Steve Kerr - Reward Systems Part 2

Welcome to part two of reward systems with our guest steve care you're very welcome back sir Thank you, happy to be back. great to have you back the rubber is going to hit the road today. We're going to tell you how to create a positive reward system, how to define it much, much more than that, the , bullseye exercise, wing to wing, which was a great system that Steve put in place in GE loads more besides.

But I wanted to kick us off with a quote here where Steve says, if there are things you'd like your people to do, and you think they can't be rewarded, You are wrong because anything that can be measured can be rewarded. If you'd like some things done that you think are impossible to measure, you're wrong again. You're probably neglected to operationally define what you want because anything that can be described in actionable terms can be measured.

That teases us up beautifully for The three stages and we're gonna deep dive into those three stages how do you create an effective reward system i'm with the expert of that the guy who wrote the paper many many decades ago, steve let's deep dive onto these three points and start with one which is.

Define performance in actionable terms The exercise has the name bullseye only because We shape it as a target and in the middle, which is the key, are behaviors. Behaviors can always be observed. You can watch people doing them.

So the bullseye exercise is it's a year from today and you're celebrating and you're celebrating the success. of your initiative, whatever it is. It's great. People are doing it. If it's attendance is showing up, if it's performance, if it's inventory, if it's profit return on assets, what are you noticing that's different? How do you know it's successful? People are satisfied, or you say, , what does a satisfied person do that dissatisfied person doesn't do?

You always keep pushing on this question. I remember I had a meeting with some CEO of a first size business in Texas, and he was upset. He says the today's generation, they don't have the same attitude toward work. I wish they had a better attitude when I was young. But you can't measure better attitude. This is how people tend to define performance. So, you say, , Imagine that Section 5, the people have a great attitude. Section 9, they really don't. What are the people in 5 doing?

There's the word, doing, action, behavior. What are the people in 5 doing that the people in 9 aren't doing? Or vice versa, and you can say, what do I want more of, what I want less of. Once you get them into behaviors, I want more of this. I want less of that. And it's interesting because sometimes people disagree about how much, or they'll say, I want more of this, but not too much. So you begin building limits.

Now you can, you want to connect incentives, rewards to the things you want more of, and you started disincentives and punishment, if necessary, to the things you want less of. . And you can always start, what are we seeing a year from now that we're not seeing now? You can't get it wrong. But you'll see what happens to your results when you use them.

Steve one of the things you talked about in the book was how when you worked with organizations you'd often pull random mission statements out of a lucky draw and people couldn't, Define often their own from a urinal manufacturers and you mentioned also Enron's code of ethics. So this one, it goes as follows.

We are responsible for conducting our business affairs in accordance with all applicable laws and in a moral and honest manner, we want to be proud of our company and to know that it enjoys a reputation for fairness and honesty, and that it's respected. And this is your point that if you begin with that. That doesn't reflect at all the behaviors in the company. You can see how hypocritical or intentionally deceptive that was because it isn't that they didn't connect.

They were doing what to us outside looked like the opposite. diametrically opposed to what they said. They're in for open and honest and trust, and they were deceivingly concealing and putting double books on all this. Let's give a couple of examples like some of the stuff in the book it's really helpful for and it's it's a it's a small book it's a brief read it's this part of this memo to this ceo series that harvard business press did It's everything I knew. I couldn't find a bigger book.

I ran out of stuff. i just wanted to share with audience if you the tips you talk about one is.

When someone comes to you, for a signature for approval, you should count the number of people who have already signed off. If the number is two or more, you should ask yourself, well, why am I signing this? What value am I adding? And you said you took the view that once three people have thought about something, additional layers of approval, we're not adding control or accountability, but diluting it. These are challenges that are everywhere today.

And I'd love you to share this because this does get in the way of innovation and reinvention. You say, why am I signing this? What value am I adding? And sometimes it's a good answer. Well, the law requires you have multiple signatures . It's not really an insult. But , if you're trying to bust bureaucracy, and again, Welch said you got a car, it's got 100, 000 miles on it. It breaks down all the time. It's a lemon. Question, was it a good card one time or was it always a lemon?

Answer, who cares? He said, it's not working, his point was, stop looking, who did this? And all that's going to do is create a terrible situation, because people start denying, if you stop punishing good behavior, you'll probably get good behavior. People are not going to be angels if you're killing them for doing it.

