Are we really surprised?

Companies have been obsessed with pay for performance for almost two decades.  And like any obsession, it has clouded the judgment of executives and others, such as human resources professionals and consultants, who should know better.

The problem is that pay for performance is founded on a two faulty beliefs:

1. If you reward something you get more of the behavior you want.
2. If you punish something you get less of the behavior you don’t want.

Unfortunately for our misguided execs, study after study has demonstrated results that massively contradict this way of thinking.  It’s hard to fault them entirely.  Logically, one would think that incentives work.  The science, however, has proven otherwise and has found:

1. As long as the job involves only mechanical skills or rules-based tasks, incentives work as expected.  The higher the incentive, the better the performance.
2. But once the job calls for even rudimentary cognitive skill—some conceptual and/or creative thinking—a larger reward leads to poorer performance.

These results have been replicated over and over again by psychologists, sociologists, and economists . . . including those funded by that left-wing, socialist institution, the U.S. Federal Reserve.  Even a recent study from McKinsey found that three noncash motivators—praise from immediate supervisors, attention from leaders, and a chance to direct projects—are at least as effective as the three most highly rated monetary ones.

Now, don’t misunderstand me.  Money is a motivator.  If you don’t pay people enough, they won’t be motivated to do the job.

Once you pay people enough, however, it is no longer a factor in motivating performance, especially in jobs that require basic cognitive, conceptual and creative skill . . . the majority of jobs in the U.S. economy.

Organizations must stop drinking the pay for performance Kool-Aid.  Pay for performance, carrot and stick management, performance appraisal, time clocks, verbal and written warnings, and many other management and HR practices are outdated and just don’t work.

Instead, it’s time to equip managers with the tools to manage in the modern workplace and support them with HR programs and practices that encourage the right behavior.  That’s about redefining what it is to manage and it’s about completely overhauling HR.  More importantly, it’s founded on the notion that we stop treating people like cogs in a machine and start treating them like smart, creative, self-motivated people who want to at all times do their best.

That’s not just some feel good manifesto.  It’s the fact-based, scientific reality required to be a high performing organization.

It’s simple, really.  Most “modern” corporations kill human capability the way we strip-mine and deplete the earth of natural resources.

Think about it.  We hire bright, ambitious, enthusiastic young people fresh out of the hope and idealism of school.  We stick them in cubicles under fluorescent lights away from windows so they can’t tell whether it’s day or night, sunny or rainy.  We tell them to dress a certain way, show up at a certain time, eat at a certain time, and stay late enough to make a good impression.  We encourage them to not express emotion, talk with the right jargon and tone, write with a particular style and embrace certain values and principles and mission statements.  And we force them to comply with standardized procedures, criticize their shortcomings when they fail to do so, and threaten their security if they get too far out of line.

It sounds a bit like the way cults program people, doesn’t it?  In fact, it’s not too far from the truth.  Cults program people to be silent, loyal, endure pain (to be “strong”), to do the jobs they’ve been assigned and to subscribe to the spiritual values of the group.

I’m not saying that corporations are cults . . . not really . . . I’m saying that the traditional structures of managerial control are designed for compliance and to produce performance within a steady, predictable, average range.

And that’s not good enough anymore.

While it’s cliché, the world is changing too fast, too dynamically, too organically, too symbiotically.  The old linear, command and control, carrot and stick model may work when you want compliance to routine tasks.  If, on the other hand, you want innovation, creativity and high performance, this doesn’t work.

Creativity expert Sir Ken Robinson argues that we don’t get the best out of people because we educate them to become good workers, rather than to be creative thinkers.  Sir Ken led the British government’s 1998 advisory committee on creative and cultural education, a massive inquiry into the significance of creativity in the educational system and the economy, and was knighted in 2003 for his achievements.

Students with restless minds and bodies — far from being cultivated for their energy and curiosity — are ignored or even stigmatized, with terrible consequences. “We are educating people out of their creativity,” Robinson says.

