A Pareto Curveball on Employee Performance

ID-100176404I can’t feel nothing but this chain that binds me/Lost track of how far I’ve gone/ How far I’ve gone, how high I’ve climbed/On my back’s a sixty pound stone/ On my shoulder a half mile of line (The Rising, Bruce Springsteen)

 

 

Curveball: a slow or moderately fast baseball pitch thrown with spin to make it swerve downward and usually to the left when thrown from the right hand or to the right when thrown from the left hand

The “Bell-Curve” has been the mainstay of performance ratings for a very long time now. The distribution of employee performance is forced to align with the assumption that the organization has a few high performers, a few low performers and a vast majority clustering around the ‘average’ performance level. The whole idea of trying to fit everyone on to a ‘bell-curve’ is thus based on the assumption that performance in an organization tends towards ‘average’ – and I guess you can immediately spot the inherent problem with this assumption.

No organization would like to be configured to be average; yet, everything from compensation distribution to employee engagement strategies continues to be guided by this basic rule of thumb.

Popularity or Performance?

The rather uncomfortable question that needs to be asked is what is the core driver behind the performance evaluation numbers/ranking? Increasing the rewards substantially between the top performers and the rest raises the possibility of a vast majority being disgruntled. Rewarding a few much more than the rest poses challenges for traditional notions of fairness and equality in the workplace. Not making enough distinction removes the incentive to strive for better performance – especially for the outliers.

The crux of the issue lies in the question: what portion of the employees is actually driving the business results.

In an a series of interesting studies, involving 633,263 researchers, entertainers, politicians, and athletes – researchers Ernest O’Boyle Jr. and Herman Aguinis concluded that performance follows a power law distribution more closely than a Gaussian distribution. Put in other words – a few outliers are responsible for a majority of the output.

Pareto’s rule, a popular example of power law distribution – is often referred to as the “80-20 rule” i.e. 80% of the output can be attributed to 20% of the causes. Often subjected to abuse, this ‘rule’ still remains an easy way of summing up the conclusions of the power law distribution.

This insight has interesting challenges for how HR will deal with evaluating employee performance and contribution in the future.

In a traditional setup, the typical manager grapples with one or more of following while doing an evaluation:

  • Lack of clear quantifiable goals for the employee: Goal setting, an exercise often considered a mere formality and carried out with minimal participation from the employee and the manager comes back to haunt both when its time to evaluate performance.
  • Lack of a proper understanding of ground-realities: Managers are humans and are victims of their own perceptions. In the absence of intelligent means to capture customer and peer feedback combined with the previous point of incorrect or inadequate goal, managers often have an incorrect or skewed opinion of performance – especially in large teams.
  • Directive from HR to fit team into a bell curve: Small wavelets build up into a large wave, but small bells don’t make a big bell! The basic requirement that every team must have a Gaussian distribution borders on statistical absurdity – but continues to be a popular practice.
  • Fear of (increased) attrition: The team member has been working on the customer account for most of the year. The training is time consuming and team members take almost a month to start contributing. Too low a rating might increase attrition and the manager will need to find replacements – which will again need to be trained! Putting everyone near average is much safer from the manager’s perspective.

The ‘Bell-Curve’ to some extent lets the manager play-it-safe with his evaluations. A Power-Law assumption takes away that safety-net increasing emphasis on getting the evaluations spot-on. Put another way – the Gaussian assumption lets the organization be popularity focused and dilutes engagement, while the Power-Law assumption goes to the other extreme and focuses heavily on performance – posing a major challenge to established notions of engagement.

It might seem tempting to abandon the existing (flawed) system of force fitting employee performance ratings into a Bell-Curve in favour of a Power-Law distribution, but such a move would be fraught with potential pitfalls.

 Not only must Justice be done; it must also be seen to be done.

Remember that much of employee disengagement revolves around a sense of justice and fairness. The organization should not only do but also be seen as providing the required tools and facilities for the employee to succeed at the task, the organization should able to and also be seen as being able to correctly evaluate how the employee is performing at the task and then finally the organization should and also be seen as adequately recognizing the contribution made by the employee. Stumbling on one or all of these will lead to employee disengagement sooner or later.