, one example, we have this thing called workouts, and You're getting people at all levels of the organization and they come out and they're going to come up with ideas. What are you going to keep doing? Stop doing, start doing, keep doing. And then you give reports and in the end, the top leadership, make sure that the immediate bosses who are in the room are not going to turn on these poor people for telling the truth. So this guy's just one example out of a zillion.

He runs some Xerox machine in some place and he says I run this machine and there's, four pages of lead, just numbers and stuff. And then you get the two page report and then there's like six pages of trail code. So So, if you ask for a two page report, it's going to chug out 12 pages. This guy's great. He's really not high level at all, and he said he's calculated the cost of the paper.

He's calculated the cost of the ink, roughly, and he's the cost of removing the paper and then the cost of buying more paper. And it turns out that his machine is $67, 500 a year wasted because they're doing high volume stuff all year. And it turns out there are thousands of these machines around GE It was probably eight figures. It was probably more than ten million dollars a year wasted and this is a guy, and he had no place to tell. Well, okay, but what's the cost of changing it?

And he said, Oh, you have to hit the suppress button. Cause you hit the suppress button. It'll give you the two pages. That's point i'm gonna skip right to the end and then we'll come back to where we are because i did want to cover and i don't want people to miss this is the importance of, the reward it's these are the trade offs that you have reward systems is really important to know.

That you're often asking for candor from people tell us the truth we want to know the truth we want to know bad news and then you actually punish them when they do. And sometimes it's obvious, and, sometimes it's just unintentional. They're running a phone center. So they start measuring how many times the phone rings before you pick up. And then they blame the poor person there and the person may have four phones.

And that's good because it turns out the count starts when you pick up and then it traces the number of calls. Okay. I don't have to pick up. So, Oh my God, what a bad employee. What are you expecting to do? The rat pulls the , lever, he gets a shock. After three, he stops pulling it. So Don't blame the rat. That's another thing. Why is this person doing it now? He may be lazy. He may be breaking rules.

But there's a decent chance that he's responding rationally to a crazy reward system that you set up that you inherited. Don't blame the Rat, don't blame the Rat. And Steve, a great example you give was  an army officer r and he took his feedback sessions really seriously with people, and then he marked them down and he said they needed to work on things. And then when that got given to his superior in the organization, he got punished and told you need to pull your socks up.

Your team are underperforming. And what's he going to do? Not do that again , it's human nature, all I say is when you get something you don't like, just before you start yelling, why is a rational, probably rational person doing it? And then maybe there's no rational reason why he comes in on drugs. It could be anything. I'm not saying you're at fault, but if you punish something, you get less of it. And if you punish candour, you get less of it. And we used to have a survey.

We just say, put down all the behaviors that make a difference. Here are the things I want, here are the things I don't want. You get off the bullseye as well, where they say here, the behavior is more of less of, then you just go out and take it the next step. And you say to the people in the plant, if you were to do each of the actions described below, what would be the reaction? Number one, I'd be rewarded or approved. Number two, I'd be ignored. Nothing would happen.

Number three, I'd punished or disapproved. Four, in the kind words, this place is screwed up, I have no idea what would happen. Never the same twice. So, you get it back, these people think leaving early, they won't say it's approved, but they say, well, nobody notices, nobody seems to care. If you go in there with a fragile ego, you're going to be crying like a baby. They're wrong. I understand. But if they're right, you got an action item. If they're wrong, you got an action item.

So you talk about decision making speeding up decision making a common question, you get asked is how many goals should you set and your advice goes against all common recommendations It's a discovered number. And of course I'd rather have two things to worry about, I'll look great on those two. Even four, I'm probably won't screw up until you give me nine. So, say you start with the clean sheet of paper. You don't have to. You can start with the annual bullseye drill.

What do you want more or less? You get the list. These are all, whatever fits your culture, whatever you like personally. Whatever the value add when I say three things we're doing the second one already. Okay, do one and three. So you're in your office working. This is how it starts. You got a phone call. You better take this. So the first question is. Who might be on the other end of this phone, where he's saying, you better take this. My boss. Okay, good. My boss. My boss's boss.

