You better watch out, you better not cry
Better not pout, I’m telling you why
Santa Claus is comin’ to town
He’s making a list and checking it twice
Gonna find out who’s naughty and nice
Santa Claus is comin’ to town
(Santa Claus Is Comin’ To Town, Lonestar)
Children around the world are told all year round that if they misbehave, On Christmas day Santa will skip the candies and give them charcoal instead.When companies carry out their annual employee engagement surveys, some managers too get their lumps of charcoal. Surveys and studies comes back with the clear message that ‘People leave managers, not companies‘
It’s the almost the end of 2014 and we have seen momentum building in the world of Employee Engagement. The approach is maturing. More people are actually talking about it as a strategic requirement. Growth is picking up in markets across the world.
Employees matter more than ever. Workforces are now a complex mix of generational cohorts in transition. Based on what I have seen – trends, surveys, feedback from our (rather large) client base, and the “buzz” we hear, I am going to take a stab at predicting the five things I expect to happen in the world of Employee Engagement in 2015.
The quick list:
The Bell-Curve will still rule (and continue to disengage)
SaaS adoption will increase in HR, especially in world of Employee Engagement.
Gamification will make inroads into mainstream processes but diffusion will hurt impact.
Health and Wellness will (finally) become an Employee Engagement topic.
Employee Engagement will go beyond just handing out Rewards.
The more colorful fun (and detailed) version is here (Use the Presentation Mode, its really awesome)
The downloadable single image version is here. (Feel free to chop into pieces and use in your own presentations etc. I only ask that you link back to this post or the kwench website)
The Architect – Precisely. As you are undoubtedly gathering, the anomaly is systemic, creating fluctuations in even the most simplistic equations.
Neo – Choice. The problem is choice. (Matrix Reloaded, 2003)
On this blog and in quite a few conversations, I have pointed out the risks of overtly relying on cohorts or grouping of employees to formulate an employee engagement strategy. Using segments and cohorts to understand broad behavior and drivers of engagement is okay, but trying to engage the individual based only on those conclusions is not the best approach.
As ‘Neo’ puts it in the movie Matrix Reloaded , the ‘problem’ is Choice or to be more accurate, in this case – individuality. Every employee is an individual with her own priorities, preferences, fears and responsibilities.
Work, forms an important part of an employees life – and the emphasis I place is on ‘part’ and not on ‘important’ because that aspect is the one that often gets missed out when employee engagement strategies or initiatives are designed. As an individual with family, friends, interests, hobbies, ambitions and aspirations – responsibilities at work represent just a fraction of the things that matter to the employee.
There are a bunch of things that are important to the employee (health, financial well being, spending time with family, a social life, learning new things, new experiences) and there are things are important to the organization (employee well being, profits, playing an important role in the society, innovation).
When an employee is at work, he is operating in the intersection of these two spheres – there are things that matter to him which align with what matters to the organization. When this overlap is driven by the correct factors (alignment on the larger picture, the direction the company is taking, quality of work, the work culture etc.), there is a zone of alignment that is sustaining (and empowering).
When what matters to the organization (as perceived by the employee) starts to drift away from what matters to the employee as an individual, this overlap reduces, the zone of alignment starts to shrink and becomes unsustainable. This is when disillusionment sets in eventually leading to Disengagement if corrective measures are not taken.
Too much of something:
The logical question that follows is what when there is perfect alignment – shouldn’t that be the ideal state? To borrow (somewhat incorrectly) from that age-old adage, “Too much of anything isn’t good for you”
A situation where an individual is completely (and only) aligned with what matters for the organization makes him dysfunctional in other things that should matter to him. If the last line reminds you of the uptight, always-on-the-edge, hard driving, ranting and screaming executive, you are bang-on.
The other (unintended) consequence of such a situation is that individual then subsumes his discretion to what seems best for the organization. Being too focused on one aspect inevitably leads to a myopic vision of what is correct. It is the healthy balance of all aspects in ones life that helps drive a balanced approach towards challenges – both personal and at work.
A ‘super-mom’ I know uses negotiation skills learnt at work with her 1-year-old infant (works most of the time) and then takes the lessons learnt from handling the concerns of parents, her husband, siblings back to work to engage with her multi-generational team. Imagine what would happen if she tried a time-sheet driven approach with her infant or never took time out to spend time with her parents or spouse but focused only fixing “issues” at work (of which there never seems to be any dearth).
The Time Element:
Unlike organizations, what ‘matters’ to an individual is in a state of flux. I am not talking of value systems, or ambitions – those are (hopefully) rather fixed. I am referring to the drivers of what is a priority. Companies and Institutions have stated goals at time of creation and (usually) those drive everything they do. People on the other hand have changing preferences and changing events and these affect the overlap and consequently the alignment they have with the organization.
If the organization stays rigid on how it interacts with the employee, then the extent of alignment is bound to change. Again an increased degree of alignment is not necessarily a good thing.