We can apply the same thinking to the way we manage people in organization life.  Take performance appraisal, for example.  The primary HR methodology pushed on organizations over the last 40 years is a standardized, “fast food” model.  It’s built around standard ratings as well as standard competencies or goals or some other check list for evaluation.  It’s meant to be batch processed once or twice per year and rolled up to higher executive, finance or HR authorities for approval.  The expectation is that our staff will fit a normalized distribution curve and that we won’t have too many people that exceed expectations.  This way the compensation distribution will fit the budget.

What’s the point of that approach?  Certainly not developing people.

To create an environment where people can reach their highest potential, you need the “Zagat or Michelin” approach where development, motivation, and engagement are “customized to local circumstances.”  In other words, talent is incredibly diverse even within the same department or function.  People have different aptitudes, passions and motivation.  To help them apply their unique gifts to their jobs, we have to tailor our approach and create the conditions where they will begin to thrive.

Instead of separating people from their natural talents so they can fit a standardized mode, we have to help them identify and connect those talents to the ways they can contribute.  Developing human potential is not a mechanical process.  It’s an organic process that requires customizing to your circumstances and personalizing our approach to managing to people we are managing.

We can’t do that simply by installing a new technology, rating methodology or competency model.  We do this by developing the ability of organization leaders to listen and identify the talents of employees, and to help them apply their gifts in unique and remarkable ways.

Business has become incredibly sophisticated. We have phenomenal technology and analytical tools as well as proven frameworks and methodology. Our ability to use science and reason has taken a significant amount of guesswork out of decision-making.

In addition, the number of college graduates in the U.S. workforce grew from 29 million in 1993 to 40.6 million in 2003. The number of college graduates who completed degrees in more than one broad field also increased from 3.4 million in 1993 to 5.6 million in 2003.

We are smarter, better, faster (cue the Six Million Dollar Man theme song).

Yet we still struggle to manage the human side of change or to have a conversation with an employee about job performance. It just goes to show you that intellect alone cannot improve our organizations.

I wonder whether it is because we have forgotten to put first things first: compassion, meaning, purpose. These, too, are the tools of great leaders.

The single-minded pursuit of financial return above everything else has given us . . . financial return. We got it, and now we can’t buy with it what we want to buy. We have pursued immediate gains while waving the flag of rational, practical decision-making. And in retrospect, we have made anything but rational, practical decisions.

The trouble with being rational is that it focuses too much on what is. And “what is” keeps us stuck in the weeds. Instead, we should be irrational dreamers focused on what can be because “what can be” raises our sites and lifts us higher.

In the above video from 1972, legendary psychiatrist and Holocaust-survivor Viktor Frankl delivers a powerful message about the human search for meaning — and a most critical way of approaching our work with others. Frankl says,

“If we take man as he really is, we make him worse. If we over estimate him and look at him higher, we promote him to what he really can be. We have to be idealists. If you don’t recognize man’s search for meaning, you make him worse, you make him dull, you make him frustrated. There must be a spark of a search for meaning. Let’s recognize it. Let’s presuppose it, then you will illicit it and you will make him become what he is principally capable of becoming.”

Take it higher . . .

 

Innovation is a hot topic in the United States, especially now as we search for ways of igniting our economic engines.  From business publications to the main stream press, legions of voices are elevating the attention brought to the subject.   

Based upon the research, it’s clear that innovation is a requirement of healthy, vibrant, growing economies and businesses.  The challenge, however, is how to create an environment that allows it to thrive.   

The fact is that innovation creates mixed feelings.  Looking back, the great innovators are heroic. We put their faces on magazine covers, write books about them, and build statues in their honor.  We salute the visionaries of yesteryear because they stood fast in the face of naysayers and adversity and courageously marched forward to make their dreams real.  Innovators change the world. 

