Compensation Cafe

What the Oreo Cookie Can Teach Us about Employee Recognition & Rewards

Is your company global? If not global, do you have multigenerational and multi-cultural workforce? If so, then you likely experience many of the same stressors of global organizations in catering to local employee needs for appropriate compensation, benefits, recognition and rewards.

The greatest challenge of all is first understanding local needs. It’s all too easy for HQ to think they know what employees want (in any capacity). Truly understanding and catering to real local desires, however, is an entirely different matter.

This story in Smart Business about Mondelez International (formerly Kraft Foods) is a terrific illustration of my point. For our American readers, what do you think of when you hear “Oreo cookie*?” Chances are it’s not a small cookie sandwich, with a green-tea flavored crème filing that’s not very sweet. Yet that’s exactly what “Oreo” means to Chinese consumers today.

Mondelez was ready to stop selling traditional, American-style Oreo cookies in China because they were losing money on sales. The cookies were too big, too sweet and not at all appealing to Chinese consumers. Yet, by first listening to what Chinese consumers actually wanted and changing the product to align with those tastes, Chinese Oreo sales now account for nearly half of the  global Oreo business.

This is a powerful lesson for HR pros creating global employee recognition programs, too. Simply recreating your program as designed for the country where HQ is located will almost certainly guarantee failure on a global basis, especially when it comes to rewards (the horror stories are quite compelling). Local tastes and local needs dramatically vary. While I know why clocks are a terrible reward for Chinese employees, I was a bit surprised to learn the most popular reward item – as regularly selected by Chinese employees in their own neighborhoods from a vast selection of reward choice – is fancy baked goods.

My point – never assume your way is the best way for all employees everywhere (or from every generation). While you should always work hard to include all employees in your strategic, social recognition program, you must also work hard to ensure it’s a program that is rewarding to them.

How do you localize your global programs?

* Even writing “cookie” instead of “biscuit” was, for this native Irishman, a customization in honour of the home country of the Oreo. Simple localization of language and terminology can also be a powerful means of acknowledging the importance of local needs in global programs.

As Globoforce’s Head of Strategic Consulting, Derek Irvine is an internationally minded management professional with over 20 years of experience helping global companies set a higher ambition for global strategic employee recognition, leading workshops, strategy meetings and industry sessions around the world. His articles on fostering and managing a culture of appreciation through strategic recognition have been published in Businessweek, Workspan and HR Management. Derek splits his time between Dublin and Boston. Follow Derek on Twitter at @DerekIrvine.

The Stuff of Legends!

I've been getting to know a few new clients recently. They've been introducing me to their culture and I've been helping them learn a bit from their demographics.  In writing a report for one client yesterday, I was repeating back to them a factoid they gave me. It went something like, "70% to 80% of new employees make it through the first year and tend to stay." I stopped typing.

It is exciting, but is it true? Do they have the data for it?

Every company has legends. Stories that they use to define the company as a hero. You have them in your company. You have them in HR. The thing is that, like all legends, things have been polished up a bit to build in drama. Or they may have been true once but over time the story has become more reassuring than accurate.

Or one day a few people wished upon a star.

Some legends are powerfully tied to the company's sense of self and should be negotiated carefully. Odds are Marissa Mayer thought she was tackling a legend when she limited telecommuting at Yahoo! She still thinks it was the right thing for the business.

Let legends automatically guide our decisions and over time our decisions will become dusty. This can be bad for the business, our employees and, frankly, our careers.

If people at your place of business toss around legends, especially if they involve a belief that things are just so, it's a good idea to check them out. ("We target the 75%ile" is a good one, if your market index is hovering around .6. Another is, "We pay for performance" when most employees are surprised by their performance ratings or the size of their incentives.)

Anybody out there have favorite legends to share?