And it could be a family situation. Could be a supplier. Could be a customer. Might be six. There won't be 26. And then the next question is, take them one at a time. Why might they be a call? Your price is too high. Your stuff didn't show up on time. It's not the right kind. The thing broke in the box. That's if you say it's a customer. Suppliers, same things. Your check balance. People know. And now the person who doesn't deal with suppliers will know.

But if they do some team exercise, collectively, you're going to find why that phone might ring. And then the question becomes, so you start with a clean sheet and you see who might be on the phone. And then when you look and say, okay, and then you say the next question leading into measurement, so you just go ahead and you say, how would you know?

They might call and say, so it's the first time when a the wife calls and threatening for divorce or the wife calls and said the kid is missing or the supplier says like your check bounced or the customer says, I'm using Kevinator instead of your brand anymore. That's too late. You can do a great autopsy and then sometimes Why aren't they buying them? And then you learn that they're not coming back.

But that's the point the clean sheet you start with that of course you'll find the main goal is you'll find things that yeah The answer is I really wouldn't know until the phone rings and somebody's angry on the phone Hey, it could be the government the politician might call that you're doing the audits the wrong way. But the other side is also interesting. If you're typical, you'll find there's things that you're spending time measuring and controlling and the phone would never ring.

There are things you're worrying about that really there's nobody on this planet cares but you. Again, the mantra is always, no blaming, no complaining, The Xerox guy. I don't know if he was punished, but he certainly wasn't rewarded. He was thirsty for a forum to have, where he could say that he's wasting 67, 500 bucks on his Xerox machine. So that's the point. After people get off, what's his real motive? I have no real motive. I want more of the stuff that you want.

And now, by the time you get to rewards, if you didn't even look at rewards You've done so much just by telling people what you want I was really interested in that because my first job was really in digital media. We measured every metric and I was sending it to all the managers in the company across this group and I put a password on it to see who would ask for the password.

And twice someone asked for the password so i stopped doing the report for them and i started measuring things but i found a quote steve i thought you'd be interesting there's a quote from nineteen fifty six vf ridgeway said what gets measured gets managed but i found the full quote.

You know when they do these quote investigations the full quote goes what gets measured gets managed even when it's pointless to measure and manage it and even if it harms the purpose of the organization to do so, and that's exactly your point this clean sheet exercise for me said to me, it's about starting with a clean sheet and gonna go let's blow it all up and start again today with the metrics we need today what do we need to get rid of what do

we need to continue to measure and that was the real thing i took from this. what do we want more of? What do we want less of? What should we keep doing? What should we stop doing? But make it safe. And it's amazing what your people can tell you. And it's not your fault if it's not safe. You may have inherited a bully three years ago. People don't know you're different until you tell it.

One of the things you talk about, I thought was so important and I really wanted to cover was their use of stretch goals and I'll set you up with a quote here from the book, you said someone once noted that most people don't aim too high and miss, they aim too low and hit. Easy goals tend to demotivate people as evidenced by research that shows that most people attain easy goals, but don't greatly exceed them when goals are set to mildly upgrade existing performance.

People unconsciously restrict their thinking to solutions that are not very different from pervading practices key for innovation. You go on to say stretch goals. On the other hand are so far beyond current levels that they force people to seek radically new solutions since stretch goals are so aggressive they are often skeptically received as they should be since most of them don't ever get met.

This was deeply troubling to you when you're in GE because it's culture was built around strong expectations of success ,attractive rewards going to employees who succeeded and little forgiveness for those who fail. i thought that was a really key aspect to lean in on, particularly if you're in an organization that sets the goals and you keep dragging those goals down because you know that if i actually am too ambitious here it'll come back and bite me in the ass. It is counterintuitive.

With stretch goals, you really have to, that last sentence, you don't punish failure, but you don't reward failure either. It is problematic. And so you didn't do it as a general matter, of course, but in addition to the goals where you set it and you met them or else, and that was necessary because other people's goals depend on yours. If you don't deliver a certain grade of steel, they can't build it, and if they can't build it, the plane can't fly.

So, in general, this is not a get out of jail free card. So, in addition to the things you set where we expect you to perform, you're going to set a few stretch goals, they're not crazy high, but have leeway. And we did that for the reason that quote that you read. That People were meeting the goals, but it was such a punishment culture for not meeting them. That's why GE was so good. You didn't tolerate bad, but then you really did set goals in the neighborhood of the goals you already had.

