Paying For Sales Performance – A Myth?

This blog’s topic looks at a cherished belief of many executives that pay for performance compensation schemes motivates people to higher performance. Yet, pay is just one thread in a tapestry that covers the state of motivation in organizations today.

(Listen to  Walk the Talk – Radio for Agile Minds – The Pay for Performance Myth )

In this piece, I want to challenge manager’s over-reliance on paying for sales performance to stop relying on this apparently sensible idea and. Let’s rethink what effective management has to offer in creating a Motivating Environment.

Just to give you how addicted US Companies are to pay-for-performance; here’s a couple of statistics:

• Average incentive income for US Salespeople is 40% of their total compensation.
• Overall, 85% of this group work under some type of pay for performance compensation plan.

W. Edwards Deming (1982) “Pay is not a motivator” He called the system by which merit is appraised and rewarded:

“The most powerful inhibitor to quality and productivity in the Western World”…..”it nourishes short-term performance, annihilates long-term planning, builds fear, demolishes team work, nourishes rivalry and…leaves people bitter”

“Money can nevertheless be a demotivator” Frederick Hertzberg

Pay for performance advocates obsess about “How should people be paid?” But it is not as important as managers think and is in fact a distraction from the things that really matter.

The real issue is how do people become motivated to produce competitively superior results:

Managers ask: ‘How do you motivate people? – Answer is ‘You Don’t’ (Douglas McGregor)

So, if you see books like “How to Motivate your work force” “Making People Productive” can be safely passed over because the enterprise it describes in wholly misconceived.

Of course, you can get people to perform using rewards, punishments and operational controls. But, the desire to do it well, simple cannot be imposed. It’s a mistake to talk about motivating other people. All Managers can do is set up conditions that can develop an interest in what they are doing and remove constraints to their improvement.

What are the ways of creating The Motivating Environment?

Probably one of the best authors in this field , Alfred Kohn, stated three Basic Principles.

Pay people generously and equitably – Do your best to make sure they don’t feel exploited. Then, do everything in your power to help them put money out of their minds! Problem with incentives is not that people are offered too much. It’s that money is pushed in people’s faces and offered transactionally, e.g. “You do this and you will get that” Getting rid of conditionality is the first step in fixing what’s wrong

• The trouble with money is not itself per se but with the way people are made to think about money and the way it is use to control them.
• We need to decouple the task from compensation

“For the love of money is the root of all kinds of evil… (People) craving money have wandered from the truth and pierced themselves with many sorrows… (1 Timothy 6:10)

OK. So, how should you pay people, other than well and fairly?

A good starting point is asking yourself:

What makes some people more valuable to the organization that most will see as fair and achievable? (e.g. not based on being a family member- LOL) Examples:

• Time employed
• Special skills, professional qualifications

Deming, most Japanese and other countries follow this philosophy and now a minority of US Companies – the gradual realization that pay-for-performance is an inherently flawed concept.

But, what do you do about paying people if they perform better than their peers?

Well, it leads to another common practice of linking pay to the outcome of the dreaded annual performance appraisal. This is typically a stressful annual ritual and should have been retired long ago. OK. So what do we replace it with?

Let’s look at a second principle to creating the Motivating Environment, let’s Refocus Evaluation. An obvious question:

Why are people being evaluated? Possible answers:

• “Performance Evaluation persists as a effective tool for controlling employees…(that) should not be confused…with motivation of employees”
• It allows supervisors to shift the responsibility for solving problems to their subordinates

“Using Performance appraisal of any kind as a basis for reward is a flat out catastrophic mistake” (Peter Scholtes)

It is “foolish to have a manager in the self-conflicting role as a counselor (helping improve performance) when at the same time, he or she is presiding as a judge over the employee’s salary…”(Herbert Meyer)

The Insight is that the entire process of providing feedback, assessing progress, and developing development plans ought to be completely divorced from salary determinations. Such sessions must have no rewards or punishment hanging in the balance.

So, how do you get genuine motivation?

