Paying Attention Matters – Go Figure

Recently I heard a story on NPR about a firm who specialized in helping companies watch workers to improve productivity. (I’m sorry – today I tried to find the story so I could include a link, but I couldn’t.) The story said that when this company installed cameras to watch workers do their jobs, the workers made fewer mistakes. In another instance, productivity went up. They talked about posting performance metrics on the wall of the work area and performance went up. You’d think they had discovered the Holy Grail.

What they discovered is that when you pay attention to workers, their performance improves. When you measure worker’s performance – and give them regular feedback – their performance improves.  What I think they discovered was the “Hawthorne Effect” first identified in 1950 by Henry Landsberger when looking a data from a study at the Hawthorne Works conducted in the 1920’s and 30’s.

I won’t regale you with the details. The gist of the story is that the researchers segregated a group of workers and kept varying their working conditions to see what the impact would be on productivity. They raised the light level, lowered the light level, fed them breakfast, etc. In virtually all cases, no matter what the researchers changed, the workers still outperformed their peers in a control group. The conclusion: while changes in the work environment can improve productivity, the amount of improvement is overshadowed by the improvement that comes from paying attention and giving the workers feedback.

As a general rule, people like to know what’s going on and how they are doing. They like to know you care. John Maxwell says “people don’t care how much you know until they know how much you care.” You’ll get a bigger increase in productivity from taking the time to say “good morning” and “how are you” to your employee’s each day than you will from most of the latest management fads.

As a young Industrial Engineer I often heard “if you can’t measure it, you can’t improve it.” I believe this to be true. I also have seen many times that simply finding a basic measurement of work and posting it in the work area will improve productivity. You don’t necessarily need to set a goal. You don’t need to create some formal competition between workers. Just show them how they are doing, and they’ll do it better.

So, my advice today is to engage with your employees; give them feedback; help them measure their productivity and quality; thank them for their efforts; and then sit back and watch the productivity gains roll in.

Let’s Have a Party!

I bet you didn’t even know that today is a holiday – it’s not on the Hallmark calendar and the Post Office is open.  Today is National Employee Benefits Day – as proclaimed by the International Foundation of Employee Benefits Plans.  Have a party, eat some cake, and thank your local benefits professional.

Benefits are a challenging area for HR.  They can be expensive, but some are legally required and some are demanded if you want to be competitive in the labor market.  A solid benefit program also should improve employee satisfaction and loyalty, thereby reduce turnover.

Benefits can be expensive.  There are more benefits than ever to manage: Health and welfare benefits (medical, dental, vision and life insurance); Income Continuation Benefits (short and long term disability, unemployment, and workers’ compensation); Retirement Benefits (401k, pensions, and ESOPs), and Employee Assistance Plans.  All of these benefits have a direct cost to the organization that typically ranges from 5-15% of payroll depending on how the organization shares costs with employees. 

Time off benefits (holidays, vacation, sick time, bereavement pay, jury duty, and voting time) are also in the mix and must be administered. While most of these are non-incremental costs (if I was going to pay Susie $30,000 per year to do her job, I don’t have to pay more when she’s on vacation, I just don’t get any work done) they still have a value that typically runs between 10% and 25% of payroll.  Don’t forget payroll taxes, which while not really an “employee benefit” still cost the company 7-10% of payroll.

You can also throw some less traditional benefits into the mix like cancer insurance, long term care, accident protection (aka Aflac),and prepaid legal.  Then add in paid parking, a company cafeteria, discounted bus passes, wellness programs, an onsite medical clinic, and discounts to area venues and health clubs.  Don’t forget tuition reimbursement, adoption assistance, employee discounts on merchandise, and maybe a summer picnic and a winter holiday party.

The role of a benefits manager is often much more diverse than simply coordinating an annual open enrollment meeting. A comprehensive benefit package can easily cost upwards of 35% of payroll and can be both a competitive advantage, and liability.  A good manager should be working constantly to assess the effectiveness of your benefits plans – are they meeting the needs of both the employees and the organization?

So, buy your benefits manager a cake today and have a party – but keep it short because they’ve got a lot of work to do.

Defining Disability

In September, 2008, the President signed into law the ADA Amendments Act (ADAAA) and that law became effective January 1, 2009. Like so many regulations, it wasn’t until earlier this week the final regulations implementing this Act were approved by Congress. From my perspective these changes are great for those with disabilities, but not so much for businesses. The overall tone was to reverse several Supreme Court decisions that narrowed the definitions of who is considered disabled. The EEOC has issued a Fact Sheet on the new regulations. I’m going to take the liberty of quoting from it and commenting on it. The EEOC’s text is in bold text.