You had. Oh, look, we're going to be better next year. We're at 4%, better 5%. So you had the license to fail on stretch goals and you would make them. They had to be obviously beyond their normal standard. But sometimes you're into inflation and you're thinking, if I were to make last year's numbers, they oughtta give me a medal. So the stretch goal might be to only go down 3%. And it's got to be tied to something.

But if there's a powerful new competitor or people moving away from steel to plastic. So what do you do? Number one, , how he, she doing compared to last year? Another one, what's the industry standard, what's the competition doing, how does this look to impact to them? You have those three, and you need to be as rigorous as you can, and at least some of the things you're blaming it on are going to be not just your product or your particular market.

So it's better to have that uncertainty than this stuff. Most companies have. When i worked in selling digital media vs analog media and there was an old saying there were digital dimes and analog dollars so the value was higher for the analog, i was easier to sell because it was established and we had this problem all the time where i was very ambitious so i'd aim high or come in below or sometimes exceeded and it all depended on the market. It wasn't actually the effort.

And eventually you started to realize this is actually going against me all the time, but we will move on because you know when you have done this kind of work you really read the book and you're like oh yeah i was there but part two is about devising comprehensive metrics that tracked, Actions and assessed progress towards our goals and i'm gonna set you up here with a quote because you say.

"Rewards are easy to get excited about most people hear far too much about the goodies everyone else seems to be getting bonuses stock options runaway CEO compensations and the like, so when a consultant offers to bring your reward system into the twenty first century he or she usually gets a friendly reception. Measurement is a different story though." you tell us.

"Chances are your organization has revamped its performance appraisal and review systems more than once in recent years with no discernible gain in employee satisfaction. Sometimes even less. And most people have little interest in going another round of this. That's too bad you tell us because starting at the wrong end. Adding to the power of your reward system before upgrading your metrics is a huge mistake, i'd love you to tell us about this because i love what you say, steve.

"The metrics are the table that supports the weight of your reward system.", You can't really develop a reward system stronger than the measurement system. You can, because some measurements are undeniable, so now you're back to seniority, which some people love, you want to guess which people love it? The young Turks don't. So you end up with lazy ways measurement, and then they don't support the rewards. The more you make your rewards cutting edge.

important, meaningful, the more stress you put on the measurement. So again, if the reward system gives 3 percent to everybody every year, because they're still alive at the end of the year, And if you're a good performer, you get four percent, which is one more than three, of which the government's going to take a third anyway, depending on your tax system. And if you're outstanding, which was it to be rare and amazing, so two people per section could be called outstanding.

Of course, the managers who didn't want dissension, the two longest service employees, also happened to be the highest performance. What an amazing coincidence every year. So they got five percent, and it ended up being another form of seniority. So you want to say, well, that's terrible. But it is, but because the measurement system was all you knew for sure was how long I've been there. So of course the rewards were going to be based on seniority and the fact is you could say loyalty pays off.

I want senior people. A good reward system is one that gives you what you want. If you want seniority, start rewarding it and people hang around, but the people who hang around, the people who don't have good alternatives elsewhere. Therefore, some people, don't give tenure the first year. To me, tenure gives you the right to stay the place where they don't want you, and if they don't want you, now the question is, why do I want to be a place where they don't want me? They got no alternative.

Now, maybe I was kidding myself, maybe I wasn't, but in my mind, I have a place to go where they might want me, so why would I stay? , so you can't start at the wrong end. And that's what people do. We had a good year, here's bonuses for people. Okay. Every time you make a decision, you're sending a signal. High performers gets the money. And you give it percentage of salary.

The number of dollars is going to be much higher for the people who already have a lot of money, and the poor person who's trying to get his own house someday. You give them the same percentage, and the percentage of a terrible number is still a terrible number. I'm saying, not to decide is to decide. steve i want to ask you one one that's really important a guy you probably know Ed Hess edward Hess wrote several books one was called, Humility is the new smart.

And you mentioned a softer skill like humility, which is a core skill in the world of volatility not knowing having the humility to say i don't know or to do what you did for example what your team is to delegate the presentation, which is a kind of a psychic reward it's not monetary but go you know what i want the person who did the work to come to you as a senior team and present to you. These skills these skills like humility, are so hard to track.