In the power-law distribution a vast majority of the organization will be rated as “below average” The new assumption in no way implies that an organization should be only made up of only top performers – in the long run this is impractical for organizations of any size. The useful insight that can be gleaned from the new distribution is distinguishing between the employees who are vital and those who are not. Alarming as it may sound, when taking decisions of whom to retain or promote, making this distinction becomes a critical success factor.

Performance systems that can highlight top performers serve as powerful tools in the hands of HR and leadership of companies looking to engage with their employees and establish a culture of high performance. The impact of interventions based on inputs from a power-law trend of individual performances will expectedly be far higher and more meaningful compared to traditional systems. The challenge however will be eliminate bias in the evaluation – the impact of any such bias will be disproportionately higher in a Paretian distribution, with potentially disastrous consequences – a true curveball!

Acknowledgements and References: 

Image courtesy of FreeDigitalPhotos.net

The bell curve is a myth – most people are actually underperformers, Michael Kelly, May 2012, BusinessInsider

The Best and the Rest: Revisiting the Norm of Normality of Individual Performance, HRMA Research Briefing.

People to Algorithms: “Back Off. We want to make our decisions!”

AnalyticsDeadEnd_

“It can’t be bargained with. It can’t be reasoned with. It doesn’t feel pity, or remorse, or fear. And it absolutely will not stop, ever, until you are dead.” from the Terminator (1984)

Analytics is the hottest, absolutely-must-have corporate buzzword these days. Out with the fuzzy and in with hard data. Leaders and Managers have been known to repeat Deming’s quip (and wrongly get credit for it at times) “In God we trust; all others must bring data” when faced with business proposals that are based on ‘intuition and gut-feel.’ Finance and Operations have been using advanced modeling techniques for years, fine tuning the art of showing that big revenue spike (or cost saving) just around the corner. (Hasn’t happened in the last 10 years, but next two quarters are going to be huge!) And now it’s the turn of HR. People Analytics is the next big frontier and machines are being primed to crunch numbers on human attributes and ‘go where no machine has gone before.’

Correct Data is good, Intelligent Analytics is even better. I have had enough experience with gut-feel and arbitrary extrapolation driven disasters in my life to have a deep respect for both Data and Analytics (with the qualifiers firmly in place). I also know that modeling human behavior (or worse projecting it into the future) is something best left to Ethan Hunt.

‘Let’s collect all possible behaviors about employees, get a bunch of statisticians and lock them in a room till they come up with a formula to predict who is good and who is not,’ sounds like a good idea. Only problem – seems people don’t like it. And not just any people – top notch engineers at Google who live and breathe data and analytics.

“Not only must Justice be done; it must also be seen to be done.”

Promotions are a big deal at any organization. It represents an acknowledgement of the company’s belief that you have done an excellent job in your current role and so are ready to take up further or different responsibilities. Nominating the wrong person for a role can be one of the most disengaging acts in an organization. The person(s) who lose out in the race often choose to leave the company and walk right next door to the competitors HQ.

Google has a rather elaborate process involving self-nominations, committees and appeal process for promotions of engineers. As you can imagine this process is costly, time consuming and can be tedious at times. With the rather noble intention of saving a bit of effort for everyone, the People Analytics team decided to explore the possibility of getting an algorithm, which they can use instead.

They did come up with one. And statistically it was awesome!

No possibility of bias, absolute transparency, much less effort, very accurate (based on fitment with past data). One might expect everyone (especially engineers) to love the ultimate solution to getting promotions right. All the disengagement rising from favoritism, bias, perception et.al. out of the window in one masterstroke.

Guess what happened.

The Engineers hated it!

“They didn’t want to hide behind a black box, they wanted to own the decisions they made, and they didn’t want to use a model.”

At the end of all the research, the ultimate takeaway for Google was that ‘people need to make people decisions’ Analytics serves an important role in providing the decision makers with data points and insights, but it can never replace them. It is highly unlikely that we will ever reach (or accept) a situation where algorithms and black boxes are seen as taking decisions (even if you put a human face on the screen). [See Prasad Setty talk about it in the video at the end of this post]

Speaking of algorithms and disasters: Remember the Black-Scholes Equation and 19 October 1987 (Black Monday)? And for those with shorter memories there is the Gaussian Copula function and the 2008 meltdown. And those are failures when modeling movement of financial instruments (and therefore indirectly just one aspect of human behavior which ultimately drives price of those instruments).

