Hack:
Reward what's really important: developing leaders

September 18, 2010 at 12:29pm

Moonshots

Focus the work of management on a higher purpose

Embed the ethos of community and citizenship

Summary

If we are to focus the work of management on a higher purpose, I contend that we need to begin by adjusting our reward systems. To obtain the highest leverage on this lofty goal, companies should devote part of their compensation structure to how well a manager develops new leaders.

Problem

Current corporate incentive programs have led to some of the most turbulent and destructive forces to interrupt our financial system and business environment in a generation. A singular focus on shareholder and personal wealth maximization as the purpose of executives and first-line employees alike will never bring out the best in people. In order to ask people to be innovative we need to have them focused on more lofty goals.

Employees feel more and more disconnected from the organization they spend so much of their lives at. Unleashing the capability of our human capital necessitates reward managers who are able to do this.

Solution

We can compel effort and adherence to the firm’s operating system, but in order to tease out passion and innovation from every employee we need to focus on building leaders. Firms should actively reward the coaches within their organizations that produce leaders.

The operating area I work in recently had one of its vice presidents promoted to a top management position at our company’s headquarters. The person selected to replace his vacant position at the area level was prepared and developed internally. He was able to step in and facilitate a seamless transition. This provided an excellent example of the leadership incubation that needs to take place within our organizations. The vice president of my operating area should not just be compensated on the bottom line results he achieves, although that is important. It’s clear that he is developing leaders within the organization and the firm needs to reward this type of management behavior.

Developing leaders creates a virtuous cycle within management. If our best, most innovative leaders are focused on the higher purpose of developing others they will infuse the organization with other leaders who will have been groomed with this sense of higher purpose in their management efforts. They in turn will go about the business of developing others, and so the cycle has begun.

If leadership development is something truly worthy of our efforts, appropriate systems of compensation need to recognize this behavior. How much more meaningful would our work be if we were rewarded for developing others. The focus would go away from ourselves and outward towards those around us. Business metrics that dominate current management’s focus would benefit from the increased passion, creativity and innovation that will be unleashed by this process. Imagine how different an organization would feel if a quarterly review began with holding a manager accountable for who he or she was actively developing, instead of what he was doing to wring cost out of the operation or increase revenue. The whole tone of the organization would shift towards building something more rewarding that wealth for wealth’s sake.

Practical Impact

Developing leaders would facilitate the elimination of ego and working only to the bottom line. Managers and front-line workers would have loftier goals that doing it cheaper, faster, better. Turning management’s energy to the achievement of socially significant and noble goals will provide more meaning to their efforts. When we provide a place for people to make a difference in other people’s lives, innovation and passion are unlocked and brought to the workplace.

First Steps

The first step would be to implement the leadership training recognition. This recognition should be public within the company and administered by the highest levels of management. This will put the organization on notice that there has been a shift in how people are recognized and rewarded.

The second step should be introducing the concept of rewarding leadership development in each review session. Adding a small percentage of compensation at first to let the new indoctrination take hold.

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October 8, 2010 at 8:30am

Aman Motwane

Yes, Stuart, developing leaders internally is really important.

But the solution you propose will get the exact opposite of the result you desire.

Our tendency as leaders, when we want a particular outcome, is to dangle rewards and establish metrics. Alfie Kohn has already explained very well why this always backfires. Read about it here ...
http://www.alfiekohn.org/books/pbr.htm

And when you think about it, how many metrics can you possibly establish to cover all the really important things throughout an organization? How many reward systems?

I've always maintained that when we don't ask the right questions, we end up with the wrong answers. And this is why, it's more important than ever to first and foremost create an organization culture that emphasizes seeking the right questions, rather than the right answers.

In an organization that learns to ask the right questions, leadership (and innovation and execution, etc) evolve as a way of life, naturally and rather quickly.

October 4, 2010 at 5:52am

Dhiraj Gupta

Hello Stuart,

Business history is replete with the stories of organizations that suffered because they did not develop a second line of management. I shall be surprised if evaluation systems have not factored in this aspect. Almost all HRD personnel I have had contact with aver that leadership development is an important part of their systems. In fact they expect the better leaders to act to make themselves dispensable.

I am presuming of course that evaluation scores are directly co-related to rewards.

Regards,

Dhiraj

October 4, 2010 at 5:52am

Dhiraj Gupta

Hello Stuart,

I am presuming of course that evaluation scores are directly co-related to rewards.

Regards,

Dhiraj

September 24, 2010 at 11:37pm

Ellen Weber

I enjoyed reading this Stuart - thanks for laying out this interesting case for new reward systems, which also infers new feedback reviews.

We developed a review which acts opposite traditional feedbacks in that it starts with the person being reviewed. That person rates progress, shows evidence of that progress and then defends areas of growth with their reports. That shift in reviews, also impacts a shift in rewards, for a more equitable results. What do you think?

September 25, 2010 at 10:50am

Stuart Thompson

Hello Ellen -

That sounds like a great system. How are you handling the ambiguity of whether or not a direct report has experienced growth in their leadership potential? In other words, are you taking the word of the person being reviewed that they are developing leaders around them or is there a feedback loop you can take advantage of where direct reports review the manager?

Stu