A few years ago I got chatting with a senior executive at a party. He was really good what he did, and totally disengaged. He was so efficient at what he did that the organization was reluctant to consider what his own personal aspirations were and had kept him doing the same thing for years on end. “The Gap of Disengagement” was very clear and he was looking to quit because he realized that by staying on he was damaging himself and the organization through his disengagement. I ran into him two years later in a busy airport and was surprised that he was still with the same organization in the same role. When I quizzed him, he confessed that he was still disillusioned but a personal crisis had made it impossible for him to look for other possibilities. His efficiency gave him more time at home and so he compromised his ambitions to stay on with his employer. The executive’s alignment with his employer had increased, but it was driven purely by convenience.
Smart organizations would avoid this situation by being aware of various dimensions of what drives each employee. DIY Pulse surveys are a good way; Managers who listen to their team members and do something about their concerns are even better.
A static employee engagement program is not enough neither is a “one-size-fits-all” approach. Like ‘generically designed’ antibiotics can have unexpected nasty side-effects in patients, employee engagement strategies designed for ‘masses’, ‘cohorts’ or ‘segments’ can induce the reverse effect. The pharmaceutical industry has woken up to the importance of pharmacogenomics to counter the ill effects of ‘universal-design’ for medicines – its time for HR professionals to follow suit.
Post title inspired by the Twilight Zone series (1958)
Every hour and every day I’m learning more/The more I learn, the less I know about before/The less I know, the more I want to look around/Digging deep for clues on higher ground (Higher Ground, UB40)
In my post yesterday I talked about the ABC Drivers of Intrinsic Motivation. (Achievement, Belief and Camaraderie). A sense of achievement is something you derive by, among other things, being in the job/role that is right for you and then being very good at it.
The 2×2 grid (yes, blame it on the B-school stint) below shows how where you lie on the Role-Relevance and Role-Competency axes will determine your sense of achievement.
Relevance:Low, Competence:Low – Disengaged Employee: If an employee is in the third quadrant i.e he is placed in a role that he doesn’t like and also does not have the skills to perform then he is effectively being setup for failure and will be highly disengaged as he has little motivation to do a good job. If an employee finds himself in this situation then it is a failure of the organization and specially his immediate supervisors more than his own.
Relevance:Low, Competence:High – Efficient Employee: If an employee finds that he has a role that he doesn’t like but is good at then he is efficient at his job but is not engaged. He will do assigned tasks well and deliver on time, but will not be motivated to put in discretionary effort. Good managers can make a difference by listening and understanding what truly motivates their team members and finding a way to move them from Q1 to Q2 or Q3
Relevance:High, Competence:Low – Motivated Employee: When an employee is in a role or team which he wants to be in but is not trained for then he is motivated (but not competent). By providing the right training and support, employees who are in this quadrant can be easily moved into the ideal situation – into Q2.
Relevance:High, Competence:High – Engaged Employee: This is when employees are motivated to give their best to the job. They are in a role they want to be in and have the required training and competence to deliver results. When employees are in this quadrant, their sense of achievement is the maximum.
Companies on the 2013 list of Fortune 100 Best Companies to Work for, offered 66.5 hours of training annually for salaried employees, with around 70% of those hours devoted to employees’ current roles and nearly 40% focused on growth and development.
Organizations that are not bound by rigid hierarchies and siloed org-structures have the flexibility to, better engage their employees by investing in training and having the opportunity to move them to roles they prefer. These are exactly the kind of facts that a good Employee Engagement Survey should throw up.
It is not a coincidence that a majority of the top rated employers also have the highest investments in learning. These organizations know that investing in engaging employees with the right role and competency fit, also prevents a ‘brain-drain.’ Employees in all age-groups and roles need continuous support to expand their skills. Investing in skills and knowledge training, of employees communicates a sense of commitment by the organizations in the future of its employees and goes a long way towards fostering a sense of achievement.
The Indian media is at present abuzz with discussions around the ‘Rohtak sisters’. That video, of two fragile looking girls lashing out at men who tried to harass them on a bus (while other passengers just sat there watching them) – got me thinking about the effect of another kind of harassment – workplace bullying.
At some point or the other, we have all had to put up with unpleasant people at the workplace – The kinds who seem to get away with anything because they are ‘rainmakers’ or perceived as ‘too powerful.’ Workplace bullying unlike the pedestrian kind seen on the streets comes in various shades and some of the forms take on a garb of sophistication that makes it very difficult for the victim to attribute as bullying. The term ‘workplace bullying’ often conjures up mental images of a manager who is ranting and screaming or of snide and tangential remarks directed at women in the workplace. These are but just a part of what constitutes workplace bullying and it is by no means limited to Type A aggressive ambitious men (who are incorrectly portrayed as always being extremely aggressive) playing a winner-takes-all game.
‘It is terrifying’
In a study that revealed some startling insights, psychologists at the University of Surrey compared personality profiles of high-level executives with those of criminal psychiatric patients and found that three of the eleven personality disorders were actually more common in the executives.