The EEOC regulations implement the ADAAA — in particular, Congress’s mandate that the definition of disability be construed broadly. Following the ADAAA, the regulations keep the ADA’s definition of the term “disability” as a physical or mental impairment that substantially limits one or more major life activities. – Examples of “life activity” are caring for oneself, performing manual tasks, walking, seeing, hearing, speaking, breathing, learning, and working.

The regulations implement Congress’s intent to set forth predictable, consistent, and workable standards by adopting “rules of construction.” – Of course these “rules” are not well spelled out and will be open to interpretation ultimately in the courts, so you can expect another Amendment act in 10 years to clarify things again.

These rules of construction are derived directly from the statute and legislative history and include the following:

• The term “substantially limits” requires a lower degree of functional limitation than the standard previously applied by the courts and is to be construed broadly.
• The determination of whether an impairment substantially limits a major life activity requires an individualized assessment.
• With one exception (“ordinary eyeglasses or contact lenses”), the determination of whether an impairment substantially limits a major life activity shall be made without regard to the ameliorative effects of mitigating measures, such as medication or hearing aids.
• An impairment that is episodic or in remission is a disability if it would substantially limit a major life activity when active.
• In keeping with Congress’s direction that the primary focus of the ADA is on whether discrimination occurred, the determination of disability should not require extensive analysis.

Maybe I’m just cynical, but all this sounds to me like it should be pretty easy to claim a “disability” under the ADA. That claim can then be matched for a request for a “reasonable accommodation”.  It does not appear that the regulations do anything to better define what a “reasonable accommodation” is, so that will continue to be an item for discussion and litigation. I expect the number of claims of harassment or discrimination under the ADA to go up substantially over the next few years and they will be much harder to defend against.

To wrap this up and get off my soap box – I’m all in favor of legislation to protect the rights of the disabled – this is a population that has been treated poorly for too long. However, vague one-sided regulations aren’t the way to effectively implement change. From a business perspective, this will be challenge to live with.

UPDATE – 4/1/11 – According to an article in Human Resources Executive, Disablity Discriminaiton cases were up 17% in 2010 over 2009 and experts say the main reason is the change in the defintion of disabilty.  I love being right!

Be Careful What You Ask For

Once upon a time I knew a guy who managed compensation for a company that designed and built metal buildings.  He told me a story about when the president of the company decided that their buildings were too plain and asked for an incentive plan to encourage the architects and designers to add more attractive accessories – stone work, fancy entryways, exterior lighting, etc. – that would make their buildings more visually appealing.  Apparently the plan worked and every building plan was full of attractive design options. They would have been gorgeous buildings – if the customers bought them.  It turns out that the options were too expensive for most of their customers so while the company was paying bonuses to its designers, sales actually slumped because now the competitors’ buildings were more cost effective.  Oops!

Have you ever known a salesman who was paid a 100% revenue based commission?  These are the salesmen most commonly referred to as sharks.  They eat what they can kill and as quickly as they make a sale they toss the order over the wall to the production folks and begin searching for the next target.  If the customer has questions or if there are problems with the implementation, too bad – they’ve moved on to fresh meat.  Oh, if and if the salesman had to reduce the price in order to close the sale (thereby removing all the profit from the transaction) too bad, send me my commission checks, please.

The challenge of incentives is to incent the behavior you want, without encouraging behavior that you don’t want.  You need to create a plan that has enough realistic potential that the individual will be motivated to achieve the plan and earn the rewards, and not be encouraged to earn the rewards without regard to the profitability of the company.  Here are some things to consider.

1)      I’m not a fan of 100% commission sales.  I understand you get total flexibility – e.g. no sale no expense – but you may also get a salesperson totally focused on their needs and not the customer’s or company’s needs.

2)      The plan needs to be simple.  I’ve seen too many plans that have 4 or 5 different components each with multiple performance tiers, quotas, etc.  With so much going on, the individual loses track of what they are supposed to focus on and the plan becomes ineffective.

3)      The plan needs to work for everyone.  If a salesperson can’t earn a competitive wage without selling far beyond their quota, they won’t try.  Likewise, if they can achieve plan by taking a walk in the park it won’t work for the company.