Margaret O'Hanlon is founder and Principal of re:Think Consulting. She'll join Ann Bares and Dan Walter of the Compensation Cafe to speak the unspoken -- Everything You Do (in Compensation) Is Communication -- in an upcoming book. Margaret brings deep expertise in compensation, career development and communications to the dialog at the Café. Before founding re:Think Consulting, she was a Principal with Towers Watson. Margaret is Deputy Director of the International Association of Business Communicators (IABC) Pacific Plains Region. She earned her M.S. and Ed.S. in Instructional Technology at Indiana University, Bloomington. Creative writing is one of her outside passions, along with Masters Swimming.

Stop Spreading the Peanut Butter and Start Feeding the Eagles

"The difficulty lies not so much in developing new ideas as escaping from the old ones." ------ John Maynard Keynes

I wrote an article here six months ago on the need to differentiate among employee groups --- how companies should manage their workforce like a portfolio of investments.  And how some employees, like investments, pay a much higher return than others.

This subject still bugs me.  I don’t think I hit it hard enough.  So I will try again using some head-whacking 2x4’s. Here’s a quote from Laurie Ruettimann --- the high priestess of “whacking”:

“Here’s what I’d love to know: At what point in time did it become common place for every freaking single person in business to believe that they had to treat all employees in their organization equally in every situation? Here’s the truth. That’s what was made up by lawyers and adopted by HR people as an easy rule of thumb to play it safe against the itty bitty possibility that you’d get your butt sued. Over the years it’s gone from a concept used to protect against gross discrimination of gender and race to a concept used to create policies for everything from bereavement leave to bathroom usage. It’s out of control.”

Laurie makes Richard Beatty --- HR thought leader ---look positively “genteel”. Here’s what he says:

"HR wants to treat most employees the same way, and they spend considerable time trying to defend or fix poor performers, taking on the St. Bernard role.  Low turnover isn't necessarily a good thing.  Think about where you might want to disinvest.”

HR is also behind what Beatty calls the "silly" idea that a company should try to be the "employer of choice."

“If you are the employer of choice, who's going to be applying for your jobs? Everybody and their dog's brother. You want people who are excited, enthused, and understand how to contribute to what you do, as opposed to those who simply want to find a good place to hide out."

WOW!  Is your head ringing from the 2x4s yet?

Much of the above boils down to HR’s penchant for risk avoidance and the need/ease of treating everyone equally.  HR needs to move away from risk avoidance to risk leverage. Just as top management finds it critical to balance the risk and reward of their strategic decisions, HR also needs to incorporate risk into their thinking. This new mindset will help them not only understand the full range of HR risks, but determine which risks are worth taking.

Mr. Jesuthasan of Towers Watson, in the Oxford Economics Global Talent 2021 survey, says:

“Being risk-averse is no longer a viable approach.  Risk awareness is not just about identifying the risks you don’t want to take, but also the risks you do want to take.”

It’s all about risk management.  Will doing X increase the likelihood of getting Y?   Is doing A too big a risk to take in order to get B?  Every day it’s about weighing relative risks against relative opportunities.  

Do we spread the peanut butter --- risk averse?  Or do we feed the eagles --- risk leverage?  There must be some HR programs that are "adequate" and that's OK.  There must be some HR programs which are "good enough" and that's really good enough. (I may hear about this one.)

HR needs to focus on equity instead of equality; on engaging the right employees, not necessarily all employees; on hiring choice employees, not becoming an employer of choice; and finally, on special rewards for certain groups of employees, not all employees. There’s not enough time, energy or money to do everything for everybody.

If top management sees HR as part of the team, someone who is working to grow the business and help them take smart risks, they’re going to be far likelier to run things by HR – and far likelier to listen when HR tells them “no”.  

Do you have an "equality" mentality — spreading the peanut butter?  Or do you have an “equity” mentality--- feeding the eagles?   

Head whacking is over.  I feel better now.

Jacque Vilet, President of Vilet International, has over 20 years’ experience in Global Human Resources with major multinationals such as Intel, National Semiconductor and Seagate Technology. She has managed both local/ in-country national and expatriate programs and has been an expat twice during her career.   Her true love is working with local national issues.  Jacque has the following certifications:  CCP, GPHR, HCS and SWP as well as a B.S. and M.S in Psychology and an MBA.    She belongs to SHRM, Human Capital Institute and World at Work.   Jacque been a speaker in the U.S., Asia and Europe, and is a regular contributor to various HR and talent management publications. 