The executives seemed to be prone to the following three maladies:
Histronic Personality Disorder: People who suffer from this disorder demonstrate a pattern of excessive attention seeking. They tend to show superficial charm, insincerity, and egocentricity and often indulge in manipulative behavior.
Narcissistic Personality Disorder: People suffering from this type of personality disorder are excessively preoccupied with power, prestige and vanity. They are seen to have an exaggerated sense of self-importance and have a strong need for constant admiration.
Obsessive-Compulsive Personality Disorder: These are executives who are overtly focused on perfection. They tend to come across as extremely devoted to their work and tend to be rigid and stubborn with dictatorial tendencies.
In his book Corporate Psychopaths: Organizational Destroyers, Clive Boddy identifies two types of bullying in the workplace:
Predatory Bullies: These are people who enjoy tormenting others just because they can – they are no better than their roadside variants. (The ones that gang up on a soft-spoken member of the team, the ones who pass snide remarks at women in the workplace, the manager who gives a team-member lower rating for no particular reason)
Instrumental Bullies: These are the smart ones. Their bullying is always to further their own goals. More often than not these bullies are narcissists.
Narcissists in the workplace usually resort to indirect (and sophisticated) bullying. Typical tactics include withholding information, leaving team members out of the loop, getting others to keep doing work below their competence level, gossiping and putting down others behind their back.
‘They walk among us’
In his book “The No Asshole Rule” (and the inspiration for the post’s title), Robert Sutton lists down twelve everyday actions that he feels Assholes use:
Invading one’s ‘personal territory’
Uninvited physical contact
Threats and Intimidation: Verbal and Non-Verbal
‘Sarcastic Jokes’ and ‘Teasing’ used as insult delivery systems
(IM) Status slaps intended to humiliate others
‘Status Degradation’ rituals
Treating people as if they were invisible/Ignoring people.
Everyone who has been in a high-pressure situation at work has demonstrated one of more of these behaviours at some point or the other. Sutton points out that psychologists make a distinction between ‘states’ (fleeting feelings/actions) and ‘traits’ (enduring characteristics).
Surveys and research has shown that workplace bullying is not isolated or restriced to a few unlucky ones. In her dissertation titled ‘Workplace Bullying: Aggressive Behaviour and its Effect on Job Satisfaction and Productivity’, presented by Judith Lynn she says:
“The data in this study found that 75% of participants reported witnessing mistreatment of coworkers sometime throughout their careers, 47% have been bullied during their career…”
The (real) impact on Organizations (that put up with A&$*@!#%)
In the past companies (read top management) used to often look the other way when people reported about badly behaved superiors. There are several reasons why this happened. Maybe (and this is often the reason) the intolerable executive was delivering numbers or maybe he was the rainmaker and leadership felt they couldn’t afford to loose him. Sometimes the person is the leader and the culture then percolates down to lower levels of the company.
In his book Sutton gives the example of Linda Wachner, former CEO of Warnaco who would ‘dress down’ her senior executives and made them feel ‘knee-high’. To make matters worse former employees allege that the attacks were ‘personal rather than professional and not infrequently laced with crude references to sex, race or ethnicity’. He also talks about ‘Chainsaw’ Al Dunlap, former CEO of Sunbeam who is described as ‘like a dog barking at you for hours…He just yelled, ranted, and raved. He was condescending, belligerent and disrespectful’
How engaged do you think people working for these leaders felt?
Organizations are waking up to the risks of putting up with people that are mean or ones who sideline people to further their ‘divide and rule’ strategy.
Research has shown that at the very least workplace bullying leads to increase stress among the workforce, which causes disengagement, productivity loss and even health issues. All of these have a real measurable impact on the bottom line at the end of the day. In some extreme cases, that victims display Post-Traumatic Stress Disorder (PTSD) – usually associated with severe trauma like rape or being in a conflict-zone.
That’s not all. Companies have to put with the associated costs of increased attrition – not only of the victims but even those who witness it.
Based on replacement cost of those who leave as a result of being bullied or witnessing bullying, Rayner and Keashly (2004) estimated that for an organization of 1,000 people, the cost would be $1.2 million US. This estimate did not include the cost of litigation.
The cost of workplace bullying represents a ‘Clear and Present Danger’ to responsible organizations that are looking to foster a motivating and innovative work culture. It will be nearly impossible for organizations to attract top-talent when a lot of their energy is wasted in managing the fall-out of aggressive behavior or petty-politics.
Good leaders realize this and are starting to take the ‘bull by the horn’. Work Culture is clearly defined and those who seek to undermine it are not tolerated – no matter how important they might seem to the organization. They might be critical today, but the damage they do in the long run will far outweigh any gains they provide.
‘Do you believe your manager/supervisor indulges in manipulative or divisive behavior?’ is a question that might soon start appearing in Employee Engagement Surveys.
