Sunday, October 31, 2010

Strategic Planning Analogy #361: Cash Out

A friend of mine always had trouble buying gifts for his father. His father didn’t seem to appreciate gifts unless they were practical. And his father liked to take care of his practical issues on his own, not leaving any room for gifts.

After years of frustrated gift giving, my friend finally gave up. As a result, for one Christmas he just gave his father a card with a check in it. As it turned out, the gift he got from his father that year also was a card with a check in it. And the size of the checks were close to the same amount.

Now my friend was doubly frustrated. It seemed so futile to just trade checks for basically the same amount of money. It was almost like not giving or getting a gift at all, since they both ended up in essentially the same place as they started. It was as if nothing had happened.

Gift giving should be an exciting time, for both the giver and the receiver. But if all you are doing is trading money, a lot of the fun and excitement goes away. Nothing special happened. No great emotional memories.

As obvious as this might be in gift-giving, it is apparently less obvious in the business world. After all, when it comes time to rewarding employees, it usually comes down to just writing a check.

Money is nice and all, but it doesn’t usually lead to long-term emotional satisfaction. I was told one time that the impact of a pay raise on the emotional commitment of an employee tends to last for only about two paychecks. After that, it is just money and the higher paycheck is merely the new normal…nothing special anymore. Like with my friend and his father, the transaction seems cold and lacking in any lasting meaning.

Successful strategic initiatives tend to require a strong, highly committed workforce. And if you want strong, highly motivated employees, you need to give them a reason to bond with the company at a deep, emotional level. And after a certain point, money may be one of your least powerful tools to build this bond. A more inspiring gift is needed.

The principle here is that the best long-term motivator is rarely just cold, emotionless cash. To get the deepest level of commitment, you need gifts that touch the employees in a more meaningful way.

What the Corporate Executive Board Found
I was reminded of this when reading a recent article from Fortune magazine. The article was talking about what it takes to keep your high potential employees motivated to stay at your company and work hard at making it a success. This is an important issue, because a recent survey indicated that about 27% of high potential employee plan to leave the company they are working for within the year. This desire to defect continues to rise every year.

It is hard enough to achieve strategic success when you have committed employees. But when over a quarter of your high potential employees are focused on getting out the company, the likelihood of long-term strategic success goes down considerably.

As a result, this article looked at what it takes to get deep engagement and commitment from those high potential employees. The article reported on a survey of 20,000 high potential employees by the Corporate Executive Board. This survey asked these high potential employees what drove their commitment. They found that money was a very poor motivator. It was way down the list.

Instead, the best motivators included “a mix of recognition and challenges that stretch them without completely stressing them out.” In fact, the top motivator was “feeling connected to corporate strategy.”

These are things that really aren’t based primarily on money. They are more personal. Just as a personal gift at Christmas is more inspiring than just a check in a card, a personally enriching job which connects the employee to the strategy is superior for motivation over just giving the employee a check. Sure, it’s harder to develop these personalized programs than to write a check (just as it is more difficult to come up with a personal Christmas gift), the results are worth it.

Win-Win Solution
The good news is that this survey provides a great win-win solution for both the company and its high potential employees. The win-win idea is to get more involvement by high potential employees in the strategic planning process. If you expand the strategic process to include more people in more ways, there are two benefits.

First, as the survey indicated, employees become more committed to the company and its strategy when they are involved in the strategy process. By getting greater involvement up front, the strategy moves from being just words on a paper to being ideas owned by the employee. By being involved in the process, the employee takes ownership in the plan.

To the high potential employee, it is no longer just A plan…it is now MY plan. It is easier to be committed to something you helped to build. The high potential employee already has a vested interest in making strategic execution a success, because of the emotional commitment already developed in being a part of the plan’s creation. It is harder for them to leave the company, because they have more at stake in the success. And why would you want to leave a place that values your opinions so much that they want you to have a key role in developing the strategy?

Second, the company ends up with a better strategic plan. High potential employees have more at stake in the long-term, because they have not yet made it to the top. They can only have a great long-term future if the company has a great long-term future. Therefore, they are the most motivated to creating a great long-term plan.

By contrast, the senior executives have already made it to the top. They tend to be older and closer to retirement. They may be less motivated to create a great long-term plan, because the investment in the future could detract from near-term profits. By the time the long-term plan comes to fruition, they may already be retired (and not get credit for their part in the plan). After all, the remaining tenure of the average senior executives tends to be shorter than the length of the average long-range plan.

Hence, there is the risk that preoccupation by senior executives with cashing in their careers soon will keep them from optimizing the long-term. Their motivation in the long-term may be less than with the high potential employees. Therefore, if only senior executives are making the strategic plans, you may be sub-optimizing your long-term plan.

Hence, by elevating strategic planning to a broader level and by getting more input and involvement by high potential employees, both the company and the high potential employees are better off.

Great long term strategies need strong commitment by the high potential employees. The best way to get this is by giving them a large role in the development of the long range plan. Not only will this make them more committed to the company, but the company will most likely end up with a better plan.

I remember one time watching two senior executives from different companies trying to impress each other as to who was the best. They started by comparing who made the most money. However, both of them made so much money that it became a meaningless measure. After a certain point, the money failed to make a difference. Therefore, they had to look for other measures. You should look for other measures in your business as well.

1 comment:

  1. Gerald Nanninga, this is a great post. Emotional bondage is great and has a much more lasting effect than money. Actually, I wrote a presentation on the subject and the results are very consistent with your findings here I used clusters to identify employees who prefer non-monetary incentives. The ratio was high.

    As a side note, I published my presentation "Building on your weakness". I strongly advocate to do that. The link is