And reward, but you say, if you don't, , they will take a backseat and you'll end up having people who are more bragging and telling you about what they did reporting their wins, even though it was members of their team. And I wondered, how did you create reward systems to be able to unveil those kinds of skills? Well, to some extent, we probably didn't. It's not like we get an A on all these things.

Some things you can be exactly right, but in a real life organization So, again, to me, I go back, to definition. And in this case, you say humility, this guy's humble. This guy's not, , what are they doing? So in my mind it's a tautology. I make it true. . I can encourage you. What are people doing now? They weren't doing a year ago. What are the people in Denver doing? There's supposed to be this incredible culture in Denver. What are they doing?

If they're not acting different in Kansas City or Dublin instead of London or Edinburgh, then I say, well, why do you care? . If you can't tell me that they act differently, the minute they start connecting organs of the outcomes, I can help you. That's one of the huge problems with innovation is connecting stuff like R& D to future. And then I'm not getting rewarded this year. And maybe the person who takes over me for me in three years, they'll actually get the fruits of my labor today.

So people don't actually reward today, but there's a, there's a three things you talk about here that are really difficult when it comes to rewarding. So, quartiling, quotas. And bifurcation and you point these out and i thought this is so important because they're still everywhere at these three things.

Well, quartiling is simply you're ranking the people you would simply say top 50%, top quarter, or you'd say, we're too fat in this company. We got to cut the workforce by a fourth. So you've got 75 and then you've got 25, or you've got 90, 10. , he didn't do this uniformly, but he had people he thought were coddling people, and they were not taking care of the dead wood, they didn't want to have unpleasant. Who does?

He would say, you got a fire, the bottom 10 percent every year and the people didn't go last year every year you got to do 10 percent and I didn't like it either. It really puts people against people. If you got people, , nobody ever loses their job . . , you keep losing good people because nobody will work for this person. At some point, you'll take action.

So Jack just felt this malaise had built in and he wanted to shake it up. Bottom 10 percent. And , he says, can we agree on this? Can we agree that 10 percent of your people are in about 10 percent of all your people? Lots of tautology. Of course not everybody's equal, so he says, give me that. There's another thing called 90 10. 90% of everybody think they're in the top 10% of everybody, but it turns out that only 10% of everybody's really in the top 10% of everybody.

So 80% walk around deluded. Now if you give some feedback, you'll have maybe 40 percent think they're in the top 10. The point is it's a number greater than 10 because you're not dealing with any consequences. So they're missing out on the promotion. They're missing out on the big pay raise. They're missing out on everything. And they're not stupid. At age 48. I'm not going anywhere in this company. So he said, you call that protecting? He said, that's the most cowardly thing you can do.

He said, let me tell you about GE. We were the most admired company, five of the eight years I was there, GE was the most admired company. Forbes did the thing, Fortune did the thing. So, and, and Jack, he knew there was going to be a downturn before most people knew. The time to cut is not when you're, really in deep trouble. Nobody wants your people anymore.

So he would say, don't embarrass them, but tell them, don't wait . Every time there's a choice assignment, every time there's a promotion, they run. You're killing these people. And by the time they wake up, nobody wants them anymore. And he said to them, here's what you do. You take the bottom 10 percent and you let them know they're bottom 10. Your measures aren't perfect, you may be wrong, Welch may be an ass, that's okay.

Here's the thing, he said from now on, your main job is looking for a job. And he said, take your time, get a good job, don't take forever. And in many companies, when they do they march you out like a perp walk at three o'clock they march you out will send your stuff to the house, they don't give you notice, they're afraid you might hurt the company. He didn't, he didn't segregate them unless it was ethics, then you're out.

But if it wasn't an ethical problem, stick around, you're treated fairly, you're not going to have a signal, there's nothing embarrassing. You just don't have a future here. Whether we're right or we're wrong, you don't have a future here. And the thing was, he did it early when the mass layoffs were coming and GE people got really good jobs because they were on the list of people you wanted to hire.

And some of them were high performance, they weren't bad people, In a different pool, they were bigger fish. So I still didn't like it, and I'm out here to defend it, but he's not a dumb guy, and he's not a cruel guy, and he said, keep 'em on, that's the cruelest thing, you're not helping these people. He said, well, let's list it out why you're doing it. You're not doing it for G's sake. You mean you can't get people better than your bottom 10%? Of course you can.