Ideal Organizations Diversify The Definition of Diversity

What does the ideal organization look like?

Rob Goffee and Gareth Jones have been looking at this question for more than three years. Their research found six common principles that cut across circumstance, industry, and individual ambitions. In their article Creating the Best Workplace on Earth, they reveal these six principles:

1. individual differences are nurtured;
2. information is not suppressed or spun;
3. the company adds value to employees, rather than merely extracting it from them;
4. the organization stands for something meaningful;
5. the work itself is intrinsically rewarding;
6. there are no stupid rules.

On the surface, these are common-sense principles that seem intuitive. But if we stop and really think about what these things mean, there are surprising revelations. Take the first principle, for example.

When we think about individual differences, most of us jump immediately to the standard definitions of gender, race and ethnicity, age, etc. But Goffee and Jones found that it's really about more than traditional diversity categories. It's about cognitive diversity: differences in core assumptions, perspectives, and habits of mind. The ideal organization "is aware of dominant currents in its culture, work habits, dress code, traditions, and governing assumptions but... makes explicit efforts to transcend them."

We're all familiar with the classic examples of the "eccentric scientist" who keeps odd work hours and the "creatives" that can't seem to work in suits and ties. But yet again, it goes deeper than we initially think. It's about tapping into less-obvious talents in unexpected places. It's about blending cognitive differences and combining skill sets in new and unconventional ways. It's about creating a truly interdisciplinary environment. 

Combining data analysts, professional dancers and product designers into a cohesive work team is no easy feat. Measuring performance is even more difficult. Traditionally defined career paths and competence models don't work. Quantitative measurement systems can't adequately capture the value of that one breakthrough idea, but they do penalize the likely (and necessary) dead ends leading up to that breakthrough.

Such an environment also creates a unique challenge with respect to compensation. A one-size-fits-all rewards package will be sub-optimal. The challenge is to develop a system that encompasses enough variety to be effective in rewarding the data analysts, dancers and designers, but still retains cohesiveness and maintains pay equity. It has to account for differences in individual preferences in risk tolerance (base versus incentive), cash/benefits tradeoffs, and tangibles versus intangibles.

Diversifying the definition of diversity is messy business. Creating the ideal organization is likely an impossibility. So is building the perfect performance measurement system and total rewards package for this ideal organization. But even if we never get there, measurable gains can be made while striving for the ideal. Are you brave enough to dip a toe into diversifying the definition of diversity and see what great things might happen? 

Stephanie R. Thomas is an economic and statistical consultant specializing in EEO issues and employment litigation risk management. Since 1999, she's been working with businesses and government agencies providing expert quantitative analysis. Stephanie's articles on examining compensation systems for internal equity have appeared in professional journals and she has appeared on NPR to discuss the gender wage gap. Stephanie is the founder of Thomas Econometrics Inc., the host of The Proactive Employer radio show, and author of the upcoming book Compensating Your Employees Fairly: A Guide to Internal Pay Equity. Follow her on Twitter at @proactivemployr. 

Nine Ways to Sabotage Your Incentive Plan

I continue to be amazed at the many ways that companies manage to sabotage their own incentive plan efforts.  Just for fun, I thought I'd compile a list of some of my favorite fails.  I'm sure you have your own to add!

1. The Borrowed Plan.  Why bother with the hassle of creating an incentive plan designed to support your company's competitive challenges, business priorities, values and culture when you can simply slap in the one your old employer used or the one that the guy from your networking group emailed you.  Easy, peasy.  Problem solved.

2. The Last Minute Roll-Out.  You just couldn't find the time to work on the incentive plan until your boss reminded you (again) that it's one of your KPIs for the year.  Thus reminded, you put one together quickly and slide it in place quietly two-thirds of the way through the fiscal year.  Maybe nobody will notice.  Heck, it's not like you're trying to get people's attention or change their behavior.

