Experimentation has been on my mind a lot lately. I am coming to believe that moving compensation (and all HR) programs and practices forward, at the ground level where most of us live and work, will happen through evidence-based learning and innovation, through tinkering and tailoring, and through raising the bar on our understanding of fundamental data analysis. With this in mind, I was happy to bump into the HBR article Step-by-Step Guide to Smart Business Experiments (registration required for full article) written by professors Eric T. Anderson of Northwestern's Kellogg School and Duncan Simester of MIT's Sloan School of Management. And happier still to borrow shamelessly from their material to create my own set of rules for compensation and HR experimentation, presented below.
Rule 1: Clarify the Question, Define the Concept
Any experiment begins, of course, by getting as clear as we can about what we are seeking to learn and the kind of evidence that will provide us an answer. In academia, as Anderson and Simester note, researchers typically change one variable at a time so that they can know exactly what caused an outcome. While ideal, in business this may not always be possible or practical. For this reason, the authors advocate instead a proof-of-concept approach where you "change as many variables in whatever combination you believe is most likely to get the result you want."
Rule 2: Set it Up Like a Scientist
A business experiment requires three things: a treatment group (where the compensation or HR action in question is "applied"), a control group (a complementary group with no action) and a feedback mechanism (which allows you to observe how those in each group respond). Feedback can come via data or metrics that measure the impact of the treatment on individuals in the group; this could include things like voluntary turnover, engagement survey results, productivity or operating statistics, etc. The feedback might also be drawn through more targeted survey efforts, through interviews or focus groups.
Rule 3: Don't Miss the Natural Experiments
The article quotes Norwegian economist Trygve Haavelmo, who won the 1989 Nobel prize, and observes that that there are two types of experiments: “those we should like to make” and “the stream of experiments that nature is steadily turning out from her own enormous laboratory, and which we merely watch as passive observers.” The point here is that we (as busy, overextended professionals) should learn to recognize and take advantage of the low-hanging fruit; experiments that are either already happening in our organizations or conditions that readily lend themselves to easy experimentation. Keep an eye out for treatment and control groups that may already exist, or are being created by factors outside your control.
Rule 4: Measure as Much as You Can
The more you measure, the more you may potentially learn. Slicing your data by different variable turns one experiment into many, while examining only aggregate data may cause you to miss things. You might look at your results by, for example, differences in tenure, performance, HQ versus field, income level and even demographics like age, gender, etc.
Rule 5: Keep Your Eye on the Goal
Some companies, Anderson and Simester note, mistakenly believe that the only useful experiments are the successful ones. The goal is not to conduct perfect experiments; the goal is not even (really) to vindicate your preferred policy direction. The goal is to learn and to position ourselves for better business decisions. The goal -- at the end of the day -- is to bring your leadership team data and evidence, rather than hopes and beliefs, about your compensation and HR recommendations.
What can you add to these rules based on your experience?
How do we come to understand the conditions in which a bonus plan is likely to succeed or fail? How do we learn to read the landscape and understand the pain points that might be causing employees to feel that their salaries are unfair. When things go south (as they often do), was it the design, the implementation, the communication or something else that sent them there?
How do we learn in HR and Compensation? How does innovation and development in our fields happen? Does academia and research inform real-life practice ... or is it really the other way around?
And what do birds have to do with any of this?
The answers (or at least some answers) to these and other questions in my post today at the Compensation Cafe!
Creative Commons image "Playful Subsumption" by jurvetson
Today at the Huffington Post, Cara Woodson Welch (WorldatWork's VP of Policy and Public Affairs) opens with a gracious hat tip to my post and takes those thoughts in a new direction, wondering whether the record number of women in the 113th Congress might bring some change to the institution and its "old boys" workplace culture.
With record numbers of women in the 113th Congress, will we see more female chiefs of staff? More women Legislative Directors? Will having more women in leadership positions result in better workplace policies? Could all of that lead to a more functional workplace overall? Could it perhaps lead to less discord and less dysfunction?