In case you are interested, here are some related Tools:
You stole my money honey/You’re cold your blood’s stopped running/And know you’re buying your new life/Can’t help but find you funny: You Stole My Money Honey, Stereophonics
Companies worldwide agree that they are paying the price for having disengaged employees on their workforce. But what is often not clear is the extent of impact disengaged employees can have on the financials of the organization. Considering the heavy costs of disengagement (and investments supposedly made into employee engagement), this might seem pretty surprising to most. Not so, if you consider that the effect of disengagement is difficult to quantify at the least and nearly impossible to isolate at worst.
Can the CEO attribute the failure of a major product launch to disengagement? Maybe the market research got it wrong. Maybe the bugs were introduced because of the crunched timelines. Maybe the communication that went out didn’t convey the correct messaging. Maybe the products were not innovative enough – but was that due to caliber of the team or were they just not motivated enough to think things through? Maybe the business leader was overbearing with is ideas and no one cared enough to stand up to him?
As you can see, unlike clear financial and sales metrics or project timelines, identifying the extent of disengagement and its contribution to failure is a Herculean task. Herculean – Yes, Impossible? No.
Lets try and break down the costs in the typical areas where employee disengagement impacts the organization.
Part 1: The short-term/immediate impact
The productivity cost:
Research has concluded that engaged employees are about 31% more productive than their dissatisfied counterparts. Engaged employees will find ways to fix customer issues, reduce costs, improve processes that disengaged employees will not. When faced with a problem, chances are disengaged employees will throw the company rule book at you while engaged employees will go and find ways to fix it – sometimes using mechanisms that are not there in the rule book! (in a good way of course – in fact that is another impact covered in a later point)
So lets factor in (A) up-to a 31% productivity cost due to disengagement.
The sales topline impact:
According to CSO Insights’ Sales Compensation and Performance Management Study, at organizations where less than 50% of the salespeople were actively engaged, only 39% achieved their quota. This number almost doubled to 63% achieving their targets when 75% of the sales staff was engaged. A disengaged sales force might see issues ranging from macro market situation to a problem with the product, the sales collateral, the brand positioning – whereas engaged employees will figure out what it takes to get the sales. They won’t tell you the sales collateral is all wrong, they will talk to the marketing guys to point out exactly what is wrong and get it fixed.
So if you don’t have a full engaged sales force factor in (B) up-to 50% shortfall in sales targets being met.
The employee replacement cost:
Disengaged employees are more likely to quit – now that’s hardly news. What is astonishing is the fact that surveys shows they are 87% more likely to quit than their more engaged counterparts. Would you take a flight that is 87% likely to fail somewhere along the way?
So the organization gets saddled with the cost of replacing these employees at some point in time. The SHRM estimates that considering the costs of find a replacement, training, and productivity loss et al., the employee turnover costs in an organization ranges from 100-300% of the departing employees base salary.
Lets consider the midpoint and add that to the costs of disengagement (C) around 200% of the cumulative base salaries of employees who have quit.
Part 2: The medium-term impact
Higher healthcare costs
When the company workforce is engaged there are up-to 50% fewer accidents and up-to 41% lesser quality defects. Gallup research shows that the top 25% engaged workers in an organization in addition to having the fewer accidents; also have significantly lower health costs. If we consider the Gallup report on “The State of the American Workplace” as a reference, the Health-Related Cost to the Employer is almost 3 times for disengaged employees versus engaged ones ($11.7k vs 4.3k). Engaged employees have less days off due to illness and are more productive when they do show up at work.
The added healthcare costs have a direct impact on the bottom-line of the company and lets add that to the costs – (D) Up-to 3x the average healthcare costs when compared to engaged employees.
Repeat Business from Clients
It is a well established fact that the cost of selling to an existing customer is far lower that acquiring a new client. Research has now established a strong link between the levels of employee engagement and degree of customer satisfaction and loyalty. Customers are more likely to give repeat business (and recommend a business to others) if they have had a positive experience with the organization – and this experience is a combination of the product, the service and frontline staff interactions over a period of time.
Harter et. al, (in their 2009 meta-analysis) established that business units that were in the top quartile on their engagement scores, had customer ratings that were 12% higher than those in the bottom quartile.
So now lets add the cost of a lost client and the additional costs of acquiring new clients (just to replace lost business) to our list – (E) Additional costs due to need to acquire new clients to fill out lost business from existing clients.
Part 3: The long-term impact
The very existence of the organization (or Cultural Rot)
As you can imagine, it is extremely difficult to gauge the financial impact of long-term impacts of disengagement. In fact any of the areas I mentioned prior could be seen as having both a short-term and long-term impact.