It has taken us decades finally realize the tyranny of the “Bell Curve” in performance evaluation though most organizations still are stuck to using what is essentially a convenient misuse of statistical formulation.

Hopefully business leaders will appreciate the pitfalls in giving into the lure of expecting everything to be boiled down to an algorithm. (Elon Musk is rumored to have referred to AI as “summoning the demon”) Even if I don’t quite share Elon’s assessment of the scenario of doom (yet), in my opinion hoping to click a button to decide people’s career path is bit of science fiction, wishful thinking and lazy management all rolled into one.

But if you are a math wiz, don’t care about what old geezers like me have to say about “free will” and social cognition, then your mission, should you choose to accept it …

(Unfortunately this blog post will not self-destruct in 5 seconds)

Acknowledgements and References for this post: 

Image courtesy of FreeDigitalPhotos.net 

Google came up with a formula for deciding who gets promoted—here’s what happened, Analyze This, QZ India, Max Nisen, November 20, 2014

Recipe for Disaster: The Formula That Killed Wall Street, Tech Biz, Wired Magazine, Felix Salmon, February 23, 2009

The mathematical equation that caused the banks to crash, Mathematics, The Observer, Ian Stewart, February 12, 2012.

Will the machines take over? Why Elon Musk thinks so, Science, The Christian Science Monitor, Anne Steele, October 27, 2014

Flow ~ Just go with it!

ID-100224553Remember those days when you are just so immersed in work that you forget about everything – the irritating co-worker who is constantly talking on the phone (loudly!), the drone of the air-conditioner, even your lunch? Those are the days you were in what psychologists now refer to as a state of ‘flow’. Artists, composers are most often seen referring to a state of flow – at times when they have created some of their best work. Of course the years of practice to gain the required expertise for the task is a given. Its an almost universally accepted rule of thumb that about 10 years of deep immersion in a domain/subject is required before one can achieve the required expertise to make a significant contribution or improvement.

But even if you aren’t a maestro writing a new symphony there are moments when you just do brilliant work and write a piece of code, or make an outstanding creative for the marketing campaign. ‘Flow’ is where we would all like to be when we are doing our work – in an enlightened state, churning out the very best we are capable of creating!

So how would you know if you are in ‘in the flow’?  There are six factors that scientists identify as contributing to the state of flow (I am sure you will recognize that you feel all or most of them):

  1. intense and focused concentration on the present moment
  2. merging of action and awareness
  3. a loss of reflective self-consciousness
  4. a sense of personal control or agency over the situation or activity
  5. a distortion of temporal experience, one’s subjective experience of time is altered
  6. experience of the activity as intrinsically rewarding

And in case you think all this reminds you of the state after five hours of binge TV watching on Sunday, that’s not flow! Passive activities don’t put you in a state of flow. In fact research has shown that people can process only about 126 bits of information per second. Having a conversation takes ~40bits/second so when you are watching a movie on TV, a large part of your processing power is already gone. (So much for the myth of multitasking.)

Mihaly Csikszentmihalyi (last name pronounced Chick-sent-me-high-ee”) is widely recognized as the ‘architect of the notion of “flow”‘ and he refers to the notion of flow as:

Being completely involved in an activity for its own sake. The ego falls away. Time flies. Every action, movement, and thought follows inevitably from the previous one, like playing jazz. Your whole being is involved, and you’re using your skills to the utmost.

So how does one create the environment that promotes the state of flow?

Flow theory postulates three conditions that have to be met to achieve a flow state:

(1) One must be involved in an activity with a clear set of goals and progress. This adds direction and structure to the task

(2) The task at hand must have clear and immediate feedback. This helps the person negotiate any changing demands and allows him or her to adjust his or her performance to maintain the flow state.

(3) One must have a good balance between the perceived challenges of the task at hand and his or her own perceived skills. One must have confidence that he or she is capable to do the task at hand.

300px-Challenge_vs_skill.svgMihaly published a graph in 1997 which depicts the relationship between the perceived challenges of a task and the perception one has of one’s skills. The state of flow is more likely to occur when  the task to be done is a higher-than-average challenge and the individual has above-average skills. That is where the manager has to play to her role in clearly defining goals and matching the tasks to the strengths (actual and perceived) of her team members.