4)      Finally, remember that most people are not money motivated.  Use incentive plans sparingly, where they can really have an impact on the business, and find other ways to compensate and motivate the rest of the team.

One last thing for the grammarians in the audience – personally I detest the word “incentivize” – it sounds like something from a laundry soap commercial.  I prefer the shorter version “incent”, so I say, “this plan is designed to incent you to …” rather than “designed to incentivize you to …”. Is there a right or wrong here?  Someone help me out.

But, my real lesson for today is, be careful what you incent someone to do, because they just might do it.

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Please Define Meets Expectations

‘Tis the season for Performance Appraisals and managers and employees around the world are screaming NOOOOOO!  It’s not that employees don’t want and deserve feedback, it’s just the lousy way most companies go about it.  Traditional performance appraisals don’t work.  They don’t motivate employees to higher performance.  They don’t give management a fair, accurate and consistent method of comparing employees’ performance to each other.  They don’t provide good legal defense from lawsuits and charges.  Instead they take up valuable time, cause great angst, strain personal relationships and may create legal liabilities.

In “Abolishing Performance Appraisals” Tom Coens and Mary Jenkins provide some excellent research and case studies to support that the way most of us “do” performance management is broken – but there is a better way.  That way involves fewer forms, less ratings and better attention to face-to-face honest discussions.  What a concept.

But, when the dust settles, most companies will still want to have a formal performance appraisal system that results in an overall rating.  I’m okay with that, but we need to acknowledge the challenges that “rating” presents.

From a young age, we are introduced to the concept of grading.  For 12-18 years (or more) we are seeped in a process where perfect performance (or close to it) earns us an “A”, while mediocre – satisfactory – average performance warrants a “C” and failure results in an “F”.  Of course, those of us who were high achievers strive to get “A”s and are disappointed with anything else.  That goal orientation is what makes us attractive to business.

Now enter the business world where there is also typically a 5 step rating scale which feels very familiar.  But now we’re supposed to be happy when we earn the middle rating of Meets Expectations.  But wait a minute, I don’t “meet expectations”, I exceed expectations – I obliterate expectations. That’s what I do. That’s who I am.  In school everyone could get all the questions right at get an “A”.  Now you’re telling me that if I do everything perfectly I get a “C”.  That’s not fair.  Maybe not, but it’s life.

It is a huge mental shift that that I have not yet found an adequate answer for.  Somehow we need to help managers and employees understand that the two scales are not comparable.  Here is how I like to define expected performance:

Meets Expectations means that an employee did everything I needed him to do, to the quality level I needed it done and in the timeframe required.  I hire good people and set high expectations so Meets Expectations isn’t “just getting by” it is being successful.  It is scoring a 95 or better on the final exam.  If everyone in the company were to meet expectations the company would achieve all of it its revenue and profit goals.  A rating of Meets Expectations should be cause for celebration and high-fives.  And yes, if you meet my expectations this year, I will raise my expectations for you next year because I expect growth and development.

Is this altruistic – or realistic?  I don’t know.  I’ve used this model for years in many companies and I continue to get pushback from managers saying “I’ve got really great people.  I can’t tell them they are average”.  I just shake my head and sigh.

Best wishes for a wonderful and rewarding Performance Appraisal season.

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Incentives For All – A Good Idea?

Pet peeves – we all have them.  One of mind is the way two important compensation terms are treated as synonyms but are really very different.  The words are Bonus and Incentive.  Here are the two definitions according to Dictionary.com:

Bonus – something given or paid over and above what is due

Incentive – something that incites or tends to incite to action or greater effort, as a reward offered for increased productivity

Note the key differences. A Bonus is “above what is due” whereas an Incentive is “a reward offered for increased productivity.”  So by definition, a Bonus is a surprise – a gift – an award.  Something you get when you didn’t know you were going to get it.  A bonus does not change behavior. A bonus can’t be announced in advance, or it becomes an incentive.  Okay – enough of a rant.  The bottom line is if you want to develop a plan that encourages employees to improve in some way and thereby earn a reward – that is an Incentive Plan – not a Bonus plan.

Let me mix in one more term-of-art – Pay-At-Risk.  Some jobs warrant an incentive plan that makes up some portion of their base compensation while for others the incentive plan is in excess of base pay.  For example:  if I have two workers who both have a “market value” of $50,000.  If I choose to pay one a salary of $25,000 and give him a commission plan where he’ll earn another $25,000 if he hits his sales goal, that person has the second $25,000 “At-Risk”.  If I pay the other person a salary of $50,000 and then give him an incentive plan that lets him earn $10,000 for exceeding goals, that $10,000 is an incentive, but he does not have any Pay-At-Risk.