But the most troubling impact of a disengaged workforce (which can include the leadership) is the possibility of the organization itself ceasing to exist. Any one of the factors like losing clients, not innovating enough, not controlling costs, not having enough sales can balloon up to the point where things get uncontrollable and the organization cannot exist in its current form. It then becomes a target for acquisition (with the associated “right sizing”), or it runs afoul of regulators and the law (when leaders get desperate and no one cares enough to stop them or blow the whistle), or it just loses the battle in the market place and becomes a shadow of its former self (or just gives up the ghost)
The costs of disengagement are anything but intangible. They are very real, very tangible and can be determined with a fair degree of accuracy – assuming the company has the will power to do so.
Determining the costs, however, is only the tip of the iceberg. The bigger question that the C-suite of an organization faces is – what next?
A true introspection about the causes of disengagement can throw up conclusions that are uncomfortable (at the very least) and need a serious investment of time and will power, more than money to set right. Sometimes the task seems so daunting that the most determined and ambitious of executives might give up even before starting. Building truly great organizations is not unlike nation building. You might have the vision, but if your employees aren’t on board that vision is going to remain just that – a vision. Just as you can’t hope to build an impressive structure if the foundation and the core are rotten, you can’t hope to build a great organization if your employees are disengaged.
The cost of disengagement in the long term?
Pretty much everything!
Acknowledgements and References:
Image courtesy of FreeDigitalPhotos.net
Impact of Employee Engagement on Customer Loyalty, October 2012, Insync Surveys
Why Employee Engagement has a Direct Impact on Business Bottom Line, Tolman and Wiker, Blog
A Cure of Rising Healthcare Costs? Employee Engagement, Chuck Gose, October 17, 2013, RMG Networks Blog
Employee Engagement’s Impact on Quote Attainment [Data], October 31, 2014, Emma Snider, Hubspot
State of the American Workplace, Gallup
Measuring and Mitigating the Cost of Employee Turnover, Kim E. Ruyle, SHRM Webcast, July 17, 2012
Positive Intelligence, Harvard Business Review, Jan 2012 Issue, Shawn Achor
Workplace Happiness: The High Cost of Unhappy Employees (Infographic), Lisa Chatroop, Good.co Blog, November 13, 2013
Do you know the cost of employees leaving your organization, Hay Group Blog, Satya Radjasa, December 03, 2013
“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
The ‘and’ in the title indicates a hitherto conventional notion that business and society are separate…and that the relationship between them is one of social contract that is legislative and punitive in spirit. However, the global trends and patterns of the last couple of decades indicate that a fundamental transition is happening – a transition where the ‘And’ is progressively moving towards ‘In and For’. The notion of a ‘Responsible Business’ today is much more widespread and well established. The talk will examine the various facets of what a ‘responsible business’ means and the fine dividing line between business and social responsibility. The central role of people in ushering in deep rooted change of this kind and in steering this crucial transition is also discussed.
P.S.Narayan is the Vice President and Head of Sustainability at Wipro Ltd. He has been instrumental in the creation of Wipro’s sustainability initiative and has stewarded it since its inception in early 2008. Wipro’s sustainability charter is built on the core principle that business and social purpose must reinforce each other in addressing several key challenges around ecology and the environment, education and communities.
A graduate in Electrical Engineering with a post-graduation in Management, Narayan has more than twenty years of cross-disciplinary experience in consulting, business development, Enterprise Systems and most recently, in Corporate Sustainability. In addition, Narayan is guest faculty at the Azim Premji University where he teaches ‘Ecology and Development’ as part of the Masters in Development course.
Prior to the current role, Narayan was the global head of Information Systems for Wipro’s IT business, when he was chosen as one of CIO’s global 25 Ones to Watch in 2007.
Considering the impact that disengagement can have on innovation, profitability, customers, and attrition it is clear that top leadership focus on employee engagement is as important (if not more) as on revenue and bottom-line.
But more often than not a discussion on Employee Engagement veers towards the operational aspects. The focus is on What to measure, How to measure, techniques of transparent Communication, Design of Employee Surveys, Ideas on Gamification et. al. While all of these are critical to implementing an effective engagement initiative, there is another dimension to Employee Engagement – the strategic aspect that sometimes doesn’t quite get the focus it deserves.
There are three axes that help in visualizing the strategic dimensions of Employee Engagement.
The Larger Purpose
Organizational Culture/Internal Branding
I call these the “strategic dimensions of employee engagement” and not “dimensions of strategic employee engagement” because to me, by default, all of employee engagement is strategic. If one considers employee engagement to be a “project”, an “initiative” or a “To-Do Item”, then you are almost sure to fail.
All three of these dimensions have immense bearing on the extent to which employee engagement will succeed. None of them are short-term activities or projects. All three are interconnected and have to deeply embedded in the DNA of the organization to deliver. There is no way to really measure the extent or direct effectiveness of any of these dimensions on an ongoing basis. But when there is true commitment to these and the right balance is achieved, they have a multiplier effect on the effectiveness of activities undertaken to drive engagement.