So don't tell me you're helping, and you're not doing it for their sake, you're killing this guy. Then he ended up saying, you're doing it for your sake. You just don't want to have that conversation. I know he got a lot of criticism for that and people call them jack the ripper and stuff like that but i actually felt in a way you're freeing up that person's future. Where they might be in the wrong organization.

They have potential obviously but if they're in the wrong place and they're not making progress they gonna become cancerous inthe organization so, in a way it feels like you're doing a bad thing but you're actually know the context of do it when things are going well. When the markets good when this person when their stock is high not when their stocks low and it's always easy to get a job when you're in a job, That's right. They called him Neutron J. You had a name, Jack Kirby.

Neutron J. Named after Neutron Bomb. Takes out the people and lets the buildings stand. And he got grief for that. He said not letting them know is the cruelest thing you can do. So it's not ethics, they're not bad, but you should be looking for a job, Harry or Sally, and we're looking for somebody to take your job, so don't be forever about it.

Oh, the other thing, people forgot, they were so anxious to, to critically assassinate this guy, well, GE gave the world the early models of headhunters and when you were, you didn't sit in the third floor with all the people who were segregated unless there was ethics and you're on your way out, literally. But you have an honorable position. It wouldn't be announced. Some people might know, but most people wouldn't know.

And you had access to, employment services and things where they would maybe you don't do well in a pressure business. So short cycle business isn't for you. Maybe you're really good. Customers love this guy, blah, blah, blah. So often there were features, okay, where would he go? And you help them guide him just like the search term people would come in. What do you see as his strengths? Then they would go to the boss and say, Louie says, these are his strengths.

And he would say, the third one's delusional. , , but he said one or two are correct, he is honest, he is accurate, he is detailed, and they often succeeded , and sometimes we did that and we ended up realizing that the person was in the wrong job and the right job is still within GE. We have fast cycle business and short cycle business. We had government businesses and consumer. You name it, we had it. We were in every SIC code. We were in every country.

So, sometimes they, they run the bottom 10%, but it turned out they were not bottom 10 percent people in general. They were not in a good position, good fit. But that was something you still started by having a tough conversation . So Jack's way really I didn't like it , for reasons, but it was much better than what other people tend to do with their low performers..

a couple of other things i thought we'd share was creating financial and non financial rewards that meet employers needs and now i'm gonna give a better context to this so, one of the things i found incredibly difficult right so i was a professional ruby player and, When you had only 15 places on the team and even being a bench player, it was demoralizing, but today squads exist where there's 30, 40, 50, in some cases players, and some of those players

only sometimes get games and they're in the lower level, lower stakes games. And for me, I, found. If i ever found myself there absolutely demoralized and i use that almost as a analogy for what happens in organizations where, there's only so many slots for the senior executives there's only so many slots, how do you create a reward for people to keep them focused keep them engaged because this is something you touch on in the book as well. Organizations are tapered at the top.

You're going to have more people lower down than you have higher up. And the executive cafeteria is not going to have enough room for everybody. And it wouldn't be special if it did. So in a way, scarcity is itself a reward. There's a number of ways of getting at this. For example, there are different types of rewards. And you mentioned it. Money is usually in short supply. Even when you make a lot of it, there's usually a lot of potential uses for it.

So you have to give people enough so they can sustain their family and have a decent life. In fact, some jobs, everybody gets mediocre pay. There's no incentive. Governments often use that civil service jobs in many cultures, not all, but as a way of just avoiding the problem. So when you can have money as one of the rewards, but other rewards are much more available. So availability is a characteristic of a reward.

And, in the end, you can't give people none of it, but you take a job and they go to the clergy, or they become teachers, unless you got really bad counseling, you didn't go there for the money, you're not going to be a teacher for stock options and you had a high percentage do it and it's wonderfully rewarding in other ways. So you get the point. Money is usually not available to everybody.

And then timeliness is very important. A deferred reward loses most of its power. Goldman more than most had a lot of money because they made a lot of money, but they didn't know what the situation was even by the end of the year. Into the next year. Before you knew. So the trouble is you do good in April and next February you may get a pay raise.