No, I am not a Pollyanna, and I do realize that the field of politics lends itself to 24-hour workdays and an emphasis of work over other things in life. I also realize that outside the Beltway there is little sympathy for the workplace lives of those in Congress and congressional staffers. But I also know that the level of frustration with Congress is at an all-time high. Isn't it possible that if we change the "old boys" work culture, we might see it ripple into a more productive workplace? It certainly will be a facet of the 113th Congress that bears watching.
What do you think?
Creative Commons image "U.S. Capitol" by cliff1066
Pondering how (or whether) recognition and rewards can help smash silos and encourage collaboration where you work? Michael Schrage, MIT Research Fellow, shares a story in his HBR blog post about an organization that tried a simple -- but also clever and fun -- program to spark value exchange within its own firewalls.
A few years back, I helped a large, very compartmentalized and extremely silo-ed global organization launch an internal competition. Its goal was to promote greater sharing of ideas, information, best practice and innovative processes...
The design was simple, clever and cheap: top management would recognize and reward people who demonstrated an ability to cross-functionally get real value from their colleagues and cohorts. We created two complementary yet competitive awards: "Thief of the Month" — a modest prize and high-profile internal acknowledgement for teams and small groups who "stole" an idea or innovation from another unit and successfully incorporated it into their own business; and "We Wuz Robbed" — a comparably modest prize and recognition for having one's group's best practice or process adopted by another internal group.
Schrage notes that the dueling prizes helped create an internal marketplace, prompting both demand and supply, by encouraging employees to "not just to look for interesting ideas to 'steal' but to think about which of their own best practices deserved wider internal promotion." And all this, as we're made to understand, before intranet social media "sharing" applications had materialized in any substantive way.
The story illustrates not only how a reward plan with a playful and provocative spirit can engage people and help change their behavior, but (perhaps more importantly) reminds us that all the social media platforms and technology tools in the world might not make a difference if someone doesn't call people to the challenge in a way that captures attention and drives action.
Designing new compensation plans. Many of us are in the final throes of this activity as we roll into the last month of the year. Perhaps it would help us to step out of our HR heads for a few moments and take a page from the playbook of Harvard Business School professor Clayton Christensen, author of The The Innovator's Dilemma and How Will You Measure Your Life?, and regarded as one of the world's foremost authorities on disruptive innovation.
Christensen advocates approaching product design and planning with what he describes as a "job-to-be-done" point of view. As he says:
The jobs-to-be-done point of view causes you to crawl into the skin of your customer and go with her as she goes about her day, always asking the question as she does something: Why did she do it that way?
To illustrate this approach, Christensen shares the story (in his MBA course) of a fast food restaurant that wanted to improve its milkshake sales. The company tried looking at the challenge using the demographic segmentation approach favored by marketers (who is the typical milkshake drinker? what do they like in their milkshake?), but had no luck in improving sales. The company then engaged one of Christensen's colleagues, who approached the situation by trying to learn what "job" the customers were "hiring" the milkshake to do. He describes the experience in the interesting - and entertaining - video below.
At the center of this experience is a fascinating mind shift, a way to frame design problems in a whole new light. Perhaps we could benefit from such a shift in perspective as we go about our business, assessing how well our pay programs work and attempting to make them better.
Looking at it from the perspective of one of our most basic "products", the base salary structure, we could ask our key customer, the line manager:
For what job does the typical manager "hire" the salary structure - what are the circumstances under which they consult it and what are they hoping to achieve?
When does it do the job well, and when does it not rise to the occasion?
When do they have to "hire" other tools to get the job they are trying to do done? What other tools do they turn to and what sort of help do these tools provide? Or are they forced to "jerry-rig" the structure in order to get the job done?
And yes, we may need to dig and push around a bit (or to use Christensen's words, crawl under the skin) to get to the true job the manager needs to get done, as many of them are attempting to hire that structure to simply help them circumvent salary policy and budgets in order to simply maximize the money they can give subordinates. Perhaps this can tee up an opportunity for mutual exploration, education and understanding.
