11

EMPLOYEE INCENTIVES

This chapter will cover the second Company Practice that significantly affects collaboration: employee incentives.

The topic of employee incentives (how companies reward their employees for a job well done) is of utmost importance. As one Silicon Valley leader told me, “Behaviors flourish when they are rewarded.”

Whereas management practices are quite consistent across the leaders I interviewed, the philosophies and approaches regarding employee incentives differ from company to company. Despite some differences in how they make this happen, many of the Silicon Valley leaders I spoke with choose to pay employees at the higher end of the pay range. They want to attract and keep highly experienced professionals. They also want their employees to have a comfortable lifestyle in the Bay area, a region with an extremely high cost of living. In return for paying them top dollar, most companies expect their employees to work very hard.

The following story, shared by a Silicon Valley leader, demonstrates a philosophy about employee incentives that is representative of many successful companies in the region, particularly the ones that foster employee collaboration.

IT BENEFITS YOUR COMPANY TO INCENT EVERYONE

At one point, I was involved in assimilating my company with another during a merger. One of the areas in which our two companies differed was the compensation system. The first company funded a pension for some leaders. It was restricted to a relatively small percentage of employees.

Our company (let’s call it the second company) had a different philosophy regarding compensation. Our plan offered incentives to employees throughout the company. In addition to providing a reasonable salary, we offered bonuses to employees at all levels who exerted significant effort and achieved stellar results. We felt it was the right thing to do, to reward employees for their hard work. We also felt that doing so increased employee commitment, performance, and results, and contributed to the company’s success.

We wanted the first company to move to our approach after the merger. Long discussions were held between our two companies. Leaders from the first company felt they couldn’t afford to implement our plan because of the large number of employees at the combined new company. So, they felt there was no reason to debate whether our plan might provide more incentive for employees to work harder.

I knew that our plan (at the second company) was better. I spent a lot of time creating a business case to prove it. My goal was to show that the newly combined company could afford a plan like ours. It would just necessitate some re-prioritizing of rewards and other budget items. It took many conversations, but I was able to persuade executives that we could afford it. Once they saw enough evidence, they agreed that it was possible.

Next, I had to prove it was worth it. I had to show that sharing financial benefits with employees at all levels had more of a positive effect on company bottom line than just rewarding some leaders. I was able to collect that evidence from outside experts and their studies. With that data, I eventually convinced leaders of our combined company to adopt a rewards system that was broader and available to any employee who achieved high performance.

Most executives now strongly agree that this compensation system contributes to the company’s overall bottom-line success.

THE TAKE AWAY

I firmly believe that there is no one single employee incentive system that is right across all industries or even within a specific industry. That being said, my experience corroborates the views of many Silicon Valley leaders and the studies demonstrating that rewarding all employees for hard work and achievements produces far greater benefits for a company than limiting rewards for high performance to executives.

REWARDING EMPLOYEES FOR GREAT WORK AND FOR WORKING TOGETHER

There was another crucial pattern running through the information that Silicon Valley leaders shared with me. Nearly every one of them recognizes how important it is to reward employees for working well with others. These firms not only create an expectation among their employees that they will collaborate with others, they build this expectation into their compensation systems.

Let’s look at what some of those Silicon Valley leaders told me about their employee incentive programs, particularly as its relates to two areas: rewarding all employees for hard work and stellar results, and rewarding all employees for collaborating in ways that contribute to those results.

Different companies provide those rewards in different ways. Some do it through their basic salary/compensation systems. Others do it through bonuses. Still others do it through their benefit systems. What follows is a sampling of leader comments regarding how compensation is handled in their company. While reading, think about whether any of these ideas might be a good fit at your workplace.

COMPENSATION IS SIMPLE: PAY GREAT SALARIES FOR EXCELLENT PERFORMANCE

   “Compensation is simple: We pay top of market to every person based on their job. We look at how much they could they make at a different company. Then we factor in what it would cost to replace them. Ultimately, we ask ourselves how much we would pay to keep them if they said they were leaving.”

   “Our philosophy is to take money off the table as an issue. In return, we expect employees to work hard. Not just for short dashes, but on an ongoing basis. Hard work is a way of life here. That said, though, we won’t pay more than an employee can make elsewhere. We don’t want to tie them to this company because of their pay check. We want them to be here because they’re passionate about working for our company, and about what they are working on.”

   “People are judged based on their technical contributions as well as their cultural fit (cultural fit includes factors such as how they work with others). Just because coworkers say great things about a person doesn’t necessarily mean that they will get a lot more money. Employees only receive more money if they demonstrate performance, results, and an ability to collaborate.”

   “We avoid ‘top 30 percent’ and ‘bottom 10 percent rankings’ of employees. In other words, we do not force-rank employees relative to their peers, because we don’t want employees to compete. We want employees to help others, and they do. And we also want all of our employees to strive to be in the top 10 percent.”