It’s a good question How do you create conditions for authentic motivation?

Significantly Alan Binder pulled all available research on this subject, Paying for Productivity: A Look at the Evidence and concluded:

“Changing the way workers are treated may boost productivity more than changing the way they are paid”

Or to put it another way:

 The Pay Cart is in front of the Motivation horse. Motivation produces results not pay.

In surveys there is a broad consensus on what managers should do to create the Motivation Environment:

1. WATCH: Don’t put employees under surveillance; look for problems that need to be solved and help people solve them.
2. LISTEN: Attend seriously and respectfully to workers’ concerns
3. TALK: Provide plenty of informational feedback as opposed to judgmental feedback. People need to reflect on what they doing right, to learn what needs improving, and discuss how to change
4. THINK: why do you use power they way you do?

What do managers need to be careful of when dealing with performance improvement?

The main failing we see in our work is the extent to which rewards are not made contingent on some specific desired behaviour change that impacts business performance. Many clients are concerned about the very subjective nature of rating performance and therefore allocating performance related pay equitably. Often we start by comparing the client’s existing competencies with how they rate performance with those selected from the PDS Competency Library. Candidly, the Client’s Competencies are a mixture of Competencies and Attributes. “So what,” you say.  Bottom line, you hire attributes and develop competence! Typical definitions:

• Competent: “The ability to do something successfully or efficiently.”
  • Competency: ”Having the necessary ability, knowledge, or skill to do something successfully:”
• Attribute: “A characteristic or quality of a person.”

Frequently, Competencies often contain a mixture of attributes which should be part of the recruitment and selection process, around which you choose a path of development for each individual. Relying on attributes as a basis for incentives naturally leads to the problem of subjectivity in performance ratings. Too many times people are swimming around in a sea of ink and rhetoric when it comes to recognizing and developing leadership and other competencies? Is more being written and discussed than applied to create the Motivating Environment?

Many authors of Competencies are not clear as to what a competency really is. (Is it a skill? Is it a behavior? Is it knowledge? Or, is it a value?).  For example: A competency that deals with diversity has been described this way; “sensitivity to different races, cultures, nationalities, sexes and disabilities”. Many would agree this competency is more of a value (attribute). However, if that is the case, developing this competency presents a formidable challenge, since values tend to evolve over a lifetime.

The difficulty we have in agreeing on what competencies are required is practically dwarfed by the complexity of the motivational and therefore, the competency development challenge. Of course, the beliefs and customs of a culture play an incredibly significant role in influencing beliefs, attitudes and values. We have to recognize that behavior can be adapted, but attitudes and values are relatively rigid.

What we now know about competencies shows that matching behavior patterns and attitudes of people to the demands of a position is crucial to creating the Motivational Environment

This knowledge can also assist organizations to understand the challenges in trying to get people to adapt their natural behavior patterns and attitudes to accommodate organizational needs. Recognizing that competencies are configurations of behavior, attitudes, beliefs, knowledge, intelligence and skills are essential in the people evaluation and development process.

It is a truism that if individual talents are matched with the most important job requirements it can create optimal motivation and therefore superior performance. People whose natural behavior matches the requirements of their jobs and are rewarded for their true aspirations and passions naturally:

1. Perform better
2. Enjoy the intrinsic rewards of their work
3. Are loyal and enthusiastic
4. Often need to be told to go home

The main responsibilities in managing these people are to:

1. Keep them informed to align their efforts with changes

2. Make sure the building is open

3. Make sure they have the resources to do their job

4. Encourage them to maintain balance with activities outside of work.

As a rule, a “hands-off” leadership style tends to work best with people who are well matched to their positions. Micro-management or command and control techniques may drive these people to the competition. Although this kind of a “hand-in-glove” fit between people and positions may be difficult to maintain in the face of continuous change, the effort promises to return rich dividends in terms of self-directed performance, positive morale and commitment.

