Incentives


In the book The Living Company,[13] Arie de Geus discusses why some companies have long life spansa century or moreand others do not. "Companies die because their managers focus on the economic activity of producing goods and services, and they forget that their organizations' true nature is that of a community of humans."[14] de Geus says. "The amount that people care, trust, and engage themselves at work has not only a direct effect on the bottom line, but the most direct effect, of any factor, on your company's expected lifespan."[15]

[13] The Living Company, by Arie de Geus, Harvard Business School Press, 1997.

[14] Ibid., p. 3.

[15] Ibid., p. 10.

There are two kinds of companies, according to de Geus, the economic company and the river company. The purpose of the economic company is to produce maximum results for minimum resources and produce wealth for a group of managers and investors. The purpose of a river company, on the other hand, is to keep on flowing, that is, to stay in business and provide jobs over the long term. For example, Sakichi Toyoda and Kiichiro Toyoda had as their primary purpose to provide jobs for Japanese workers by figuring out how to manufacture complex products that would otherwise have to be imported.

In the economic company, de Geus says, there is an implicit contract between the company and the individual: The individual will deliver a skill in exchange for remuneration. In a river company, the implicit contract is different: "The individual will deliver care and commitment in exchange for the fact that the company will try to develop each individual's potential to the maximum."[16] Commitment is a two way street: People are committed to a company if they feel that the company is committed to them.

[16] Ibid., p. 118. Italics in original.

Performance Evaluations

Probably the most ignored piece of Deming's advice is this: Eliminate annual performance ratings for salaried workers; do not undermine team cooperation by rewarding individual performance. Deming was quite adamant about his belief that annual merit ratings create competition rather than cooperation and kill pride in workmanship. But the performance evaluation serves different purposes, depending on the implicit contract that the individual has with the company. In an economic company, where the employee contract is about exchanging remuneration for skill, the purpose of the performance evaluation is to determine the amount of remuneration an individual should receive. Indeed, this purpose will have a great tendency to foster competition rather than cooperation.

On the other hand, when a company is committed to developing each individual's potential to the maximum, a performance evaluation can be a time set aside to reflect on where that potential lies and what steps that the company and the individual can take to further develop the individual's potential. Thus, we do not have a rating system as much as we ponder honestly and openly whether the individual would be best aiming toward a technical ladder or a management ladder, what training and job assignments would be best for the coming year, what specific areas (public speaking, for example) need improvement to support further career growth.

Annual performance evaluations should never surprise employees with unexpected feedback. Performance feedback loops should be far shorter than an annual, or even a quarterly, evaluation cycle. If the annual performance evaluation is the only time employees finds out how they are doing, something is truly wrong with the evaluation system. Performance review criteria should put strong emphasis on teamwork, making contribution to team success as importantif not more importantthan individual contributions. You get what you reward, so if you find effective ways to reward collaboration, you will get more of it.

One-directional evaluations give the appearance that only the evaluated person needs to improve, but Deming insists that most performance issues are a management problem. When an employee isn't performing, the first question a manager should ask is, "What am I doing wrong?" Managers should take personal responsibility for the performance of their organization and collaborate with their people to improve the performance of the system.

Ranking

Consider a team trying to recover from a mistake that created a challenging problem. In a lean world, they work together, brainstorm ideas, try things out, and when they find a solution, they go out of their way not to allocate blame. After all, any of them could have made the same mistake. Instead they keep on working to find a way to mistake-proof the system so that the problem can never happen again.

Now consider the same team, only the members know that once a year their supervisors have to go into a secret session and rank the entire department so that raises and promotions can be handed out in order of value and contribution to the company. The team members must give their supervisors ammunition to show why they are better than their teammates, so as to get a higher rank and a better raise and better shot at a promotion. The incentive to allocate blame and take individual credit for finding a solution is high; collaboration is strongly discouraged by such a ranking system. If you have a ranking system in your company, a lean initiative will be hollow at best. The behaviors that ranking systems encourage are competition, hiding information so as to look good, and hiding problems so as not to look bad.

Compensation[17]

[17] Parts of this section are from an article originally published by Mary Poppendieck in Better Software Magazine, August 2004, under the title "Unjust Deserts."

Nothing is more likely to create contention and interfere with collaboration that the system used to determine compensation, no matter what system is in place. Although no compensation system will ever be perfect, some are better than others. We offer the following guidelines.

Guideline No. 1: Make Sure the Promotion System Is Unassailable

In most organizations, significant salary gains come from promotions that move people to a higher salary grade, not from annual pay increases. Where promotions are not available, as is the case for many teachers, annual or "merit" pay increases have a tendency to become contentious, because these increases are the only way to make more money. When promotions are available, employees tend to deemphasize annual raises and focus on the promotion system. This system of promotions tends to encourage people to move into management as they run out of promotional opportunities in technical areas. Companies address this problem with "dual ladders" that offer management-level pay scales to technical gurus.

The foundation of any promotion system is a series of job grades, each with a salary range in line with industry standards and regional averages. People must be placed correctly in a grade so that their skills and responsibilities match the job requirements of their level. Initial placements and promotion decisions should be carefully made and reviewed by a management team.