In 2013, Owen Schaffer broke down the prerequisites for entering a state of flow in the white-paper titled ‘Crafting Fun User Experiences: A Method to Facilitate Flow’ as follows:

  1. Knowing what to do: Goals are set clearly and communicated clearly to the employee.
  2. Knowing how to do it: The tasks allocated are matched with the competency of the employee to whom the task is allocated.
  3. Knowing how well you are doing: Frequent feedback on the progress against the expected outcomes of the tasks gives a sense of progress and keeps up the motivation levels.
  4. High perceived challenges: A feeling of a fairly high (but not impossibly high) challenge motivates the employee to put in extra effort to achieve the goal since it gives a sense of achievement – of having done something worthwhile.
  5. High perceived skills: The feeling that skills required to perform the task are perceived as high (not ordinarily available) gives an impetus to the employee.
  6. Freedom from distractions: This is where the manager contributes by ensuring that the employee can focus fully on the task allocated without constantly being distracted with lots of other activities/responsibilities.

And saving the best for the last: Here’s Mihaly Csikszentmihalyi himself, giving a talk about the notion of flow at TED.

References and Acknowledgements for this post:

Flow (psychology), Wikipedia, Mihaly Csikszentmihalyi: Positive psychologist, TED profile, Mihaly Csikszentmihalyi: Flow, the secret to happiness, TED Talks, Go with the Flow, Wired, 

Image 1, Image courtesy of FreeDigitalPhotos.net, Image 2: Source: Wikipedia

Annual Performance Reviews – All Noise, No Signal

Performance_Review_Back in university when I was busy studying communication theory, the one thing we obsessed over was the SNR or Signal-to-Noise ratio.

The professor in charge of teaching us the nuances of what was quite a difficult topic, used to rate the pop-quizzes he gave us on a range of zero to one in increments of 0.1. He gave one to answers that got to the point correctly with little or no fluff (‘Maximum Signal and little noise’ as the prof said) and zero to those that beat around the bush and got no where in particular (‘All Noise, No Signal’). Most of us, unsurprisingly, clustered around 0.5.

Years later, I ran into my professor again. Now retired, he was more chatty that he ever was in the classroom and we got reminiscing about those much dreaded pop-quizzes. “I have a confession,” he said, laughing out loud, “there was far too much garbage for me to read through in those answer sheets you guys handed in. Very little Signal and lots of noise I used to actually read only a very few, and then just handed out those marks based on what I expected the student to write. And since nobody ever challenged me, and I got the bell curve of grades fitted out perfectly, it worked out just fine.” My jaw dropped! I spent years thinking I was just hopeless and didn’t really get antenna theory and radio signal propagation. I couldn’t have imagined that the forced bell-curve fitting would affect me even as a young student.

Anyway, coming back to the present day. Yet another ‘financial’ year is coming to an end, and very soon HR teams in most organizations will get busy preparing for that annual carnival called ‘Performance Reviews.’

Here’s what typically happens:

HR gives managers over a month to finish appraisals for their teams and sends multiple reminders. On paper there seems to be enough time to finish the process. With several other priorities vying for the manager’s time, appraisals gets pushed to the back of the list everyday and nobody ever gets around to spending the planned few hours with every employee.

So now, on the last day before the badly-designed, overtly-complicated HRM software with a few dozen fields to be filled, closes the appraisal process, the HR team resorts to hounding managers to finish appraisals before the deadline. ‘Do it or face the wrath of the Corporate Office’ the HR head threatens, out of desperation when he sees the dismal percentage of teams that have completed the process.

The naked threat works, with hours to go, all client work comes to grinding halt and team-members and managers reluctantly get down to the task of completing their appraisals. The manager now has to evaluate thirty odd people in a few hours, pulls out the goal sheet setup an year ago, he goes “Hmm….lets see now…” And soon its out with data and in with the subjective, the bias and the perceptions. (There’s that bell-curve to comply with.)

Understandably most employees see this as a futile exercise since its is very rare that tasks and goals laid out a year ago would be relevant now. Chances are very high that the employee actually worked on something very different at several points along the way, doused a few dozen crisis situations during the year, came up with a couple of innovative ideas that may or may not have been implemented, put in hundreds of hours of overtime to make up for inefficiencies or just plain bad planning. And in the few minutes he has with the manager while being ‘appraised’, the employee feels threatened. He has to secure his next year’s pay based on what transpires in the next few minutes.