The matching process starts by identifying position requirements in terms of the competencies required for superior performance (built on and around attributes, whatever they may be). Every effort must be made to ensure this process is objective. Position requirements must be analyzed in terms of:

1. Behavior
2. Competencies (including soft as well as hard skills)
3. Attitudes (attributes)
4. Knowledge or experience.

An objective process for analyzing position requirements is needed whether the focus is leadership or management, technical, professional or driving a truck.  What does this mean in terms of assessing the context, skills, competencies, attitudes and experience?

Summary

Creating the Motivation Environment and produce competitively superior results relies not so much on pay for results but these key factors:

• Build a firm foundation for your organization based on values, principles, servant leadership,
• Create and reinforce a “needs-driven” purpose or mission that is consistent with potential employees philosophy and values.
• Skip incentive pay and pay people fairly or even generously for the position,
  • Hire good life skills (attributes) and teach job skills (competencies).

It is crucial to properly matching peoples’ gifts, talents, expertise and passions to the job.

• Hire the “right” person for the “right” job,
• Coach positively for improved competence, and avoid annual performance appraisals which are linked to pay
• Develop servant leadership that clears away the barriers to people’s success and avoids command and control leadership

Tip of the Blog

Ask yourself:

1. Do you have competencies for those positions which are crucial to your organization’s performance?
2. How well do they separate the Knowledge, Skills that are developable vs. those attributes that you need when hiring or promoting?
3. Honestly, how well are these attributes used to objectively anchor the recruitment process?

(Listen to  Walk the Talk – Radio for Agile Minds – The Pay for Performance Myth )

 

Great, but how can this help me?

 How about asking us?  The first call is free!  Just email me to set it up.  Don’t wait, get The Crispian Advantage working for you!. If our conversation leaves you needing more, we offer at a reasonable fee telephone and video coaching on change, alignment, personal and executive performance that improve the bottom line.  If that still doesn’t do it, we’ll work with you on a solution.

 

© Copyright All Rights Reserved, The Crispian Advantages, [2010-2011]. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Nick Anderson, The Crispian Advantage with appropriate and specific direction to the original content.

Related articles

• Creating a virtuous loop in pay-for-performance (sarahdillard.wordpress.com)
• What Is The Difference Between Pay for Performance and Accountable Care Organizations (diseasemanagementcareblog.blogspot.com)

Leadership Skills Series: 4 Controlling Meetings

This is the fourth in our series to help Leaders assess their behavioral skills. This series is based on research of common commercial interactions that has led to many useful insights into how to create and manage effective meetings and deal with those who are most difficult to persuade – Low Reactors. This week I am focusing on those behaviors Leaders use when controlling meetings. (Research conducted by Warr, Bird, Honey & Rackham ATTITB and Huthwaite Research Group).

The first Group of Behaviors is Clarifying Behaviors used for theexchange of information, facts and opinions and, of course clarification. For this Blog, we will consider, the four main behaviors which when used in meetings go to the heart of meeting effectiveness.

Testing Understanding seeks to establish whether or not an earlier contribution has been understood by the individual. It differs from seeking information in that it is an attempt to ensure agreement or consensus of some kind, and refers to a prior question or issue (i.e. “Can I take it that we all now agree on our tasks assignments for this week?”). This behavior is similar to Summarizing, but takes the form of a question.

Summarizing restates the content of previous discussions or events in a compact form. This behavior can be useful to make sure that the entire group is up to date with events that have transpired (e.g. “So far we have agreed that John will finish module A, while Maria and I begin module B.”). This will ensure that you and the rest of the group have a clear understanding.

Seeking Information seeks facts, opinions, or clarification from another person pertaining to a proposal (e.g. “What sample size do you think will be needed for statistical reliability?” and “Which tests will you use?”).

Giving Information makes statements that offer facts, opinions or clarification to a proposal (e.g. “The new system is easier to operate.” and “I’m worried about missing the deadline.”).

Now, we will focus on the above behaviors Chair People (Chairs) use during meetings to attain successful outcomes. These findings help leaders diagnose their meetings and how too much, too little or the wrong balance of these four behaviors can waste time and often make meetings very frustrating and ineffective.