Leaders are the ones who set the direction for the organization. (Stephen Covey’s famous jungle metaphor where the managers are down below efficiently clearing a path and the leader clambers up a tree and figures out they are in the wrong jungle) To get employees to really feel motivated about doing a good job, you should be guiding them to the right jungle in the first place. While the metaphor does serve to drive home a point, consider the impact it will have on employees when leaders walk into the first clump of trees they think “looks like the right place to go” and then a few hours later decide to survey and say “oops!” When it comes to defining and following organizational principles leaders have to get it right and stick to the path – even when the going gets tough (especially when the going gets tough).
The best leaders are those that clearly define and live the organizations principles. They enable engagement by using every opportunity they get, using every communication channel and touch point at their disposal to reinforce their commitment to employee engagement. It’s a continuous sustained two-way communication that yields results with employees believing that the leadership is truly committed to engaging with the workforce and not just mouthing platitudes.
“Nobody gets Mars right on the first try. The U.S. didn’t, Russia didn’t, the Europeans didn’t. But on Sept. 24, India did.”
TIME Magazine rated the ISRO Mangalyaan as one of the top 25 inventions of 2104. One of the primary reasons the team of scientists and engineers managed this stupendous achievement is their larger sense of purpose. Imagine what would have happened if their mission had been to “get something out there.” If the purpose had been to “try for Mars, maybe we’ll get to the Moon worst case” chances are the bottom of the Indian Ocean is where the spacecraft would have ended.
In order for employees to align their personal goals and ambitions with that of the organization they need to understand the mission of the larger whole, the very purpose of the organization. It is only when the purpose is crystal clear that the employees can appreciate the role their own job plays in achieving that purpose. When there is no clarity on what the organization stands for, what it is doing now, and where it is heading chances are the employees are confused about how they are contributing to the success of the business.
Taking the previous axis of Leadership into consideration, if employees sense that there is a difference in the stated vision, values and purpose with how the leadership actually functions, then it leads not just to reduced engagement levels, it actually fosters disengagement! You can be rest assured your ‘A’ players will want to leave at the first possible opportunity if you either don’t have a clear purpose or if there is a disconnect between your actions and the stated purpose.
Organizational Culture (& Internal Branding)
Companies have dedicated budgets (often huge) for building their brand in the marketplace. Great care is taken about what is communicated to the customers and the media. Every word is pored over and experts spend millions on A/B testing to get just the right shade of blue on the logo. But what about the employees?
To an extent there is a rub-off on all the investment in external branding on and employees sense of pride and belonging. But the real challenge is in making the employees truly attach to their organization. The “What”, the “Who” and the “Why”
The sales and marketing team of most company focus on the “What” – The products, the inventions, the innovations, and the service the company provides. This tells the customer what he can get in return for the money he spends. Companies who believe that they are more than just the products they sell and their employees truly matter also focus on the “Who” – the engineers designing the products, the customer service executives supporting the customers, the managers who make sure projects run on time and finally the leaders who steer the organization in the right directions.
Truly engaging firms additionally focus on the ‘Why’ – the raison d’etre. Why does the organization exist in the first place? And when you turn the lens of “Why” onto the organization, things change drastically. “Making money by mis-selling to customers so that we can get fat bonuses” suddenly doesn’t seem a good enough reason for a company to exist in the long run and for top talent to join it. This dimension blends in deeply with the larger purpose and mission of the company that we discussed in the previous point.
Conclusion: Employee Engagement is one of the most complex challenges that face the organization while also being the most critical. Market studies, Sales strategies, Revenue, Profit, Share price are all indicators of how well the leadership and management is tackling the challenge. Motivating employees is a complex activity that requires transparency, true-values and years of sustained effort.
Among all the questions that leaders of organizations must ask of themselves and answer in a convincing way, is “Why do we exist?” If the organization doesn’t have a good reason to exist, it cannot possibly provide a good reason to others to be a part of it!
“It’s a very personal, a very important thing. Hell, it’s a family motto. Are you ready, Jerry?
I wanna make sure you’re ready, brother. Here it is: Show me the money. Oh-ho-ho! SHOW! ME! THE! MONEY! A-ha-ha! Jerry, doesn’t it make you feel good just to say that! Say it with me one time, Jerry. ” (Jerry Macquire, 1996)
You might be forgiven for assuming the dialogue I picked up from the movie Jerry Macquire was a conversation between a CEO candidate and the board member sounding him or her out. The increasing disparity in compensation packages commanded by CEOs to that of, the average employee has been a source of much debate and frustration.
Ben & Jerry’s Ice-Cream Company made a social pact with their employees when the company was founded. The company put a cap on the pay ratio between the top paid executive to the lowest-earning worker at 5:1. They held on to that ratio for 16 years. Then when it was time for Ben Cohen (the Ben in Ben and Jerry’s) to retire, they went hunting for a successor. They couldn’t find a single executive willing to accept the cap. The cap was raised to 7:1. Nada. The cap continued to be raised till it reached 17:1 over the next six years. Finally the company was acquired by Unilever USA in 2000 and nothing more was heard. The shroud of corporate secrecy descended on compensation details.