Annual performance reviews are a mind-numbing exercise that most employees in the corporate world go through each year. And mind-numbing is apt! Research has shown that when a person is threatened, activity diminishes in certain parts of the brain. David Rock, author of “Your Brain at Work” says when that happens, “people’s fields of view actually constrict, they can take in a narrower stream of data, and there’s a restriction in creativity.”

Critical feedback doesn’t quite work the way its assumed:

Jena Mcgregor, in her recent article in The Washington Post, points to research by psychologists at Kansas State University, Eastern Kentucky University and Texas A&M University where they studied how people respond to critical feedback they receive in an appraisal of the work done in the year.

The assumption was that people who are motivated to learn things on their own would welcome the critical feedback and use it to improve their work. Apparently not!

The study was based on conclusions of a prior study which concluded that people aspire to reach their goals in one of the following three ways:

  1. They try to prove their competence at work and get positive feedback.
  2. They withdraw from tasks where they might fail and avoid negative feedback.
  3. Focus on the learning and developing of their skills.

Obviously people who fall into the first two categories, didn’t take kindly to negative feedback in their performance reviews. But to the surprise of the researchers even those with a strong learning focus didn’t quite like the negative feedback.

When one considers all the cost and effort that HR (and the entire organization) puts into the annual performance review process, it would almost seem an utter waste of all that time and money.

Here’s the wrap up of how the annual performance review process ‘performs’ :

  • Based on the research mentioned above, it seems that what is intended to be a constructive and helpful discussion quickly falls apart when the appraisees hear critical feedback. (Even for those who have a strong focus on learning)
  • In a previous article, Jena points out that Leadership advisory firm CEB’s research found that two-thirds of the employees who are rated as the firms top performers are in fact not.
  • CEB research shows that managers feel conventional reviews only generate a 3- to 5% improvement in employee performance.
  • Only 23% of the HR professionals surveyed by CEB for their research study felt that their review process was satisfactory.

All signs point to the futility of the once-a-year performance review and yet we continue to persist with the ‘established way’. Come April-May and management is shocked when the resignations come pouring in.

As I have said in a previous post on this blog, It’s time to move on!

References and Acknowledgements:

Study finds that basically every single person hates performance reviews, Jena McGregor, The Washington Post;

The corporate kabuki of performance reviews, Jena McGregor, The Washington Post

Your Brain at Work: Strategies for Overcoming Distraction, Regaining Focus, and Working Smarter All Day Long, David Rock, ISBN-13: 978-0061771293

Image courtesy of  FreeDigitalPhotos.net

Rewards that go boink! (or the folly of cash as an incentive)

Money_Trap_Mark Hanna:   The name of the game, move the money from your client’s pocket into your pocket.
Jordan Belfort:   But if you can make your clients money at the same time it’s advantageous to everyone, correct?
Mark Hanna:   No

(Dialogue from the movie ‘The Wolf of Wall Street’, 2013)

I have an article on how to ‘Engage the employee with the right reward’ up on People Matters where I continue to advocate the need for companies to find the right strategy towards rewarding their employees – doling out cash bonuses just doesn’t cut it.

This post however, is more about what I left out of that article (thanks to word-count limits and the need to stay focused on the theme). At the very beginning of the article I mention in passing how the financial collapse of 2008 exposed the flaw of a cash-bonus-linked-to-sales strategy. What I did not write about was the erosion of trust that the greed of a few caused. And lets fact it – this is true about any industry, not just banking. There are plenty of examples in other sectors like call-center employees cutting short or worse hanging up on customers, because their variable pay was linked to number of calls attended rather than issues successfully resolved, engineers using short-cuts to get automobile products out faster without adequate testing or known flaws leading to catastrophic failures or in some cases deaths.

The death spiral for the company arising out of perverse incentive structures is actually quite simple:

Wrong incentive structure -> Incorrect actions by employees -> Short term spike in sales/output->A select few get rich on commissions/bonus->Medium Term/Long Term problems come home to roost->Best case – the company/product brand takes a hit, Worst case company goes belly-up.