Does this apply to all meetings, like in Not for Profits?

Essentially, the commonality is problem solving and decision making, not just exchanging information. As long as you have desired outcomes like:

• Deciding how we are going to cope with rising demand and falling donations, OR
• Problem solving why attendance is falling,

then you have a meeting.

Why do you say “not just exchanging information?

Good point! There are now so many better ways of reporting  progress or a lack thereof, including email, SharePoint etc. that you should not encourage people to have weekly meetings where they have to wait their turn to report back. This “hub and spoke” type of meeting is boring, as participants have to wait for their colleagues report to the “boss” and hear them being questioned. Also, participants’ post meeting ratings change negatively when a meeting has a high level of Giving Information and is seen as Time Wasting. It happens when everyone in the meeting wants to add yet another reason, anecdote or opinion as to why an initiative should or should not be pursued; all of which tend to encumber the decision making process.

 

The Chairing vs. Managing Meeting Dilemma

In most situations the person running the meeting has two competing roles:

• Chairing – The ideal Chair is an important role, concerned solely with the efficient and fair conduct of the meeting. The perfect Chair is not interested in the content, but in the meeting process.
• Managing – In the real world though, the Chair is either the most senior manager present or the person who has called the meeting (a Leader). In either case he or she has considerable interest in the content and is rarely, if ever, neutral.

These two roles are not easily compatible. For example, many chairs have a continuous incentive to manipulate the process of the meeting in order to influence the content and therefore its outcome.

How often have you been in meetings with the feeling that you are not being really engaged for your input but merely your support for the Chair’s pet project?

So, are you saying that if we are chairing a meeting we should be neutral?

Well, in most situations the Chair’s preferences, views or pet projects are known beforehand. So, even if they strive for neutrality and focus on process, their attempts can be counter- productive by creating suspicion.

So, I am sure you have a research finding or two on how skilled chairs perform this balancing act?

Indeed…and an important distinction to draw at this stage is differentiating the wider skills of managing meetings from the narrower skills of chairing. As a starting point, the basic behaviors of chairing are worth focusing on.

Sample: 31 Chairs selected on the following criteria:

1.  People rated their meetings as fair and efficient

2.  They had at least five years experience of chairing

3.  They were chosen from 47 who met the first two criteria.

The researchers found that skilled Chairs’ behavior differed significantly from participants; for example, the type of Proposing (putting forward new & actionable ideas, suggestions etc.).

Both Chairs and Participants had the same volume of Proposals but they were very different types:

Behavior	Chairs	Participants
Content Proposals	1.8%	11.1%
Procedural Proposals	9.6%	2.4%
Totals	11.5%	13.5%

Procedural Proposal Examples:

“I suggest we only spend 10 minutes on this item”

“I propose that we take item 6 next”

Content Proposal Examples:

“I think we should put the IT Cabinet next to Shaft 2”

“We need to ensure that employees are kept in the loop”

OK, so that’s Proposing– where to next?

There is an important distinction to make between the two initiating behaviors: Proposing and Building.

Proposing is a new suggestion, proposal, or course of action (e.g. “I suggest that we organize the project into five modules.” or “The File Menu should contain an option to print”).

Building on the other hand takes the form of a proposal, but actually extends or develops someone else’s proposal (e.g. “…and your design would be even better if we added a scroll bar at the edge of the window.” or “A pizza sounds great, and some sodas would be good too.”). Since the initial proposal is not the final solution, building is effective in producing an alternative or revised plan.

Chairs tend to use Building as a way of integrating different people’s ideas.

For Example:

“John has suggested we reduce the workload in Accounts. Bob says he has spare capacity. Are there some people who could be used at high work load times like month and year end?”

In contrast, Chairs used only about 1/3^rd of Participants Supporting or Disagreeing Behavior i.e.:

Supporting makes a conscious and direct declaration of agreement with or support for another person, or his/her concepts and opinions (i.e. “Sounds okay to me” or “Fine”). Positive feedback is always good.