But in the present, what do we do with these unique individuals?  We brand them as irritating malcontents.  They are the reckless idealists who simply won’t be quiet and play by the rules.  They are not team players.  They don’t show much corporate promise because even when all is well with the status quo, they are tinkering with the system.  They are never defined as high potential.

How many of you would hire Thomas Edison or Bill Gates or Steven Jobs or Fred Smith?   Not until Joseph Juran and Edwards Deming created success in the upstart, post war nation of Japan did their ideas catch on back home.  And before Walt Disney created the world’s first media conglomerate, he faced rejection from the Hollywood mainstream that thought Mickey Mouse would never appeal to the public. 

What’s interesting, however, is that no matter how we marginalize innovators, they keep reappearing.  They are persistent, resilient, and unfazed, if not motivated, by those who count them out. 

That’s not just a warning.  It’s an expression of gratitude that should be a strong call to action. 

More than ever, we need innovators to reappear in our businesses, our schools and our nation.  For years, the United States was the world’s dominant innovator.  But as we begin the second decade of the 21^st Century, we can no longer rest on our laurels.  Here are a few facts: 

• Research by the Information Technology and Innovation Foundation reported that out of the 40 countries and regions it examined, the U.S. ranked dead last in innovation.
• In 2009, patents issued to American applicants dropped by 2.3 percent. Those granted to foreign-based applicants increased by over 6 percent.
• The WEF ranks the United States third for corporate invest­ments in R&D when relying on its opinion survey, but in comparing 37 nations in corporate R&D spending as a percent of GDP, the United States ranks fifth2 and ranks even worse, 17th, in terms of growth in corporate R&D investment.
• Until 1979, around 50 percent of all research and development funds were provided by the federal government. That number has fallen to 27 percent. And, during the 1990s, the bottom fell out of U.S. funding for applied science, dropping by 40 percent.
• The United States is ranked 29th of 34 in percent growth of scientific researchers in the last decade.
• United States falls behind in several relevant indicators such as:  11th in broadband leadership, 36^th in corporate tax, 32^nd in foreign direct investment (FDI), 32^nd in trade balance, 9^th in higher education, and 5^th in productivi­ty.
• The United States no longer ranks first in venture capi­tal as a share of GDP, but fifth among 37 nations.
• America once led the world in high school graduation rates. We are now ranked 18th out of 24 industrialized countries.
• And the percentage of 15-year-olds performing at the highest levels of math is among the lowest. South Korea, Belgium and the Czech Republic, among others, have at least five times the number the U.S. does.
• Over the past decade, lit­eracy among college graduates has actually declined.  In fact, among recent graduates of four-year colleges, just 34, 38 and 40 percent were proficient in prose, doc­ument, and quantitative literacy, respectively.

We need to get serious about innovation.  There is no doubt that it’s a critical item for our national agenda, but there is much to be done at the ground level, too.  We need to create work environments that allow innovators to thrive.  In part, that’s about recognizing the Joy of Failure.  More importantly, it’s about some simple, yet powerful, changes we can make in the way we manage and engage the people in our organizations.

More on this in my next post . . .

After struggling to develop a viable electric light-bulb for months and months, Thomas Edison was interviewed by a young reporter who boldly asked Mr. Edison if he felt like a failure and if he thought he should just give up by now. Perplexed, Edison replied, “Young man, why would I feel like a failure? And why would I ever give up? I now know definitively over 9,000 ways that an electric light bulb will not work. Success is almost in my grasp.” And shortly after that, and over 10,000 attempts, Edison invented the light bulb.

Failure is one of the best things we can do to enhance our ability to be successful. It’s too bad that so many organization leaders don’t understand this.

Stanford University psychologist Carol Dweck has been studying how people handle failure for 40 years. Her research has led her to identify two distinct mind-sets that dramatically influence how we react to it.