Jordan Belfort:   My name is Jordan Belfort. The year I turned 26 I made $49 million dollars which really pissed me off because it was 3 shy of a million a week. – (Dialogue from the movie ‘The Wolf on Wall Street’)

Pre-2008 some bankers just went (massively) overboard in pushing their banks hurtling down that spiral and got the whole industry in a mess since everybody ended up doing the same shenanigans to get massive bonus payouts.

Joseph Stiglitz in his excellent article ‘In No One We Trust’ talks in depth of this erosion of trust and says

“…We had created a system of rewards that encouraged short-sighted behavior and excessive risk-taking. In fact, we had entered an era in which moral values were given short shrift and trust itself was discounted.

… Bank managers and corporate executives search out creative accounting devices to make their enterprises look good in the short run, even if their long-run prospects are compromised.”

So do we take the money-is-root-of-all-evil approach and pay people in food coupons? No. Absolutely not, but neither can leadership of companies afford to take the ‘lazy’ route to establishing a rewards strategy but just resorting to cash payouts as a percentage of profit/sales/top-line. (Remember Enron anyone? Even as the company was imploding, its executives were rewarded with large bonuses for meeting specific revenue goals.) The problem here is not only the flawed rewards structure, but something much deeper. Something for which the whole organization exists in the first place – the very raison d’etre.

The real challenge for leadership in establishing a rewards strategy – goals:

Before you worry about ‘how to reward employees’, the greater challenge is in establishing ‘what’ you are rewarding them for. “Organizational Goals!” you say and full marks to you. Employees in an organization are working on their individual goals which eventually must meld together to achieve the organizational goal.  Employees at Enron were also being paid to achieve organizational goals but in hindsight it’s obvious those goals were all wrong!

Things can also go horribly wrong when impossible goals are set because, leaders shoot their mouth off or get visions of grandeur. Let’s take a short trip back in time. It’s the late 1960’s. The Ford Motor Company was fast losing ground to more fuel efficient cars the Japanese were cranking out. Lee Iacocca, a very smart man with lots of successful launches to his credit, (and the then CEO of Ford), announced the challenge of producing a new car that would weigh less than 2000 pounds and cost less than $2000 and would be available in the market in 1970. The result: skipped safety checks on the Ford Pinto that led to cars catching fire and eventually resulted in massive law suits.

 So we now realize that organizations have a more fundamental problem – with goal setting. That goal usually filters down from the top – which brings us to an interesting conundrum. Going back to what Stiglitz has to say in his article.

“So C.E.O.’s must be given stock options to induce them to work hard. I find this puzzling: If a firm pays someone $10 million to run a company, he should give his all to ensure its success. He shouldn’t do so only if he is promised a big chunk of any increase in the company’s stock market value…”

 Research has shown that the motivation that people will have to do the right thing or blow the whistle when things are not quite going the way they should is greatly enhanced when they feel they are working for a larger purpose than just monetary gain. When the only incentive one has is money, it tends to create the ‘stretch goal’ trap. Bigger goals – Bigger reward – Bigger bank balance! Forget everything else, all ‘that’ is somebody else’s problem. The ‘Big Whale’ trades, the LIBOR fixing scandal, the recent record fines paid by JP Morgan, Enron, the list just goes on and on.

“Of course, incentives are an important component of human behavior. But the incentive movement has made them into a sort of religion, blind to all the other factors — social ties, moral impulses, compassion — that influence our conduct.” (Stiglitz)

Setting the correct goals is thus fundamental to achieving the desired output from employees. Goals that are too narrow; are too many in number or have an inappropriate time horizon which eventually result in, higher risk taking and unethical behaviour by employees in an attempt to meet those goals.

So how do we set the right goals?

This, dear reader, is the trillion dollar question. The ultimate question of life, the universe and everything – the answer as we all know is 42! There we have it. Problem Solved. :)

With due apologies to Douglas Adams, there is no one correct answer for this. With incorrect incentives, the chances of the goals themselves being set wrongly go up exponentially. Add to that the fact that goals when applied to teams with have varied levels of challenge for its members.