All that is about to change.
A few days back the Securities and Exchange Commission finally voted (with a narrow majority) to bring into effect a rule that will require companies to state their CEO pay as a ratio of the average worker’s pay. The hotly debated Dodd-Frank Wall Street Reform and Consumer Protection Act, is making a lot of senior executives very uncomfortable. Under the section, “Investor Protections and Improvements to the Regulation of Securities”, subtitle E refers to “Accountability and Executive Compensation.” The clause in question is as follows:
Shareholders must be informed of the relationship between executive compensation actually paid and the financial performance of the issuer, taking into account any change in the value of the shares of stock and dividends of the issuer and any distributions as well as:
the median of the annual total compensation of all employees of the issuer, except the chief executive officer (or any equivalent position)
the annual total compensation of the chief executive officer, or any equivalent position
the ratio of the amount of the median of the annual total with the total CEO compensation
India is a bit ahead on the curve on this one. Under the new Companies Act 2013, the provision which had been incorporated by SEBI, for Listed Companies already requires them to start disclosing this information. Reporting on this, BusinessLine states that “Under the Companies Act, 2013, every listed company shall disclose in the board’s report, the ratio of the remuneration of each director to the median employee’s remuneration and such other details as may be prescribed.”
So, why have governments decided to wake up and start tracking compensation paid to top executives? The financial collapse of 2008 and the subsequent fallout did seem to have a lot of influence on getting governments to finally act. The ‘Occupy Wall Street’ movement with its emphasis on the remaining ‘99%’ forced lawmakers to sit up and take notice. The increasing disparity in compensation between a select few and the vast majority seemed to be boiling over into a social flashpoint – any government’s nightmare!
So, how exactly do the numbers really stack up?
To get a sense of how good or bad the compensation ratio is currently; let us first try to understand what an ideal ratio in people’s minds is. The late Peter Drucker, believed that the ratio should be 20:1 (a downgrade from his earlier number of 25:1). During the time of the Dodd-Frank Law debate, Rick Wartzman wrote to the then SEC Chairperson Schapiro. He pointed out Peter Drucker’s opinion on the issue:
“I have often advised managers that a 20 to1 salary ratio is the limit beyond which they can not go if they don’t want resentment and falling morale to hit their companies,”
In a 2004 interview, Drucker elaborated further: “I’m not talking about the bitter feelings of the people on the plant floor… It’s the mid level management that is incredibly disillusioned” by king-size CEO compensation.
At the World Economic Forum, in 2010, UNI Global Union General Secretary Philip Jennings warned of ‘gathering storms’ if the CEO gravy trains are not derailed. He said that the bloated pay packets are a source of ‘systemic risk’ and added that he supported the ‘Drucker Principle’ of 20:1 pay ratio.
In this context, let us take a look at what reality is.
In their paper titled “How Much (More) Should CEO’s Make? A Universal Desire for More Equal Pay”, Kiatpongsan and Norton state that their references point that the ratio of CEO compensation to that of the average employee increased from 20:1 in 1965 to a whopping 354:1 in 2012! The ILO has a ‘slightly’ different number they arrived at from studying the ratio in the largest firms. They say that the ratio was 508:1. The corresponding ratios in Germany – the European business powerhouse was 190:1 and 150:1 in Hong Kong, China.
Closer home, global management consultancy, Hay Group released the ‘Top Executive Compensation Report 2013-2014,’ which analyzed 2524 jobs across 176 organizations and found that CEO’s in India earn around 78 times the salary of an entry-level professional. And as companies show an increased preference to recruit CEO’s from outside the internal senior management pool; this number seems bound to rise even further.
But if you pay peanuts you get monkeys!
But do you really?
Writing in the New Yorker, James Surowiecki states that, executive compensation rose 876% or nearly 9 times between 1978 and 2011 in the US. By extension one would assume that, it is 9 times more difficult to do business now than it was four decades ago!
Then, what could possibly explain this exorbitant rise in pay? According to Surowiecki it’s a combination of factors. The first is a shocking side-effect of increase transparency. With increased transparency required by law and amplified by the business press, boards at companies fall for ‘peer-benchmarking’ to determine executive compensation. And boards which are too ‘cozy’ with the CEOs, are reduced to being rubber stamps who approve pretty much anything the CEO tells them – including the justification for an outrageous compensation package. To make matters worse, this system gets played by the ‘leapfroggers’ – the CEO’s who are either extraordinarily brilliant or just plain lucky to earn huge salaries. These, then become the benchmark for others and the spiral just goes on growing!
Just how bad can it get? Roger Martin, former dean of University of Toronto’s Rotman School of Management, in an interview to Bloomberg said “When CEOs switched from asking the question of ‘how much is enough’ to ‘how much can I get,’ investor capital and executive talent started scrapping like hyenas for every morsel. It’s not that either hates labor, or wants to crush their lives. They just don’t care.”