3. Refuse to Say What You're Trying to Accomplish.  Defining plan purpose and objectives? Seriously? This is the real world where we don't have the time for such academic exercises.  The Board has declared that there will be an incentive and so an incentive plan there will be.  I already have a design in mind that I like, so that's what we'll go forward with.

4. Ignore the Real Problems.  You and I both know that the reason for our drop in manufacturing productivity is the lack of organization and the poor communication surrounding all the recent product changes.  Engineering and manufacturing management haven't been on speaking terms in months, and plant employee morale is at an all-time low.  But senior management is insisting on an incentive plan to spur productivity, so let's give them what they want - no questions asked.

5. Ignore Funding and Cost Questions.  What will it cost?  What will it pay out under different scenarios? Return on investment?  Seriously, who has time to sit and figure all that out?  Plenty of time to worry about that at year end.

6. Documentation is for Sissies.  Formal plan documents?  You must be kidding!  We explained the basics of the plan at the quarterly staff meeting.  People basically get it - at least at a high level - and they're all excited about the possibility of a payout.  It's all good.  What could go wrong?

7. The Payout Fail.  So now it's year end, incentive goals were not met, the plan isn't going to pay anything out, and people are ticked.  Really ticked.  Yes, you probably could have explained it better and set the plan threshold more thoughtfully.  OK, it's a disaster.  So let's just pay them out something - anything - just enough to take care of all the complaining and get this whole thing behind us.  We'll start over with a fresh new plan next year, and this time we'll really mean it.

8. Squandering the Teaching Moment.  Plan roll-out was completed and the plan announcement memo from HR went out on time.  But now people are going to their managers with all these questions.  How is net income calculated?  What things can the company do to maximize earnings?  What does their department do that helps the company be profitable?  Are there things in their job that they could do differently to better their odds of earning an award?  Our managers are already busy and overwhelmed - they are not prepared for these conversations and they don't really have the time for the distraction.  What to do?

9. Balance? What Balance? Hey, management wanted us to use incentive to increase productivity, so we gave them a straightforward productivity-based incentive plan.  How were we supposed to know that a relentless, single-minded focus on productivity could result in problems with quality and employee safety?

What incentive plan fails have you witnessed?

Ann Bares is the Founder and Editor of the Compensation Café,  Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting to a wide range of client organizations.  Ann was recently named President Elect of the Twin Cities Compensation Network (the most awesome local reward network on the planet) and has joined the Advisory Board of the Compensation & Benefits Review, the leading journal for those who design, implement, evaluate and communicate total rewards.  She earned her M.B.A. at Northwestern University’s Kellogg School, is a bookhound and aspiring cook in her spare time.  Follow her on Twitter at @annbares. 

Creative Commons image "Spy vs Sci 567" by Anonymous9000

The One Equity Compensation Trend to Rule Them All

Performance equity has taken a long journey. Initially, its use was inhibited by accounting rules that made it far more advantageous to grant equity with time-based vesting. Those rules went away at the start of an incredibly volatile decade for the stock market. The path to this trend has been an adventure requiring a fellowship of disparate groups and events. Stock options lost their luster after the end of Equity Compensation’s Golden Decade™. Dodd-Frank joined the fray after the financial mess of 2008-2009. Even time-based restricted units slowed in growth as companies worked to rebound. Finally, the incredible recovery of the stock market over the past several years has all led to a major shift in how companies, investors, the media and politicians view equity compensation.

As I went through 2013 Equity Trends Report from Equilar, I found several interesting morsels of information. The report discusses some of the trends in stock options, restricted stock and performance-based equity. At more than 30 pages, I would be able to little more than summarize it here. But, there was one section where I called and requested more data.

The report shows most data in time-ranges from 2007 through 2012, the one exception was the chart on performance shares granted to the S&P 1500. This chart shows only 2010 through 2012. As you may know, Say on Pay became a reality in the US in 2010. Assuming that Say on Pay had a direct impact on plan design, I asked for the data empirically showing the change in performance equity use from 2008 through 2012.