In their Working Paper, ‘Goals gone wild’, Lisa D. Ordonez et al. point this out –

“Perverse incentives can also make goal setting politically and practically problematic. When reaching pre-set goals matters more than absolute performance, self-interested individuals can strategically set (or guide their managers to set) easy-to-meet goals. By lowering the bar, they procure valuable rewards and accolades. Many company executives often choose to manage expectations rather than maximize earnings. In some cases, managers set a combination of goals that, in aggregate, appears rational, but is in fact not constructive. For example, consider a self-interested CEO who receives a bonus for hitting targets. This CEO may set a mix of easy goals (that she is sure to meet) and ‘what the hell’ difficult goals (that she does not plan to meet). On average, the goal levels may seem appropriate, but this mix of goals may generously reward the CEO (when she meets the easy goals) without motivating any additional effort when the goals are difficult.”

Goal setting and the consequent rewards strategy are closely intertwined. Your rewards strategy might be well thought out, meaningful and beautifully executed but if they are being handed out for the wrong goals, it will still be meaningless in the long run. Rather than taking the easy way out of boiling the organizations goals down to the revenue numbers and profit figures of billions of dollars, its time leaders spent more time establishing meaningful goals that are aligned with the long term interest of the organization and all its share-holders.

The alternative of continuing with status-quo on goals and incentives is a scary proposition. Already there are rumblings of real estate and investment bubbles building up in South East Asian economies as a consequence of the Fed tapering. Another large financial shock just might be the proverbial last-straw on the camel’s back. On the positive side, we might get a few more entertaining movies.

References and acknowledgements for this post:

‘In no one we trust’, Joseph E. Stiglitz, NYTimes, 12 December 2013, Goals gone wild: The systematic side effects of Over-Prescribing Goal Setting, Lisa D. Ordonez and others, HBS Working Paper, 09-083, Image used in this post courtesy of Free Digital Photos.

Building a high-energy work environment

_Workplace_Motivation_Usually when people think of an office buzzing with energy with everyone in the ‘zone’ they think of start-ups. Small office, people sitting where they can, cheap furniture, lots of wires criss-crossing the floor from all the machines lying helter-skelter all around. For the record, the first “office” ‘kwench had was a living room and we had one-plastic table and a plastic chair (for guests).

Large offices with cubicle farms, cafeterias, grand lobbies typically evoke mental images of power and a large process oriented machine at work rather than energy.
Good generalizations for stock photography and movie plots, but hardly the reality. The energy you feel in start-ups doesn’t come from sitting on the floor or having doors as desktops, it comes from the motivation levels of those working there. Similarly the fluorescent lighting in the swank offices of a large organization isn’t sucking out the creative energy of the workforce, something else is.

There is a default environment in a young start-up that larger organizations with hierarchies, departments and processes need to consciously implement. The magic-dust that transforms a workplace into a high-energy work environment is, engagement.

Component_Target_In the book Employee Engagement, W Macey et. al, write that there are there are four components (or aspects as some would prefer to call it) held with the glue of engagement, that need to come together – – to enable a creative and motivating work environment. What follows is a slightly modified list.

(a) Employees should have the liberty to engage: ‘But who is stopping them?’ you ask. The answer, is ‘most likely – everything.’ Companies have processes and set rules to ensure that things get delivered on time with the required accuracy and this definitely is a good thing. But it is not the best thing. Employees following set processes and delivering as promised drive customer satisfaction; engaged employees deliver customer delight. But they should have the liberty to do so. The organization should be tolerant of creative solutions and possible failure – a confidence that failure will be treated “fairly”. If deviation from processes is always punished, innovation is unlikely to ever happen in your workplace.

(b) Employees should have the capability to engage: So you set the ground rules in your workplace and encourage the team to go the extra mile. But nothing seems to happen. They seem to be just doing what they have been doing all along! What gives? In order for people to really make a difference they should also have access to the required knowledge/information. If all the information is locked away on a “need-to-know” basis chances are very few will actually “know”.  Once you provide your employees the liberty to engage, support it by creating an open environment where they have access to information, where they get timely and open feedback on their work, and have the confidence that the organization will provide full support with everything they need to meet their goals.

 (c) Employees should have the motivation to engage:  An average employee spends 10-12 of their waking hours at work, add a couple more for getting to work and back. That’s 12-14 hours, of the 18 hours they are awake, away from their family. It’s important that you give them a very good reason to do so. When you provide the liberty and set the ground for capability for employees to engage within the workplace, the onus largely lies on the employee to step up and capitalize on the freedom. To motivate them however, the onus lies on the organization. Multiple surveys have shown that employees are most disengaged because they lack clear and specific goals and timely recognition for work done. From the organization perspective the requirements are clear (and fairly simple). Match the employees to the right roles – provide clear achievable goals – provide an open environment where the information required to deliver results is available – provide timely feedback and recognition.  When people have a sense of belonging and recognition of incremental progress they are making towards a larger, complex goal – motivation levels go up automatically.