Disagreeing is the direct objection to another person’s opinions. Disagreeing is an issue-oriented behavior (e.g. “Your third point just isn’t true.” or “What you’re suggesting just won’t work.”). This behavior is normal in a discussion, but don’t let it evolve into a Defending or Attacking behavior.

It’s hardly surprising that Chairs support people, not issues.  For example:

“Louise is right, to bring this up.”

Instead of directly disagreeing, Chairs will bring in other particpants who may disagree in the same way.

I would have thought skilled Chairs use a lot of Testing Understanding and Summarizing in meetings….is that right?

Another good point! The research showed that there was a correlation with the number of misunderstandings and misinterpretations after meetings with the amount of Testing Understanding and Summarizing occurring during meetings. In all 49 Meetings were so observed, and in those, 297 participants.

Those meetings that were low in Testing Understanding and Summarizing had significantly more errors and omissions in people’s accounts of the principle decisions agreed to. (Note: As meetings differed in length the researchers took Testing Understanding and Summarizing as a percentage total meeting behavior).

The findings were rather disturbing:

• <2.5% – Testing Understanding and Summarizing Participants averaged 4.3 errors or omissions on what was decided.
• >10% – Testing Understanding and Summarizing averaged only 1.2 errors or omissions

Good Chairs had Testing Understanding 15.2% vs. less effective Chairs 3.1% and similarly, Summarizing 11.5% vs. 0.7%

• Seeking Information – 29.3% vs. 16.3%
• Giving Information – 21.7% vs. 39.4%

So, how can people use this Chairperson Profile?

Training other leaders as well as for your own use…

How do Chairs betray their bias?

Using Content Proposals . Other ways they show bias? Using a lot of  Disagreeing, Defend/Attack and Giving Information, all of which control content not process.

How do biased Chairs use directional control to influence a meeting’s direction?

Procedural Proposals combined with  Shutting-out or Bringing-in by either excluding or involving participants including facilitating the exchange of ideas and asking people to share their opinions. It is interesting to note that Chairs who control participation and involvement are often seen as unbiased and fair whereas this can be a more subtle approach to controlling both the direction and decisions made.

So what questions would you ask yourself to be more effective when running meetings?

My questions to leaders would be:

• What is the level of participants understanding and commitment to taking their part in following the issues outlined above?
• How well are your expectations understood regarding what attendees need to prepare for your meetings? For example:
  • “Come prepared to analyze the missed delivery windows on second shift” or
  • “Ensure you come with three ideas about how we are going to overcome the conveyor problem on Line 3
• How well do meeting participants know what behavior reduces meeting effectiveness? For example:
  • Giving long reports as to what happened versus focusing on conclusions that identify problems and offer options for their resolution
  • Offering many reasons to support a proposal versus giving just two strong reasons in support
• How well do people understand your expectations when reviewing each meeting’s effectiveness. For example:
  • Delta reviews of pluses and minuses
  • How well did participants’ preparation help or hinder the meeting’s effectiveness
  • How well were ideas considered before deciding or passing judgment
• How appropriate is it for you to chair every meeting, even when everyone knows that you have a vested interest in certain solutions?
  • Why not hand the Chair over to one of your people?
• How well do you understand what are your participants’ expectations? For example:
  • Does everyone have to attend all meetings rather than just meetings about issues that concern them.

  Great, but how can this help me?

  This is probably the first thing on your mind after reading this Blog.
  How about asking us?  The first call is free!  Just email me to set it up.
  Don’t wait, get The Crispian Advantage working for you!. If our conversation leaves you needing more, we offer at a reasonable fee telephone and video coaching improve bottom line results.
  If that still doesn’t do it, we’ll work with you on a solution.

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  © Copyright All Rights Reserved, The Crispian Advantage and Walk the Talk – A Blog for Agile Minds, [2010-2012]. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Nick Anderson, The Crispian Advantage and Walk the Talk – A Blog for Agile Minds with appropriate and specific direction to the original content.