While the data speaks for itself regarding the impact of Dodd-Frank and Say on Pay, I believe the story is far from over. Performance-based equity is entering the troublesome “tween” stage. Most of the companies with these plans believe they are almost ready to be left alone for a while, but many investors are just starting to see newly developing issues. At the recent WorldatWork conference, there were sessions trumpeting the success of Total Shareholder Return (TSR) as a metric for equity compensation. At the same time, there were sessions that explained that TSR was clearly flawed and did not reward performance consistently. I predict we will continue to see rapid evolution in the use of internal financial and operational metrics. We will even see growth in metrics more qualitatively measured, like customer service scores.

Like so many in the throws of adolescences, the full potential and fate of long-term performance awards is not yet known. What data does show is that this is the one equity compensation trend that currently rules them all.

Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues. Dan is a co-author of “The Decision Makers Guide to Equity Compensation”, “If I’d Only Know That”, “GEOnomics 2011” and “Equity Alternatives.” Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts, a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter at @Performensation and @SayOnPay.

Numbers That Lie

Hard numbers can turn out to be really soft and squishy upon closer examination.  Perhaps that is why predictive foresight is rarely fully accurate, even when based on the Best Available Data.  (Note the nifty acronym, proving that even an optimal decision is still doomed to be a BAD decision.)

Reliance on data¹ does increase the certainty people feel when making their mistakes.  Numbers are therefore fondly embraced by most compensation people, because numeric data seem to confirm the accuracy of measurements.  But those very numbers can cause us to stumble because they promise a degree of precision that can be quite misleading, if not downright false. 

Last year, the initial Apple effect greatly skewed exec comp survey results (see The Apple Effect note at the bottom here).  Some frowned at the $376,000,000 in stock options granted to the new Apple CEO Tim Cook (which temporarily ballooned in value to over $600 million shortly thereafter) but little attention was given to his subsequent 99% pay cut this year… perhaps because it’s all RELATIVE.  Funny, how a relative increase gets headline attention but a relative decrease is ignored.  Surveys that did not make allowances for massive swings in isolated observations like that would leave their followers spinning in confusion.

Maybe it all depends on whether you want to find what is normal (the median), discover the most popular (the mode) or simply compute the average.  Those arcane terms are really important in compensation work, because each has a different precise meaning. 

When Bill Gates enters a Starbucks, the average customer in the shop becomes a millionaire.   Averages are directly impacted by outliers, while medians are the middle figure no matter how high the high or how low the low observation.  Conventional society tends to favor AVERAGES even though they are more problematic in statistical terms.  There are all sorts of fancy tricks statisticians use to manipulate the figures they process into “hard numbers.”  They include winsorizing, trimming, hot decking (where a missing value is replaced by a similar but different observation) and others .  Excuse me, but some of those gimmicks strike me as flat-out falsehoods; yet they are enshrined in statistical lore and thus may be applied without your knowing.

Likewise, anyone who finesses you with a claim that pay falls in a bell-shaped curve is yanking your chain (or pulling your thumb) in a big way. Wages are never symmetrical nor do salaries have a normal distribution.  That means some of the standard statistical techniques just don’t fit the world of total rewards where the observations are living, breathing human beings.  Whenever the science of number-crunching is invoked, the art of judgment must be added to assure its proper application.

These are just a few of the common compensation conundrums of lying numbers.  What are your favorites?

¹Mark Twain - There is something fascinating about science. One gets such wholesale returns of conjecture out of such a trifling investment of fact. 

E. James (Jim) Brennan is Senior Associate of ERI Economic Research Institute, the premier publisher of interactive pay and living-cost surveys. Semi-retired after over 40 years in HR corporate and consulting roles throughout the U.S. and Canada, he’s pretty much been there done that (articles, books, speeches, seminars, radio/TV, advisory posts, in-trial expert witness stuff, etc.), and will express his opinion on almost anything.

