Once upon a time, I was an ambitious young man. At work, I put myself forward for all sorts of projects and initiatives and took on as much responsibility as I could. Having spectacularly failed at school, I had committed to prove to myself that I was in fact good at something. I set my sights on a business card with the title ‘Director’ on it. As time went by, I climbed the corporate ladder at a couple of firms and wound-up taking responsibility for a highly diverse group of people, as part of a new role in a new firm. It was made clear to me that if I could turn this rabble into a high-functioning team, I’d get my business card. Side note, I had no idea how much risk I was taking on when I became a director. I wasn’t a shareholder either, so all the downside and very little upside. Always look before you leap.
Anyway, to say I struggled to manage these people would be an understatement. There were too many of them for a start, and it really didn’t help that I had absolutely no idea what I was doing. I had finally been promoted above my level of competency. It wasn’t just me taking a risk here either. I felt the weight of responsibility for the careers of twenty other souls too.
My challenge was quite simple and can be summarised with the story about Everybody, Somebody, Anybody and Nobody. I won’t repeat it all here but to summarise, they had no direction, little or no training, no motivation and blamed each other for their collective failings. This became clear within about a month of my arrival, so I called everyone together for a natter. I asked if anyone wanted to start us off and a young chap thrust his hand in the air and declared that everyone deserved a bonus, as they’d been working so hard. He’d developed a framework that split a possible bonus pool among the team and asked me to look over it before getting payroll adjusted for next month. I asked him not to speak for the rest of the meeting.
After a few months with my head buried in the sand, I finally came to terms with my mission and made a start. First, I met each individual one-to-one. I just listened to them moan about each other and got very little new information. Then I read HR files and realised that we didn’t have a lot of useful data points there either. I thought about asking each person to write their own job description but remembered an old boss asking me to do this. I felt like he had no idea what he was doing and I didn’t want to be ‘that guy’. I needed time to do some proper research, so I came up with a project to get rid of a backlog of work and attached a bonus to that. Good old carrot and stick. Works for donkeys and, as it transpires, demotivated people too. I should state for the record that little of this was their fault. The firm had, thus far failed them and it was down to me to make it right.
Despite a sub-optimal education experience, by the time I hit my thirties I had become an avid reader. There was a thirst for knowledge that just wasn’t present when I was at school. I had read a few personal development books including How to Win Friends and Influence People by Dale Carnegie and The 7 Habits of Highly Effective People by Stephen Covey. Now facing this rabble and with no clue how to help them, I went back to Covey and another of his books Principle-Centred Leadership. I also ploughed through The Effective Executive by Peter Drucker (the field manual for managers), In Search of Excellence by Tom Peters and Robert Waterman and of course Coaching for Performance by Sir John Whitmore. If you know, you know.
My conclusion from all this reading was that each individual needed a few key things to help them behave in a productive way. Firstly, certainty about the rules and clarity on their rights. Confirmation of their current role and their path to a new one, was also essential. Then they needed to know how specific tasks should be handled. I dealt with these requirements by creating the firm’s rules and policies, clarifying contracts of employment, issuing job descriptions and personal development plans. Then I looked at processes, spent a few months working on our client service proposition and then circled-back to amend the job descriptions. Lesson learned, sort the proposition first, then align everyone’s roles to it. Then bonus season rolled around and I found myself making some people happier than they should have been, and others sadder than I thought they’d be.
At the point of reward it was all about me when it should have been all about them. I was confused. I wasn’t trying to turn this into a teacher’s pet scenario. This experience led to me writing out as clearly as I could, what it was I was trying to achieve. I wanted each individual and myself to have a shared understanding of their role and the performance required, in return for the base salary and benefits. I then wanted a further incentive to motivate and reward those that wanted to do more or earn more. But it had to be defined and to relate to activities that helped the firm move forward.
This is when I remembered something from one of the Covey books – the win/win performance agreement. He had described this as a tool one could use when a professional relationship was at it’s peak. It was perfect. A mutual commitment to performance. I decided to use it as part of a planning document, that would pull together all the other tools I was using. And that’s exactly what it did, and still does. It’s a formal agreement between two people. It details expectations, the consequences of success and the best way to avoid failure. I have one with myself, which might sound weird but it works.
