getting back to compensation, it’s a dental subject for executives — necessary, but not today, thanks. Compensation is to employee relations what service levels are to IT/Business relations. Just as the only uptime business users find truly satisfactory is Always, the only compensation employees will ever find truly satisfactory is More.

It’s the American way.

This is as good as it gets: Compensation that is fair, easy to understand, consistent with your priorities, and not a performance disincentive. To achieve this, build it from four building blocks: The base (what you pay for showing up), promotions, variable compensation, and spot bonuses. Each has a different role to play:

Base: For each employee there’s a theoretically perfect base. That’s the magic number where the employee has no economic incentive to leave and you don’t have an economic incentive to find a replacement.

Earth being a stochastic realm, the “perfect” theoretical wage is more of a blur than a point, but that’s okay. Replace “no economic incentive” with “more inconvenient than it’s worth” and you’re close enough.

The base has nothing to do with performance or value, only the labor market. Adjust each position’s range every year according to what the market dictates. Adjust each employee’s position within that range, based on increased knowledge, ability and skills.

Promotions: When an employee demonstrates the ability to perform a more demanding job, someone else will pay them to do so. It’s time for a promotion — a different role, which means a different range, and a different position in the range. Fail to promote and you’re no longer near the theoretically perfect base rate.

Variable compensation: This is the magic buzzword for the annual bonus. It’s called “variable” compensation because it varies each year depending on how each individual employee performed that year.

Variable compensation is a good news/better news situation. The good news: You can make variable compensation enough to be meaningful — something you can’t do with wage adjustments.

When you recognize performance by giving an employee a raise, you might manage a 7% increase for a top performer. For a $75,000-a-year employee, that means $40 a week more cash than average workers get who receive the standard 3% inflationary increase. Big deal.

That’s how it looks to the employee. This one raise will cost the company $25,000, (assuming the employee stays ten years and discounting the cash flows) whether or not the employee continues to be a top performer.

Instead of a raise, give your top performer the same 3% inflationary wage increase you give everyone else … and a $20,000 bonus. Even after taxes that translates to something like $12,000 in cash. That’s serious money to most employees (the good news), and it saves the company $5,000 (the better news).

Spot bonuses: If an employee goes above and beyond, it’s an event, and it deserves recognition. Write a check, and do it right away. Reserve spot bonuses for exceptional contributions, not merely for successes. Otherwise they’ll become entitlements — ignored when they happen, resented when they don’t.

Fair compensation isn’t all that hard to do. In principle. The details — figuring out the market range for each position, and where to place each employee in that range — are where it’s hard.

But of course, the details are always what’s hard.

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|In: Leadership|Last Updated:

Depending on the business expert I’m listening to and the day of the week, I know three truths:

1. Good employees who work together as a team outperform great employees who don’t.

2. Good employees with great processes outperform great employees with bad processes.

3. If an employee is irreplaceable you should immediately fire that employee.

From first-hand observation I know that when it comes to Information Technology organizations:

  • Great employees can and do overcome bad processes.
  • Great employees can and do overcome lousy managers.
  • Great employees can and do pull along mediocre teams.
  • Making one or two great hires is the most critical step in turning around an underperforming organization.
  • Well-designed processes can be pretty useful, too.

Which is to say, if you want an organization that works, you’ll get more leverage from hiring great employees than from any other single effort you can undertake.

Great employees can overcome organizational deficiencies to deliver useful results. They can’t, by themselves deliver a great organization. That takes a lot more.

The question of what makes a great organization tick is rife with superficial thinking. The usual approach is what you might call the “Tom Peters Fallacy”:

  1. Find a great organization.
  2. Identify a trait in that organization you like.
  3. Decide that this trait is what makes that organization great.
  4. Declare that this trait is the panacea for all other organizations.

As far as I can determine, there is no one characteristic that by itself can make an organization great.

Well, okay — there is one: excellent leadership. That only works because I define “excellent leadership” as “Doing everything required to build a great organization,” thereby begging the question.

So … what is required to make an organization great, as opposed to simply functioning?

Leadership: A great organization does start with strong leadership, in a non-question-begging way. If there’s no direction — no focus, no goals, no plan, no definition of excellence, no clearly stated expectations for employees to live up to; no alignment of purpose and standards — the employees will keep things going, but not much more than that.

Great employees: Not every employee has to be a superstar, although all must be competent. Great organizations do need enough top-notch performers to demonstrate that high standards are achievable, not theoretical.

Focus on achievement: The definition of “great employee” has been diluted through too many managers reading about “emotional intelligence.” Employees who are focused on getting along will concentrate on how irritating their colleagues are. Employees who are focused on achievement will value their colleagues’ contributions and ignore their eccentricities.

Teamwork: Just as the definition of “great employee” can’t ignore the importance of serious technical ability, it also can’t ignore the importance of working and playing well with others, and of providing leadership in the trenches.

Willingness to innovate: This is IT we’re talking about. Information technology. The field where if you can buy it, it is obsolete by definition. IT organizations and everyone who works in them must be willing to try new technologies, processes and practices … and even more important must be driven to constantly find improvements to the ones already in production … or they stagnate.

Willingness to not innovate: “State of the art” means “doesn’t work right yet.” Most of the time, the work required of IT is best achieved by extending what you have, not by chasing whatever is being hyped in this year’s press releases, aided and abetted by publications hungry for advertising revenue.

Evidence-based decision-making: Great organizations make decisions through the use of evidence and logic, not wishful thinking and listening to one’s intestines.

You’ll note the usual buzzwords are notably absent. Governance, ITIL, CMM and all the other processes and practices (I used to call them Processes and processes) that are supposed to lead to inexorable success don’t, in fact, lead to excellence.

Excellent IT organizations do have them. Even more important, they are kept in their proper place — as useful tools that help employees be as effective as possible.

The best woodworkers have band saws, coping saws, lathes and routers in their workshops, and not just hammers and chisels, but their tools aren’t what make them the best.

Great IT organizations are the same. They practice good governance; follow consistent application maintenance, enhancement, design and testing methodologies; adhere to clearly defined change control procedures; and otherwise avoid making things up as they go along.

Their processes and practices are important. They are, however, merely the signs of a great IT organization.

They are not its cause.

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