Creative Commons image "Bell Curve" by hardeep singh

Don't Do It: US-Centric Global Operations

Sounds like a contradiction in terms, doesn't it?  How can a company profess to have global operations while clinging to a US-centric mode of dealing with its overseas employees?

Sad to say though, it's easy; happens all the time.  And causes problems across the border with an alarming frequency.

One example of many

For example: Recently one of my US-based clients faced a challenge in a particular country regarding high employee separations coupled with difficulty in recruiting qualified staff.   The company was at a loss to understand the root cause of their problems, as they felt that they were providing a more generous reward package for employees then was their normal practice in the US.  The trouble is, they were looking at the problem from a US-centric perspective.

A quick study revealed that the clients’ international employees were indeed receiving a great deal more than their American counterparts.  However, in many areas they were in fact being given no more than the minimum benefit provisions that were mandated by statutory requirement.  They were receiving only what the company was compelled to grant.  How do you attract, motivate and retain quality staff when the message of your actions is that you are only willing to offer what government regulations say you must?

This client bemoaned having to grant four weeks of vacation upon hire, because it was the law, when their US employees received only two weeks after completing a full year of employment.  They thought they were being generous, and quite the global employer.

But then they discovered that common practice indicated that five or more weeks were the norm.   To their employees and prospective candidates they offered no more than what they were required to offer by law.  By ignoring competitive practice they were now paying a steep price in struggling to build and retain a quality staff.  They had earned a reputation in the local market as a “minimalist employer.”

And it's hard to dig yourself out of that hole.

Establishing the employee footprint

When American companies first establish operations overseas Human Resources faces a number of challenges that they are unaccustomed to dealing with at home.  Every country is a separate and unique entity, with differences in HR policies, practices, taxation, local competitiveness and statutory requirements, each of which must be acknowledged and addressed in order to develop and maintain a successful operation.  On top of that are the vagaries of the competitive marketplace, where the same job is paid differently from Rome to Oslo to Buenos Aires – and typically coupled with differing social charges and benefit coverage.

Choosing to operate under the guidance of U.S employment law and US-based corporate practices ("what we do at home") is a failed strategy.  Maintaining such a US focus (usually for ease of administration) will bring you grief; grief from your employees, from those you hope to hire, and most worrisome of all from local governments whose laws you may have ignored or bypassed.

Think how you would feel if elements of your own reward package, policies or procedures were based on European or Asian common practice.   That wouldn’t go over well with you, now would it?

If your organization has decided that your business strategy requires you to maintain a staff presence in a particular country, then I would advise you to treat that operation the way you would its U.S. counterpart; provide competitive terms and conditions that will attract and retain the right caliber of employee in that country – and ignore how their packages might compare with the US or other country counterparts.  If you are not willing to make that commitment, from an HR perspective you would be better off not to engage employees in that country.

Chuck Csizmar CCP is founder and Principal of CMC Compensation Group, providing global compensation consulting services to a wide variety of industries and non-profit organizations.  He is also associated with several HR Consulting firms as a contributing consultant.  Chuck is a broad based subject matter expert with a specialty in international and expatriate compensation.  He lives in Central Florida (near The Mouse) and enjoys growing fruit and managing (?) a brood of cats.

Creative Commons image courtesy of Oskay

One Size Does Not Fit All

"If you find a good solution and you become attached to it, the solution may become your next problem." ----- Robert Anthony

I had an "aha" moment recently and then very quickly became embarrassed for what should  have been obvious in the first place.

“One size does not fit all”.  My “aha” was realizing that this doesn’t apply just to HR/compensation --- but everyone in business --- even (drumroll) CEOs!  

JC Penney, the department store chain, recently fired Ron Johnson their CEO of 18 months.   He came from Apple where he created the retail operation that was a smashing success. 

Many people believe his firing was due to poor execution of a strategy that hadn’t been fully thought out.  Some of his innovations were radical, like ending discount sales in a department store known for its markdowns. Perhaps the biggest reason outsiders give for his failure is that he did not listen to customers.