I started with a document that prompts the individual to summarise their job role, KPIs and performance standards. I changed job descriptions so they were issued annually and only after consultation. They also contained KPIs and performance standards. Clarity on what was expected in return for base salary and benefits. Having this detail set out in their job description, it’s just a question of them copying it across. However, this process helps to surface any misunderstandings and to catch them early.
Next the individual sets out their plan for the next quarter. This includes any personal development and extra activities and/or projects they might be involved in and how those activities support the firm’s business plan. The IPO framework (the subject of last week’s blog, which you can read here) is used to help the individual develop their plan of action. I followed the balanced scorecard approach, to ensure activities were spread across the firm and reflected our overall strategy. It was about this time that I came up with the kernel of the idea for the ESP planning framework that sits at the foundation of all the work we do at Kingmakers (read about that here). While I was working on effectiveness, I had stumbled into the answer to another problem that had stumped me for years, namely, how to cascade goals from a business plan, down into functional areas of the firm and ultimately to each individual. More on that when we take a romp through strategy next week.
Once the individual has come up with their plan, the manager then reviews it and they discuss it together. Upon agreement, the manager allocates a financial reward to each activity. This took a while to figure out. I understand why Charlie Munger says if you’re going to work on incentives, you shouldn’t work on anything else. Anyway, figure it out I did. A simple system with twenty points in a year, evenly spread across four quarters at five points a quarter. Each point relates to a percentage of base salary. Nail the activity, you get a defined reward. In recent years I’ve added a profit related element and tied this into both phantom share schemes and EMI option awards, so it works for scaling firms too.
Then there’s the declaration. In it there’s a commitment from the individual, to highlight any situation that they feel may stop them from achieving their goals. The commitment is to highlight these issues as they arise and not at review. They can then be fixed and the individual still has a chance to hit their goal. This turned out to be very valuable and led to my finding out pretty much everything that was broken in the business. Then there’s a review process for the end of the quarter and you reset for the next quarter and so on. I played around with format and content for a while before presenting to the rest of the management team and finally, presenting to the team. I called it the Annual Performance Plan, or APP. I was pleased.
Total lead balloon. Accusations of moving the goal posts. Threats to log grievances and so on. I put the fires out and then got to work selling the framework to the team. We put everything in place and they made it as difficult as they possibly could. Bless em. At the end of the first quarter, there was surprise that we were actually going to do the reviews. I may have been inconsistent at some points in the past, so their surprise was not entirely without merit. Anyway, we did the reviews and I think one or two people got paid their incentive payments. Everyone else made excuses. I reminded everyone of the commitment to highlight issues as they arise.
Next quarter I was drinking from the problem firehose. They told me everything that was wrong. I didn’t have time to fix it all (some of it was just excuses to be fair), so quarter two pay-outs were also low. Then quarter three happened. People started turning up early, staying late and working in a far more focussed way during the day. They talked to each other more, took an interest in each other’s goals and actually helped each other out. I sensed the change and leaned in by stepping up training and taking a more active interest in the day-to-day. It worked. We paid out about ninety percent of the total incentive scheme pool in that quarter.
I got everyone together and explained that my goal was to get to a one hundred percent pay out of the incentive scheme pool. This did two things: it motivated them but it also confirmed to me that the job of a manager, is to create an environment where people can do their best work. We got close to a full pay out in quarter four and didn’t look back after that. A few people did resign. I interviewed them and the general feeling was that the APP meant there was nowhere to hide. I was happy with that. The rest went on to other roles and businesses and some to great things.
Over the years I’ve added a grade structure for each role with an assessment framework that uses qualitative and quantitative data to measure an individual’s mindset, knowledge, skills, experience and responsibility. This provides a robust methodology for allocating someone a grade and provides a career ladder for progress. Works best in scaling firms. Dangle the possibility of a promotion and you’re going to need some certainty about your growth prospects. Without it you could wind up with a team full of grade fives and a big hole in your P&L.
I’ve added the APP to the Resources part of our website here. If you’re going to use it, just remember to make sure your Job Descriptions are up to date and include detail of KPIs and performance standards. Ping me an email if you want an example and I’ll send it over. If you want to build out the incentive plan, that has broader consequences and we should probably chat that through in more detail. One important tip though, it’s a good idea to game this for the first year. So go through the process but take the friction of money away. Guarantee last year’s bonus as a minimum and then show them what they could have been paid on the new scheme at the end of the first year. Then go live with the financial aspect in year two.
Been a long one this. TLDR – to assume is to make an ass out of u and me.