At any rate, I find Christensen's framework an interesting one with which to engage our customers in attacking some of our thornier design problems. What about you?
Last week, Seth Godin had a great post up about what he calls the "wishing/doing gap." In it, he urges us to focus our efforts and our sacrifices on work that will make a difference, that will give us what we need ... that will be rewarded. Otherwise, we are wasting valuable time "waiting for the prince to show up."
His advice, therefore:
If you can influence the outcome, do the work.
If you can't influence the outcome, ignore the possibility. It's merely a distraction.
How many reward programs would qualify as a distraction by this definition?
Are you using your discretionary reward dollars to focus and engage your employees in work that will make a difference - or do your plans have them simply waiting for their princes to come?
Creative Commons image "The Frog Prince" by Jennifer Barnard
Complexity is a frequent challenge with incentive plans, particularly (but by no means exclusively) in the arena of sales compensation.
Complexity enters the picture for a number of reasons. Sometimes, for sure, a certain degree of complexity is necessary simply to achieve balance, so that no one dimension of performance is given too much ballast at the expense of other important behaviors and results. Other times, however, it boils down to a reluctance to stick a stake in the ground and take a strong stand.
Most plans could be designed with up to three measures in mind. Often the reason they are not is because there is an unwillingness to sort, prioritize and discriminate relative to optimal performance results.
So true. And not just in sales compensation design, but in reward programs overall. Committing to a few measures is a powerful thing. In essence it involves leadership saying to the troops: "This is what's most important right now." Leaders are often reluctant to do this, preferring to leave things unsaid, distinctions not made, options left open. Sometimes for valid reasons, but often not.
Reward plans speak, however, and a plan filled with metrics and contingencies says this: "We have no idea what is important so JUST DO EVERYTHING for heaven's sake!"
Take a look at your plans, particularly as the annual review and renewal times comes upon us. Is the complexity you find necessary and appropriate, or could it reflect a lack of courage and conviction?
I like to argue that we should be holding our compensation programs - and the money they represent - to a higher standard. Research examining how well company strategy delivers on its potential - and where and why it fails - sheds some light on the important contributions that rewards can make.
Your reward programs, in reality, do a lot of things beyond delivering economic and psychic value to employees. Any of you who've bumped into the unintended repercussions of a misguided incentive plan know this to be true. Reward programs also:
Focus: Call out top priorities
Guide: Guide employees to areas where their effort can create the most value
Improve measurement: Bring attention & pressure to measurement and measures
Drive development: Drive and reward the development of skills and capabilities
Can these things measurably improve how our organizations execute strategy?
Research (covering nearly 200 companies worldwide) conducted by Marakon Associates and reported by Michael Mankins and Richard Steele in their Harvard Business Review article Turning Great Strategy into Great Performance found that the average company's strategy delivers only 63% of its potential financial performance, the financial projections set forth in the company's strategic plan. Clearly, a significant strategy-to-performance gap exists. What causes it?
Mankins and Steele take a look at the flip side of that 63% average realized performance to see where the other 37% of performance gets lost. In their study, managers at the participating companies reported the specific places where strategic planning and execution breaks down. Take a look at the chart below to see what they discovered (or click on it for a larger image).
So, here's my point. Well over half the factors that cause strategy execution to fail are things that rewards can impact. Specifically:
My math and Mankins' and Steele's findings suggested that our concerted efforts to align reward pland and practices with business strategy have the potential to reduce the strategy-to-performance gap from 37% to as low as 13%.
Of course. It is unlikely that rewards alone can completely eliminate each of these roadblocks. But there is a strong case to be made that rewards - done well - can influence each and every one of them; in some cases to a strong degree.
More Info Here Compensation consultant Ann Bares is the Managing Partner of Altura Consulting Group. Ann has more than 20 years of experience consulting with organizations in the areas of compensation and performance management.