A fixed mind-set is grounded in the belief that talent is genetic–you’re a born artist, athlete, or financial whiz.  Individuals with a fixed mind-set believe they are entitled to success without much effort and regard failure as an outrage and caused by something outside of themselves. When things get tough, they are quick to blame, withdraw, lie, and even avoid future challenge or risk.  In the fixed mindset it’s not enough to succeed, you have to be flawless and you have to be flawless right away.  Either you have “it” or you don’t.

A growth mind-set, on the other hand, assumes that talent is not genetically based and that effort and learning make everything possible. Because the ego isn’t on the line as much, the growth mind-set sees failure as opportunity rather than insult.  When challenged, it’s quick to reassess, adjust, and try again.  In fact, it relishes this process.

When those with growth mind-sets fail at a task, Dweck found that they enter a more focused mental state as they try to figure out their mistake.  And in subsequent trials, they improve. In effect, they’ve learned, and their brains have “grown.” Those with fixed mind-sets, however, never enter this focused state of learning and show little, if any, progress.  Researchers at Washington University School of Medicine in St. Louis and the University of Chieti, Italy, back this up and have used MRI’s to show that individuals with a growth mind-set actually “sculpt” the brains wiring.

Interestingly enough, the fixed mindset and its desire to think of oneself as perfect is often referred to as the “CEO disease.”  To be fair to CEO’s I would extend this obsession with infallibility to all the wannabe kings that exist in organization life . . . right down to many project managers.  And this explains why so many leaders fail to behave adaptively during times of change.

One of the primary reasons I’ve seen change initiatives fall off the rails is because project teams hate reporting bad news.  And they hate reporting bad news because project sponsors, project managers, organization leaders, procurement, and other technically-focused, fixed mind-set types sit on the sidelines waiting to pounce.  When something goes wrong, they quickly point the finger . . . at the vendor, the contract, the functional leader, each other or whomever and whatever is an easy scapegoat.

Consequently, this kind of environment causes project managers and teams to hide problems rather than coming clean about a missed deadline or an unclear project specification.  Eventually the problems escalate, and instead of learning, growing, and moving the project forward, everyone starts worrying about being judged.  As Dweck says, “It starts with the bosses’ worry about being judged, but it winds up being everybody’s fear about being judged.  It’s hard for courage and innovation to survive in companies with this mindset.”

Amen, sister!

Years after his mother pulled him out of school when the teacher thought him unteachable, Edison recalled, “My mother was the making of me.  She was so true, so sure of me; and I felt I had something to live for, someone I must not disappoint.”  She didn’t see the imperfection.  She saw the potential.

Success is not defined by perfect pedigrees, perfect resumes, and perfect personas.  It’s not even defined by perfect project plans or perfect execution.  Instead, it’s achieved by adapting, learning, growing and the constant warts-and-all quest for improvement.

The usual suspects were at the monthly review meeting for the North American division of a multinational firm with about 25,000 employees in the U.S. and Canada.    They included the president, the CFO, general counsel, the SVP of marketing, the CIO, SVP’s from two lines of business, and the SVP of HR.  The company had been performing reasonably well through the recession.  Revenue growth was flat and profitability was slightly below projections.

On this particular day, the CFO was first on the agenda.  After a review of the month’s numbers, he made the following statement:

“As all of you can see, we are only slightly behind our projections this year.  All things considered we have weathered the storm reasonably well.  The challenge we have for the remaining six months of the fiscal year is that if we want to make sure we get full bonuses, we’ll need to make a 5% headcount reduction.  A 2.5% reduction will get us to 80% payout, but a 5% reduction should get us to 100%.”

The overwhelming sentiment in the room was to move forward with the 5% reduction.  After he attempted one small protest that was quickly rebuffed, my friend (not the HR exec incidentally) sat quietly and wondered how he’d look under the blue and gold Sabrett’s umbrella.

Layoffs.  To make sure the executive team received their full bonus payout.

Companies have always cut back on the number of workers during challenging economic times.  There are circumstances where it is necessary for survival.  But for the last 30 years, it has become part of the standard operating playbook of American corporations even when they remain profitable.  There are many companies where RIF’s, restructurings, and downsizings have become a quarterly event.