   “Collaboration is one of the several objectives that staff are measured against here.”

   “We give managers a pot of money and let them decide how to distribute it within their team. We’ll coach and guide them regarding the upsides and downsides of different strategies. (For example, if they give huge amounts to their top few employees, they’re going to make most folks pretty unhappy.) We are moving towards a reward system that looks at what employees achieved and also how they achieved it. Whether they worked well with others. Whether they led the team when it was appropriate. Whether they helped move the company forward.”

   “Even at senior executive levels, we have strong financial reinforcement for collaboration. A significant portion of their review ratings and their compensation are based on how they work well as a team with their peers, as well as with other teams beyond the ones they manage.”

BONUSES: A GREAT WAY TO REWARD COLLABORATION

   “Bonuses here have well-thought-out performance criteria, including how we work with others and how well our company performs in the market during this time period.”

   “Bonuses are paid twice a year. They are based partly on company-wide factors (revenue, expense control, and profitability), and partly on business unit and individual results. How people work with others is factored into that second item.”

   “If someone rushes in at the last moment to save a project and we reward them, then everyone wants to become a hero. We try not to reward heroes. We try to reward those who work well with others on an ongoing basis and get the job done really well.”

DEFERRED COMPENSATION CAN HAVE UNINTENDED EFFECTS

   “We don’t want managers to ‘own’ their people because of stock options and vesting. So all compensation is fully vested here. We want managers to create a great place to work. Employees are free to leave us at any time without penalty. But nearly everyone stays. Employees stay here because they like the company, they are passionate about their work, and because they are paid well for doing that work. Not because of a deferred compensation system.”

VACATION: TAKE WHAT YOU NEED WHEN YOU NEED IT, AND RETURN REFRESHED

   “We have open vacations here. People work hard. In return, they take the vacation they need to refresh. It’s very odd if folks take less than three weeks. I’d be disappointed if they did take much less because they need that down time. It’s usually between three to six weeks. Some years more, some less. My team has a very good rhythm. I’ve not had to ask anyone to be careful about vacations.”

   “We blew up our old vacation time accrual system. It works much better now. Highly tenured staff fought the change because they thought they were losing something, and that newbies were getting something that they didn’t earn. I talked with them and challenged their (mis)perceptions. It was a hard sell. It took a while before folks realized that rewards should be based on doing your work well. Taking the day after Christmas off should not depend on your saving a vacation day from your annual allocation.”

OTHER MEANINGFUL BENEFITS

   “We have up to one year paid for maternity. Not everyone takes nearly that long. People decide what they will take. However long they take, we prefer they unhook totally to give them time to adjust to parenthood (or parenting greater numbers of children).”

   “Recognition is really important, particularly among peers and coworkers. It has to be impartial. And those who get it need to be folks who really earned it. Or else it is pretty meaningless.”

   “Recognition is strong here. People nominate others for having done something great. Anyone can recognize others. It encourages us to see the good things that others are doing, and take time to give them some kudos. It creates an atmosphere of collaboration. Next time we are working together, you remember that you are important to me and that I gave a tribute to what you did.”

   “I recall being a member of one of those amazing groups. I have no recollection what I was paid at the time. The reward I got that was most meaningful to me was a handwritten note from the president. He just worked five doors away from me. And he took the time to deeply thank me, in writing. I still have that letter, and love it.”

WHEN INCENTIVES ACT AS BARRIERS TO COLLABORATION

   “Differences in pay for the same job and equivalent performance make people competitive and dissatisfied. It creates inequalities and sets folks up to resent others. We are working to eradicate this at our company. While we still do have some of these inequalities, we are fixing them as soon as we find them.”

   “Success in the eyes of an engineer is cool technology. Success for finance staff is profitability. Success for manufacturing is that our products are easy and inexpensive to build. Success for procurement is that it’s easy to buy the parts that manufacturing needs. All too often, each department has different criteria for success. And that’s what employees get rewarded for. They aren’t rewarded for how the organization does overall. That isn’t a good thing.”

   “One CEO I worked with believed in creating competing engineering groups. The winners make out well and others lost. It created a cutthroat culture. Sales groups stole sales from each other. Service groups did too. The CEO was brilliant in other respects, but this system didn’t work at all. We didn’t care what other companies were doing; we were going to kick the ‘blank’ out of our other departments.”

THE TAKE AWAY

Not all of the companies have perfect incentive systems. They are all works-in-progress. Some of these organizations have greater awareness of the need to reward collaboration, and their programs are farther along than others. The common theme here is an awareness that most of the leaders had, that their incentive systems need to encourage the right behaviors. They are willing to keep moving their incentive systems increasingly in that direction.