Well we track better than rats, but a hamster pulls the lever and if the thing doesn't come down in 11 seconds or less, they never make the connection. So they don't pull the lever. So people, more patient than rats in hamsters, but a deferred reward loses all of its power. So it doesn't mean you can't use it, but you use lead indicators. So praise by the boss, whether it's written those can be timely and you can say you did a good job and the implication will be we'll take care of you later on.

So rewards can be timely or not, but you can build in indicators that something good is coming down the pipe. And sometimes the timeliness is reversed. I came as a managing director level at Goldman, but there were many levels below. I was barely there and they had me come in to report to the top management committee. And it was something that one of my subordinates had done, a young associate.

And so he He did, I remember running rules and one said, you make, you do the work you get to make the report to map it to him. So you can do it. You can give people the kind of access that will shorten the time span before they're noticed. a bad boss will keep the people from being noticed. He'll take credit or she'll take credit for all the good stuff. So something that happens quickly can be much less.

financially advantageous, but the immediacy of it, you finish your report, you go to the big room. I, that's my rule is whoever makes, makes the presentation. So they go in there. It doesn't feel like a reward at the time. They'd rather have Ruth come out and go into that room. They're terrified of these people. And then, but they get the guy to do it and they go out and usually thank you.

And then you walk, they don't, they're going on the next agenda, but here's something that makes a giant difference. And I tell them don't fake it, but if it's real. The division head or Hank Paulson, the guy who is the CEO and then he goes to be Secretary of the Treasury. These are very famous, important people. And I have these associates or young analysts reporting because they want to know about coaching. This guy does coaching. He does the presentation.

I'm not going in there and make a fool of myself. They want it, they get it from the bus. Well, Hank thanks me. I say, Hank, They're talking to the wrong person. On the way past, just as you were in the elevator, you stop and just tell them what you told me. So instead of thank you for the job, the CEO pops his head in. There's not even an office in this guy. They go to the guy's desk. There's 80 people about the time. And this guy, Kerry, says, Kerry, I just want you to really help me.

They really focus the conversation. Thank you. And he walks by. You couldn't find a more important word. And it took a while. It took Paulson one minute to do it. He didn't do it if it wasn't true. This isn't about faking anything. So the timeliness of a reward can be amazing, particularly if you're waiting for the longer time. In this case, it's called recognition. And once you do well, the opportunity to present the people three levels up, if you're good at it.

And Terry knows everything about coaching. I wouldn't have put him in there otherwise. So timeliness, then reversible. If you give somebody a reward, they've earned it, but not all people are always good, and some things can't be reversed. Title is very hard to take back because it's stigmatic. So if you're a VP, it's hard to take it back. You put somebody in window office, you don't want to do a perp walk and throw them out.

But there are a lot of things that, You know, you have a title, you're going to a club, the club is annual, or you have some kind of, recognition, prestige kind of rewards are very powerful. They won't replace money, but again, the inner satisfaction teachers get, and members of clergy get, they're not suffering, they have the kind of job you dream about, the satisfaction they get, the feeling they get, welfare workers. So it's not idle fiction.

You're not going to create as much altruism in a corporation but even then, some of your people GE medical systems, just saving lives, which is they early pacemakers,. So there's so many things. So availability, timeliness, reversibility, and then the one that's most important when we're talking about performance contingency. And the example I said, the high performance gets 5%, the people should be fine to get 3%. So it's 2%, but also you can't lose that.

It's there's no performance contingency. It's based on membership, longevity, seniority. That's still okay. But some part of the reward has to be based on performance. If it's not, they'll still do it because they're rewarding themselves or their peers, but it doesn't mean you won't get it. But if you're a manager, you're supposed to cause it. You don't sit around hoping the right people are going to show up and work hard for you. They might.

I'm not trying to be cynical, but you're supposed to cause that. It's the blending of these things. They should be available, they should be versatile, they should be timely, they should be performance contingent, and there's, there's a couple other things. Basically, I remember rewards can be financial, or they can be recognition kind of awards, or they could be job content. Freedom of expression. Operational Responsibility, Recognition.

These are content and some people, they go into professions where that is it. Many of them are happier than the people who go home with big paychecks. At Goldman, the average retirement age in the managing director was 46. They had all the money in the world. They almost had to wear name tags so their family could see them. It's a brutal culture if you don't like your job. I liked it a lot, but that's me. Steve, we have to get in wing to wing.