 (d) Establish a transparent way of working to enable engagement: Once you have set up the first three layers, you have to enable positive reinforcement through an open and transparent culture. Make recognition public – this has a strong element of positive feedback and also ensures that there is no feeling of favoritism. Enable Peer-recognition and evaluation systems – Peers are usually in the best position to know exactly what work has been done. When the goals are clear, the combined effect of mini-evaluations over a period of time is more powerful and accurate than any detailed annual-appraisal can ever hope to be.  Be tolerant of open networks within the organization – enable a free flow of conversation and be open to constructive criticism. Typically social networks formed for a purpose tend to be focused and self-regulating. Any deviations are usually dealt with by the group without the need for active monitoring by a ‘higher authority’.

Engagement is what enables your employees to “see the big picture” and align their goals with that of the organization. But on a day-to-day basis it’s the work environment that provides the impetus for your employees to engage (or in the other extreme – disengage).

It is tempting to conclude that the onus lies on the senior leadership of an organization to do everything from establishing organizational business targets to driving an open and engaging work-culture to make sure those goals get met. While they have a large role to play, in a dynamic marketplace, waiting for senior leadership to decide every small detail is suicidal. The best way is be open and involve employees’ right from the planning process for establishing the organizations goals/targets for the year and continue to engage them throughout.

At 3M, one the world’s most innovative companies, the HR team provides the tools and processes but it’s the individual managers and supervisors who are in charge of engagement at the employee level. Accountability for establishing a culture of engagement at the workplace is done by embedding engagement into the list of leadership competencies. The company provides managers with engagement scores on company-wide surveys making employee engagement a key strategy to establishing competitive advantage in the marketplace.

References and Acknowledgements:

The “What” and “Why” of Goal Pursuits: Human Needs and the Self-Determination of Behavior, Edward L. Deci and Richard M. Ryan Department of Psychology, University of Rochester; Work Redesign and Motivation, J.Richard Hackman, Driving Performance and Retention through Employee Engagement, Corporate Leadership Council, Employee Engagement, Macey et al, Wiley Blackwell; Creating an engaged workplace, CIPD Report, January 2010.

Image1 and Image2 used in this post courtesy of Freedigitalphotos.net.

Mission Impossible – ‘Presenteeism’ Protocol

Disengaged_Gap_The world of banking has a term it dreads – NPA (Non-Performing Assets). These typically refer to loans that are at high risk of default.

Your employees are your most precious assets and their best performance is what you bank on to make the organization thrive. The Towers-Watson Global Workforce Study 2012 surveyed over 32,000 full-time workers across the globe and found that only 35% were highly engaged. The rest?

22% felt they were unsupported.

17% were detached.

And a whopping 26% were disengaged.

If you were a bank with over 25% of your assets at risk, the central bank would be all over you with audits, stress-tests and maybe even cancel your license.

If were a manufacturing firm with 25% of your plants breaking down all the time and hardly producing anything, you would declare the units sick and fix them or close them down.

If you were an airline with 25% of your planes flying practically empty you would reroute, optimize, or shut down the routes.

And yet even though over a quarter of your employees are disengaged, you still hope to meet your financial and business goals without a clear well-thought out employee engagement strategy.  Time to call Ethan Hunt?

References and Acknowledgements

The Towers-Watson Global Workforce Study 2012; Post title inspired from the Mission Impossible movie series; Image courtesy of Freedigitalphotos.net.

Presenteeism: “One central consequent of presenteeism is productivity loss, and scholars have attempted to estimate these productivity numbers. While examining productivity decrements, however, it is implied that losses are measured relative to not having a particular sickness or health issue. Furthermore, in comparison to being absent from a job, those exhibiting presenteeism may be far more productive. Nonetheless, a large study by Goetzel et al. estimated that on average in the United States, an employee’s presenteeism costs or lost on-the-job productivity are approximately $255.” (source: wikipedia)