Hmm..How’s that for employee engagement?
But CEO’s also increase investor wealth! Surely they deserve the cut?
If the financial collapse and the bonuses handed out to top executives in ‘too-big-to-fail’ is anything to go by, the assumption that bonuses and pay are necessarily linked to performance is not true. Studies published in the Economist and by others state that there is no clear correlation between CEO pay and company performance. Quite a few studies seem to have concluded that the correlation is in-fact negative!
A paper by Bebchuk, Cremers and Peyer, in the Journal of Financial Economics, titled ‘The CEO Pay Slice’, analysed the performance of companies, in relation to the proportion of what the CEO took, as a ratio of the total pay of the top five executives. It seems that the more the CEO took compared to the executives pay, the worse the company did!
In the report by Hay Group, they found that MD/CEO’s in India take close to 3 times the pay of those in Business Enabler Roles (HR Head, CIO, R&D Head etc) and Business Core Roles (Head – Sales & Marketing, Head – Manufacturing/Operations, BU heads etc)
Just when you think things couldn’t look worse, here is one final data point. It seems CEO pay is in fact strongly correlated with one metric – the number of people they fire!
Long Term vs Short Term!
SEBI in the discussion paper on CEO compensation had stated “… on an average, the remuneration paid to CEOs in certain Indian companies is far higher than the remuneration received by their foreign counterparts and there is no justification available to that effect,”
In addition to the quantum of payment, there has been much discussion around the way executive pay is structured. The incentive structure holds the key to actions taken by CEOs. Organizations in mature markets are increasingly moving away from basic incentives like, stock options and restricted stocks to performance-linked long term incentives like performance equity, performance-based restricted stock among others.
The Hay Group finds that, Indian companies unfortunately lag far behind their global peers in this aspect. The chart below on CEO Compensation mix points out the stark difference in the structuring of pay in India versus their peers in US or Europe. (The mix is fractionally better than, that for Asia on average)
With companies being now required by law to state compensation for top executives, and the ratio of that compensation to the average pay, the fallout on engagement levels will depend on how responsible (or otherwise) the top management is.
CEO’s who have taken over 100% pay increases in years where they have given zero or minimal pay increase to the average employee who is battling runaway inflation at home and increased pressure at work (because the company has not met its performance targets!) will find it increasingly difficult to justify their stand.
There is enough research (an visible social backlash) to clearly establish that there is widespread consensus that, the gap between the top executive pay and entry level pay in an organization has to reduce – substantially so, if the current trends are to be believed. Compensation forms an important component of the need for ‘Safety’ in Maslow’s Hierarchy of Needs but, it should not become the ultimate goal.
As Jack Ma, puts it succinctly – “We only eat three meals a day, we only sleep on one bed, how can you spend money? Where’s the opportunity?”
So if you are wondering why your team is looking despondent despite of all the effort you put into motivating them, the answer just might lie buried in your company’s annual report.
References and Acknowledgements:
Image in beginning of post courtesy of FreeDigitalPhotos.net.
Graphs data/image sourced from sources mentioned against the images.
A Sweet Solution to the Sticky Wage Disparity Problem, Aug. 10, 2013, Mitchell Weiss, ABC News
What Jack Ma plans to do with his Alibaba billions, Svati Kristen Narula, September 23, 2014, Quartz India
UNI: In Davos, UNI warns of risks from Private Equity, CEO pay, 28 Jan 2010, ITUC CSI IGB
Dodd–Frank Wall Street Reform and Consumer Protection Act, Wikipedia
Executive Excess 2010: CEO Pay and the Great Recession, By Kevin Shih, Sam Pizzigati, Chuck Collins and Sarah Anderson, September 1, 2010, Institute for Policy Studies.
What’s the best way to set CEO pay?, 03 June 2013, ILO
Study: Tech CEO Pay Doesn’t Match Performance, Baseline, 17 Jul 2006
Executive pay and performance, Feb 7th 2012, Economist
Open Season, James Surowiecki, October 21, 2013 Issue New Yorker,
CEO Pay 1,795-to-1 Multiple of Wages Skirts U.S. Law, By Elliot Blair Smith and Phil Kuntz, Apr 30, 2013, Bloomberg
Why CEO Pay Will Keep Rising to Even More Insanely Unjustified Levels While Ordinary Workers Get Squeezed, October 14, 2013, Yves Smith, Naked Capitalism
Top Executive Compensation Report 2013-2014, global management consultancy, Hay Group
US follows India on disclosure of CEO-staff pay ratio, Sept 19, 2014, BusinessLine
CEOs in India earn ’78 times the salary of an entry-level professional’, January 27, 2014, NDTV Profit
What’s the right ratio for CEO-to-worker pay?, By Jena McGregor September 19, 2013, Washington Post
The CEO pay slice, Lucian A. Bebchuk,J. Martijn Cremers, Urs C. Peyer, Journal of Financial Economics, Volume 102, Issue 1, October 2011