Because it's something we talk about a lot on this show is the idea If you're even a startup if you have some idea if you want to actually see what's going on in your customers life get out of the building get away from the desk get out there get in their shoes as you say, try to understand what makes the customer a winner or loser in their business. And this was something you brought into GE that you called wing to wing. it's seeing the world through the eyes of your customers.

And most people know that's important. They'll do a customer survey. But this was really taken to a deeper level in GE. And basically, You could spend time with the customer. At GE, they'd rotate people into Crotonville. You'd spend four months with us, or six months, because you'd meet a lot of different businesses and customers, and you'd learn where your own future might be.

You'd learn about businesses in GE, you wouldn't have Working with people from G Capital, Medical Systems, Appliances, Lighting, NBC all television networks. So among the rotations we would have is you'd spend time with the customer and you would do real work for them. And again, seeing the world through the eyes of the customer. Now, sometimes you can't afford it to people. Sometimes it has to be a shorter tour. But it wasn't just a visit.

Some people, they routinely visit the customer and sit down. That's great. More is better than less is what we're saying. Now, here's just the example of why we call it the wing to wing. We made engines and maybe in those days, the world's largest engine maker and probably still true. And a lot of the biggest companies buy GE engines. Without the engine, the plane will not fly. It's been scientifically proven.

So, you're grounding an expensive piece of their operation while you do the repairs and the renovations and the lubrication and whatever the engine needs to work, and we do it in, we do it in the plane. Some of it you can do on site, but sometimes you got to ship it, and we do it at, on our site, and it would take four days to do the thorough renovation and all that. So we set goals around it. , and we have four goals. How we doing three and a half, might be able to do it in three.

They really love it. It's a big deal. Now, we go through the eyes of the customer and they're saying, you guys are really slow. Well, big engine. Sometimes you have to take it you don't just take it in the back of the car. These are the things you have to transport them. We are, we go spending time with the customer, seeing it through the eyes of the customer, wing to wing. It turns out the engine is off the wing for eight days. We take time to dismantle, we take time to ship it.

We don't count that. We can't start counting until it gets into our hands. And then, of course, when we release it to them, we're done. We got a four day thing. We're taking improvement goals, we get it down. They're doing it, and tough to wing it, days. That's eight days, they're not getting revenue on that equipment. So ultimately, you're being judged on the metrics of your, to your customer's eyes. That engine's off the wing eight days.

So we offered to go in they could have it on their property for less than two, but sometimes more than one day before they knew they had the engine back. We got real interested in this. Why don't you know? What's the internal system? So in some cases we can't help it. At least we found we can improve the warning system and let them know it was back. That's what it was like. We began, we did the customer workout. Sometimes we went on site. It was great for our manager training.

Cause in GE, if you're going to be at a senior officer level, we want you to have worked in a long cycle business, short cycle business, consumer business, government business, it is what everything's different if you're running a government business, including the way you get paid, including the things you paid for and things like that. So we did it by bringing, customers to Crotonville, we never charge. We have a great dining room. We put them up and have a great hotel. The things we learned.

This is powerful advantage. Wing to wing, it's wonderful to know your customer better. And by the way, you become indispensable to your customer and that's a competitive advantage for you. And we weren't the cheapest vendor, but we helped Delta understand that they had the engine back two days before they knew they had it, they had the engine back to put it back on the way we gave it that name because it was an enormous success and, remember no blaming, no complaining.

You deliver something needed and they don't know. , but you can do something about it. If you're not choosing not to. That's your fault. And yes, sometimes you're doing dumb stuff, but when you work with customers that you see you through it, we're doing dumb stuff. Maybe we, we may have brought it to the wrong location. There's all kinds of things and Delta takes a day to send it back to where it should be. What keeps us from sending it to the place it should be?

If you can help a customer, that's your job. What's a more important job than helping your customer? Brilliant, Steve.

If there's anything people get from the book, it's don't blame the rat. You could have called the book. Don't blame the rat. It's I wanted to go reward and measurement and I wanted to, and I didn't know enough to fight back. If you look at the subtitle, reward system, does yours measure up? , It's been an absolute pleasure talking to you. Author of reward systems. Does yours measure up? Don't blame the rat. Steve Kerr. Thank you for joining us. Thank you. I appreciate it. It's been a pleasure.