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February 16, 2006
Quitting Time in America
My wife and I had dinner on Saturday with some of our closest friends. Because it's bonus week all over the world this week, the conversation turned to bonus gossip.
One of our friends, a senior executive at a large financial services institution, described their new compensation structure and incentive plan.
Once again, I was amazed at how often and how badly perfectly good organizations with absolutely brilliant people manage to mis-align incentive with performance.
I'd like to go into details and describe this plan because it's one of the worst I've ever heard of, but it's just too small a world. Suffice it to say that this structure was supposed to incent teamwork--but required the team--a team of senior, seasoned, independent contributors, each with a dramatically different set of contributions--without supervision, to decide how to allocate the bonus among team members.
None of us are cynics by nature, but it was clear to all of us that this week, that organization would experience some involuntary turnover. And, because the folks who left would do everything they could to take business with them, it was clearly going to be the bad kind of turnover.
That left me wondering. The institution clearly didn't want these folks to go--after all, that's why it paid out on its incentive plan. And I'm sure none of the individuals want to go, either. Finding new work is a pain and most of us prefer the devil we know to the devil we don't.
But the institution will lose clients, revenue, talent and the bonus dollars themselves--and for what? To save itself the time necessary to manage the process?
There's got to be a better way. And of course, there is: eliminate incentive pay.
But here's the dirty secret behind incentive pay. Most organizations say the purpose is to align performance with organizational goals...and yet, I'm convinced that all most people require to align with goals is to know what the goals are. Most of us show up to work to work, to do a good job, to contribute. And those who don't won't be turned around by a few more dollars. (Chances are, they won't earn the incentive payouts, anyway.)
So what's the "secret?" Too often, incentive pay isn't about incenting performance: it's about saving money.
But there's an irony here. Going back to the financial services case study, while I don't have any hard data at all, I have a hunch that the institution will lose more--probably much more--as the result of involuntary turnover among those who can leave and lackluster performance among those who stay than it will save by putting employee dollars at risk.
So it's quitting time in corporate America. What a shame.
Posted by davidkippen at February 16, 2006 03:54 AM