Let’s look a little deeper.  How could such a wildly successful executive from Apple fail so abysmally at JCP?  He obviously had exhibited both great strategy AND great execution at Apple.  Why would his ability to think strategically and execute flawlessly fail him at JCP?

The simple answer:  “One size does not fit all”.

He took a page from Steve Job's playbook:  “Customers don’t know what they want until you show it to them.”  That sounds arrogant but for Apple it made sense.  Let's look deeper still: “If you ask customers what they want, they will tell you, ‘Better, faster, and cheaper’—that is, better sameness, not revolutionary change. They can describe their desires only in terms of what they are already using."   But big wins happen when you go beyond better sameness.

Ron’s mantra at JCP was --- guess what:  “Customers don’t know what they want”.  Like Jobs he wanted to go with revolutionary change --- not sameness.   But JCP’s products are commodities ---- not revolutionary tech products.  Apple’s business model doesn’t work at JCP.

Here’s an example of someone who wasn’t effective at Apple.   John Sculley took his commodity business model at PepsiCo with him to Apple.  As the new CEO he tried to change Apple from a “techie” company to one similar to PepsiCo ---- buttoned-down, slick and marketing oriented. 

In the end he failed because he began producing mass market machines to compete with IBM and was opposed to licensing Macintosh software. Apple is not in the commodity business like PepsiCo. Its products are about revolutionary change. 

The point to all of this is that CEOs/top management take what has worked for them at Company A and then go to another company, another industry, another culture and try to replicate what was a smashing success at Company A.  And they fail.

Of course we already know this applies to HR and compensation.  Like we haven’t heard it enough?!

I tried to take a team bonus plan for manufacturing assembly lines (line A, B, C, etc.) to another company and it failed.  In the first company it created a healthy competition where assembly lines competed with each other, had fun and celebrated winning.   In the second company it led to divisive competition where teams laughed at each other's failures, took shortcuts in their work leading to defective parts and scrapped material.   Not so successful.  Different culture.

Morale of the story:  Think about what you need to create.  Is it a revolutionary design for a compensation plan that will satisfy a need the company doesn’t even know it has?   Or is an upgraded  “sameness” plan what is really needed?

Put this someplace where you will see it daily. "If you find a good solution and become attached to it, the solution may become your next problem."

P.S.  Aren’t you glad that compensation people like us aren’t the only ones that forget “one size does not fit all”?

Jacque Vilet, President of Vilet International, has over 20 years’ experience in Global Human Resources with major multinationals such as Intel, National Semiconductor and SeagateTechnology. She has managed both local/ in-country national and expatriate programs and has been an expat twice during her career.   Her true love is working with local national issues.  Jacque has the following certifications:  CCP, GPHR, HCS and SWP as well as a B.S. and M.S in
Psychology and an MBA.    She belongs to SHRM, Human Capital Institute and World at Work.   Jacque been a speaker in the U.S., Asia and Europe, and is a regular contributor to various HR and talent management publications. 

Image courtesy:  http://money.cnn.com

Memo to Dan Pink and Friends: Incentives Do Not Undermine Employee Motivation

Editor's Note: I am proud to feature today's guest post from Dr. Gerry Ledford, who shares some key findings and points from his presentation at this week's WorldatWork Total Rewards and his recent WorldatWork Journal article.  As a big fan of Gerry's work, I am particularly pleased to be able to share his thoughts and wisdom with the Cafe audience.  Take it away, Gerry!

The rewards field is filled with mythology about what research has to say, and practice is guided by the mythology. Consultants, famous executives, the business press, and ultimately academics who don’t know their stuff monotonously repeat the popular wisdom until it becomes generally accepted as truth.  All too often the body of research flatly contradicts the popular wisdom. 