Usually job grades are embedded in titles, and promotions make the new job grade public through a new title. A person's job grade is generally considered public information. If employees are fairly placed in their job grades and promoted only when they are clearly performing at a new job grade, then salary differences based on job grade are generally perceived to be fair. Thus, a team can have both senior and junior people, generalists and highly skilled specialists, all making different amounts of money. As long as the system of determining job grades and promotions is transparent and perceived to be fair, this kind of differential pay is rarely a problem.

Guideline No. 2: De-emphasize Annual Raises

When the primary tool for significant salary increases is promotion, then it's important to focus as much attention as possible on making sure the promotion system is fair. When it comes to the evaluation system that drives annual pay increases, it's best not to try too hard to sort people out. Use evaluations mainly to keep everyone at an appropriate level in their salary grade. Evaluations might flag those who are ready for promotion and those who need attention, but that should trigger a separate promotion or corrective action process. About four evaluation grades are sufficient, and a competent supervisor with good evaluation criteria and input from appropriate sources can make fair evaluations that accomplish these purposes.

Even when annual raises are loosely coupled to merit, evaluations will always be a big deal for employees, so attention should be paid to making them fair and balanced. Over the last decade, balanced scorecards have become popular for management evaluationsat least in theory. Balanced scorecards ensure that the multiple aspects of a manager's job all receive attention. A simple version of a balanced scorecard might also be used for evaluations that impact annual raises, to emphasize the fact that people must perform well on many dimensions to be effective. Input to the scorecard should come from all areas: teammates, customers, senior management, those receiving guidance from a leader. It is important that employees perceive that the input to a scorecard is valid and fairly covers the multiple aspects of their job. It is also important to keep things simple, because too much complexity will unduly inflate the attention paid to a pay system which works better when it is understated. Finally, scorecards should not be used to feed a ranking system.

Guideline No. 3: Reward Based on Span of Influence, Not Span of Control

There is no greater de-motivator than a reward system which is perceived to be unfair. It doesn't matter if the system is fair or not, if there is a perception of unfairness, then those who think that they have been treated unfairly will rapidly lose their motivation. People perceive unfairness when they miss out on rewards they think they should have shared. Excellent products are developed through cooperative efforts of many people, so in a development environment, individuals rewards will inevitably leave the overlooked people feeling that they have been treated unfairly. Moreover, when individual rewards foster competition in an environment where cooperation is essential for success, even those who receive rewards are unlikely to appreciate them.

We Don't Want Bonuses!

We visited a company where the senior management was planning to give incentive bonuses to developers who met individual deadlines and productivity targets. Since the management team was from marketing, they were most familiar with commission-based compensation and were trying to develop a technical version of the same thing.

The developers were appalled and told us so. "If someone comes to me now and asks a question, I'm glad to help out." One person said. "With the incentive pay system, I'd be nuts to spend my time helping out someone else. Not only would I get less money because I wasn't working on my stuff, they would get more because they would look good."

Fortunately, the development team manager was at the meeting and listened to these remarks. Later he intervened to have the proposed incentive bonus system reconsidered.

Mary Poppendieck


Conventional wisdom says that people should be rewarded based on results that are under their control. However, when information sharing and cooperation are essential, rewards should be based on a person's span of influence rather than his or her span of control. For example, testers should not be rewarded based on the number of defects they find, but rather, developers and testers alike should be rewarded based on the team's ability to create defect-free code. Development teams should not be rewarded based on the technical success of their efforts; instead, the whole team should be rewarded based on the business success of its efforts.

Guideline No. 4: Find Better Motivators Than Money

While monetary rewards can be a powerful driver of behavior, the motivation they provide is not sustainable. Once people have an adequate income, motivation comes from things such as achievement, growth, control over one's work, recognition, advancement, and a friendly working environment. No matter how good your evaluation and reward system may be, don't expect it to do much to drive stellar performance over the long term.

The Contentious Bonus

A vice president of engineering told me about the time his company gave a team of 14 a $100,000 bonus. The team members were told to distribute the bonus however they wanted. This should have been a good thing, but it was impossible for the group to agree on how to allocate the money. In the end, the money was split evenly among the team members, but many were angry because they thought this was unfair.

Mary Poppendieck


In the book Hidden Value,[18] Charles O'Reilly and Jeffrey Pfeffer present several case studies of companies that obtain superb performance from ordinary people. These companies have people-centered values that are aligned with actions at all levels. They invest in people, share information broadly, rely on teams, and emphasize leadership rather than management. Finally, they do not use money as a primary motivator; they emphasize the intrinsic rewards of fun, growth, teamwork, challenge, and accomplishment.

[18] O'Reilly, Charles A., III, and Jeffrey Pfeffer, Hidden Value: How Great Companies Achieve Extraordinary Results with Ordinary People, Harvard Business School Press, 2000.

Treat monetary rewards like explosives, because they will have a powerful impact whether you intend it or not. So use them lightly and with caution. They can get you into trouble much faster than they can solve your problems. Once you go down the path of monetary rewards, you may never be able to go back, even when they cease to be effective, as they inevitably will. Make sure that people are fairly and adequately compensated, and then move on to more effective ways to improve performance.




Implementing Lean Software Development. From Concept to Cash
Implementing Lean Software Development: From Concept to Cash
ISBN: 0321437381
EAN: 2147483647
Year: 2006
Pages: 89

flylib.com © 2008-2017.
If you may any questions please contact us: flylib@qtcs.net