Now, as reported by Jeffrey Pfeffer in the latest issue of Newsweek, there is a growing body of evidence to show us something we’ve always suspected intuitively.

Layoffs don’t work . . . unless, of course, the only goal is to secure bonuses.

I encourage you to read the article, and even better, read the research studies themselves.  Here are a few bullet points from the piece.  The facts are astounding.

• Companies that announce layoffs do not enjoy higher stock prices than peers—either immediately or over time. A study of 141 layoff announcements between 1979 and 1997 found negative stock returns to companies announcing layoffs, with larger and permanent layoffs leading to greater negative effects.
• An examination of 1,445 downsizing announcements between 1990 and 1998 also reported that downsizing had a negative effect on stock-market returns, and the negative effects were larger the greater the extent of the downsizing.
• Yet another study comparing 300 layoff announcements in the United States and 73 in Japan found that in both countries, there were negative abnormal shareholder returns following the announcement.
• Another myth: layoffs increase profits. Even after statistically controlling for prior profitability, a study of 122 companies found that downsizing reduced subsequent profitability and that the negative consequences of downsizing were particularly evident in R&D-intensive industries and in companies that experienced growth in sales.
• Layoffs literally kill people. In the United States, when you lose your job, you lose your health insurance, unless you can afford to temporarily maintain it under the pricey COBRA provisions. Studies consistently show a connection between not having health insurance and individual mortality rates.
• A study in New Zealand found that for people 25 to 64 years old, being unemployed increased the likelihood of committing suicide by 2.5 times.
• A recent National Bureau of Economic Research working paper reported that in the United States, job displacement led to a 15 to 20 percent increase in death rates during the following 20 years, implying a loss in life expectancy of 1.5 years for an employee who loses his job at the age of 40.

Nicholas Kristof’s column in yesterday’s New York Times shared that the origins of political judgments may in part be the result of our fundamental personality type and even in the hard-wiring in our brains.  While even the researchers agree there is more work to do to validate these findings, it is consistent with the growing body of research suggesting that our brains may control us more than we control our brains.

The way we think and learn, the way we process information, the way we experience the world and the way we express ourselves are deeply encoded in our DNA.  It’s unique, personal and very “customized.”

Yet all too often we approach change in mechanistic and standardized ways.  It doesn’t matter whether we are changing a political point of view, changing a technology or asking an individual to change their job performance.

The point of this isn’t to say that creating change is impossible.  Instead, it suggests that creating change starts with understanding those who we are trying to influence.  Especially since their ability to change is all in their head.

Listening is an essential ingredient for innovation.

Eric Lewis listens to the world differently than the rest of us, and as a result, is creating the next evolution of jazz.  I had the joy of seeing him a number of years ago–before the hair–when he was playing with Wynton Marsalis.  Then, he was electric.  Now, he is unleashed!  His version of Evanescence’s “Going Under” is inspired.  He captures the raw energy of alternative rock, the spirit of classical jazz, and a plays with a passion that is transcendent.

Innovators, like all masterful change artists, understand the essence of things.  And that’s a level of listening that goes beyond just hearing.  Innovators get under the skin of things, not to control them, but to appreciate them and to empathize.  It’s that deep understanding, when combined with the same depth of perception in other areas, that opens up their ability to synthesize, make connections, morph and discover new possibilities.

In a panel at Wharton’s 125th anniversary celebration, C. Robert Henrikson, chairman and CEO of global insurer MetLife, said, “All parts of the organization must have a sense of the customers’ business to anticipate their needs and reach out with innovative ideas.”   In the same panel discussion, New York City developer Jeffrey Katz, CEO of Sherwood Equities, a major investor in Times Square, said business leaders must remain open to what comes their way in order to capitalize on opportunities.

Having a sense of; being open; empathizing.  That’s about listening.  Creating an innovation culture depends upon it.