 Two of my favorite myths are Herzberg’s claim that money is hygiene factor rather than a motivator (not supported by his own data, by the way) and the undying faith in the idea that a happy worker is a productive worker (the underpinning of much of the work-life and best place to work movements).  We will leave a discussion of these myths for another day. Here I focus on a destructive myth, namely that extrinsic rewards such as monetary incentives undermine intrinsic motivation to such a degree that they make incentives ineffective. 

You might imagine that effects of extrinsic rewards on intrinsic motivation is an obscure academic topic of little interest to practitioners.  If so, you would be wrong.  In fact, this position was championed the authors of perhaps the two best selling books on rewards in history, Alfie Kohn (1993) and Daniel Pink (2009).  For example, Kohn claimed in his 1993 book that, The bottom line is that any approach that offers a reward for better performance is destined to be ineffective.” Furthermore, “Possibly the most compelling reason that incentive systems fail is . . . (that) extrinsic motivators not only are less effective than intrinsic motivation but actually reduce intrinsic motivation . . . Furthermore, the more closely we tie compensation (or other rewards) to performance, the more damage we do” (emphasis in original).  Both books were heavily referenced, but neither author was particularly qualified to review the hundreds of research studies on this topic.  Kohn was a high school teacher and Pink was a political speechwriter turned author. 

The research says something quite different than Kohn, Pink, and their friends suggest.    

• Monetary incentives generally lead to increased performance.  There have been six major reviews of the literature on incentives in the past 20 years, and there were several others during the 1980s.  As I demonstrated in my presentation at the WorldatWork meeting this week, all these reviews reached the same conclusion: monetary rewards increase performance. Even academic proponents of the Kohn and Pink position such as Edward Deci concede this.  So much for the claim that any negative effect on intrinsic motivation is so serious that it causes incentive failure. 
• Extrinsic rewards actually can increase intrinsic motivation depending on how they are implemented.  All relevant academic theorists agree on this point.  Good implementation means communicating the importance of the task and how the incentive works; setting specific, meaningful goals; providing supervisor feedback and support; hiring employees who want incentives; and building an incentive-oriented organizational culture.  The idea that incentives are actually a source of intrinsic (not just extrinsic) motivation is not a surprise to anyone who has seen a salesperson, production worker, or CEO engrossed in calculations of their next performance bonus payout and developing tactics to maximize the payout. 
• Rewards have no negative effect on intrinsic motivation for boring, routine work because the tasks have little intrinsic motivation to reduce.  This is important because much of the work of our society would not be done if we did not offer extrinsic rewards for task performance.  In fact, incentives (but not salary alone) can increase intrinsic motivation in routine work.
• The negative effect of incentives on intrinsic motivation can be manufactured in the laboratory, where most of the studies in this literature were originally conducted, but the effect disappears in real-world conditions.  A review of 43 field studies found that incentives actually tend to increase intrinsic motivation.

Compensation professionals who are familiar with our topic may have wondered whether their work on incentives is an exercise in futility, and doomed to fail because incentives undermine intrinsic motivation. Fortunately, compensation professionals can rest easy.  Extrinsic rewards increase performance because they increase total motivation (extrinsic plus intrinsic).  Any negative effects of rewards on intrinsic motivation can be easily avoided by the sound implementation of incentive plans.

ENDNOTE: Readers interested in more information on this topic are encouraged to see the article by Ledford, Gerhart, and Fung in the current issue of the WorldatWork Journal (Q2 2013) entitled, “Negative Effects of Extrinsic Rewards on Intrinsic Motivation:  More Smoke than Fire.” (Access the article on the USC site here.) The article offers an overview of the extensive literature on this topic. 

Gerry Ledford is Senior Research Scientist at the Center for Effective Organizations, Marshall School of Business, University of Southern California.  Much of his professional work focuses on employee reward systems.  He returned to the Center for Effective Organizations in 2012; he was a key contributor there from 1982-1998.  From 1998 to 2003, he held leadership positions at Sibson Consulting. Since 2004, he has been President of Ledford Consulting Network LLC.  He received a Ph.D. and M.A. in Psychology from the University of Michigan.  Gerry has authored over 100 articles and ten books and he frequently speaks at professional events.