Now the real question – is it a good idea to have all employees on some kind of an incentive plan?  Some will contend that the answer is yes because it will help focus all employees on achieving high performance and the collective corporate goals.  My contention is probably not because incentives don’t really work that way.

The fact is that most employees are not money motivated (see my earlier post “Does Money Motivate”).  For incentives to be effective the amount has to be significant (which is relative to each individual), there has to be a clear correlation between individual performance and achieving the reward, and the payment should be timed as close as possible to the result. So, tying a 3-5% incentive to all employees if the company achieves its annual profit goals will not work to “incent” the vast majority of employees.  While they’ll happily take the money (aka Bonus) and be very appreciative of it, they won’t actively attempt to modify their behavior on a daily basis in order to earn it.  The payout is too small, too far in the future and too indirect.

Key executives, sales employees, and piece-work manufacturing employees are all good illustrations where there should be some level of Pay-At-Risk.  These jobs typically warrant an incentive plan whereby they must perform in order to receive their full market pay. Plus, they should have some incentive to receive above market pay if their performance exceeds expectations.  I suggest that most other positions are not good candidates for incentive pay.  Recognition, rewards, and bonuses can all be great ways to encourage performance, loyalty and job satisfaction but these employees will not change their behavior to earn the additional money that is commensurate with their contributions to organizational success.

Use incentives and bonus plans – but use them wisely.  One last work of caution – be careful what behavior you incent, because that is what you’re going to get.

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Does Money Motivate?

Simple question – but not a simple answer: for a few – definitely; for some – a little; for most – no.  Let me give you a little background. 

There are lots of motivational theories running round, but I prefer two old favorites – Maslow and Herzberg.  Many will remember Abraham Maslow and his pyramid shaped hierarchy of needs from their high school psychology class.  Maslow states that people must have their lower level needs satisfied before they can move up the pyramid to higher level needs.  One is first motivated for Physiological needs such as food and water. Next up are Safety needs; shelter, employment, health and property. Next comes Love and Belonging, the need for friendship and family, and the theory moves up from there.  Maslow never directly addresses money yet compensation is inherent in employment, a Safety level need.  Money is a means to an end.  Therefore, people need jobs to earn money.  That money helps them to provide a home, food, security etc.

But Safety is a fairly low level need, and once one has satisfied the lower level needs, they are then motivated to achieve the higher level needs.  Using Maslow’s model we can conclude that money will motivate those who don’t have it, those who are unemployed and are afraid of their safety and security.  But using money as a motivation tool for an employed professional workforce doesn’t hold water.

My other favorite is Fredrick Herzberg.  Herzberg developed a two factor theory of employment satisfaction and divides factors into two classes: Motivating Factors (Achievement, Recognition, Work Itself, etc.) and Hygiene Factors (Pay and Benefits, Company Policy, Coworkers, Supervision, etc.).  Herzberg states that while Hygiene Factors are important (in fact they are crucial) they must simply be satisfactory.  You cannot gain improved performance by enhancing the Hygiene Factors.  Improved Performance (aka Motivation) only comes from the Motivation Factors.

Think about your situation.  Hopefully you are fully employed with an income that allows you to live the life you are currently living.  You have a home, you have food on the table, you can vacation periodically, you can send your kids to college, etc.  Sure, more money would be helpful, but do you get up each day and go to work and really do your best just because you get paid?  If I were to offer you the chance to earn 3% more money one year from now would you truly give me more effort and improved performance today?  I contend – probably not.  How about if I give you the opportunity to earn 10-20% of your pay if the company meets its overall profit plan?  Again, while you’d appreciate the money (if you get it) for most of us our chance to really affect the achievement of that money is so small that we will not work harder in order to earn that reward. We’ll continue to be the good, hardworking employees we’ve always been and if we get a “bonus” we’ll celebrate.

On the flip side, if you learn that you are the lowest paid employee in your department and you perceive that others who have lower levels of skill, education and performance are being paid substantially more than you, your performance will likely decrease.  In that case money has become a de-motivator.  Quite the conundrum isn’t’ it?

In coming weeks I’ll write more posts about incentives, bonuses and ways to use money as a motivator.  But for today take away that for most employees it’s not about the money, it’s about the recognition, appreciation and opportunity. Maybe it’s time to rethink that incentive plan.