When I ask CEOs and other business leaders what kind of culture they will need to achieve their organization’s growth goals, I get a variety of responses that communicate one common theme. Some chief executives talk about the need to attract better talent. Others suggest they need the people who are already on board to step it up a notch in helping the company achieve its goals. Most are looking for greater passion and engagement on the part of their people. When I hear their answers, what I commonly say in response is: “It sounds to me like what you're looking for is a performance culture.”
Keep in mind that because VisionLink is a compensation design firm, most of these conversations start with a question or discussion about a specific compensation need these enterprise leaders have, such as creating a long-term incentive program to retain key talent or re-engineering their annual bonus plan that is too discretionary. Their hope is that the new pay program will help ignite a new level of performance. I quickly suggest they may be placing too big a burden on compensation if that is their expectation and that their rewards strategy needs to be part of a broader framework of employee management that instills the performance culture they seek.
So what are the drivers of high employee performance? What do high-performing companies do that creates the right kind of focus, prompts consistent execution, perpetuates success and leads to the culture of confidence that is at the heart of a competitive advantage? In my work with companies for over 30 years, I have observed six things successful business leaders do to get the best out of their people. I call these keys “secrets” because so few organizations seem to figure them out. Let's explore what they are.
The Six Secrets
1. Communicate Purpose. For many years, organizations have focused heavily on communicating their mission and values. That’s all fine and good…and I’m not suggesting those aren’t valuable. However, the critical issue these days extends beyond enterprise standards and vision. Today it is about defining and articulating the company’s purpose in such a way that employees find it meaningful, compelling and compatible with their personal sense of purpose. In Workspan Magazine, Sara Roberts framed the issue this way:
Organizations are waking up to an important reality of human nature. We are hardwired for connection. We have a fundamental need to feel connected to the people we work with and work for, to the work we are doing and to the organization as a whole. Of course, we can fake that enthusiasm and muscle through a bad day, a difficult co-worker, an uninspiring manager and work that doesn’t feel meaningful or fulfilling. However, a lack of connection is less than ideal on a personal level in terms of engagement and passion, and it’s not optimal for the organization as measured by any number of critical outputs such as performance, customer satisfaction, speed to market and level of innovation.
The linchpin for connection is a sense of purpose. Most leaders and managers I talk with get this but don’t really know what to do about it. A 2015 study by the Harvard Business Review and EY Beacon Institute found that more than 80% of the 474 surveyed executives believe that purpose is important to many key measures of a business and 70% believe it is important to integrate purpose into core business functions. Less than half, however, believe that their organization has a shared sense of purpose or aligns its strategy to a purpose, and fewer than 38% say that employees are clear on purpose or that the business model and operations are well aligned with their purpose. Given my experience clarifying and activating purpose for organizations, I suspect the percentage of companies that have actually aligned their purpose with their business models or processes is likely much lower. (Ways to Cultivate Purpose in the Workplace, Workspan Magazine, January 2017, pg 21-26)
Simon Sinek wrote a book about this topic entitled: Start with Why. The premise is that people want to be inspired in what they do—and they don’t discriminate between their personal and professional identity in this regard. They want their work to enhance not diminish their sense of purpose.
2. Give Strategic Context. High-performing organizations are filled with strategic leaders. So if you want employees who embrace higher performance standards, you will either need to recruit them or create them. This starts by ensuring that every key role in your organization is clearly defined and understands its strategic purpose. Then, beyond that, you must align people’s unique abilities with the strategic aims you need them to fulfill and relieve them of duties that distract from those outcomes on which they should most be focused. A Strategy+Business article, based on a 2015 PwC study, made this observation:
Most companies have leaders with the strong operational skills needed to maintain the status quo. But they are facing a critical deficit: They lack people in positions of power with the know-how, experience, and confidence required to tackle what management scientists call “wicked problems.” Such problems can’t be solved by a single command, they have causes that seem incomprehensible and solutions that seem uncertain, and they often require companies to transform the way they do business. Every enterprise faces these kinds of challenges today.
…The [PwC] study suggests that strategic leaders are more likely to be women (10 percent of the female respondents were categorized this way, versus 7 percent of the men), and the number of strategic leaders increases with age (the highest proportion of strategic leaders was among respondents age 45 and above). These leaders tend to have several common personality traits: They can challenge the prevailing view without provoking outrage or cynicism; they can act on the big and small picture at the same time, and change course if their chosen path turns out to be incorrect; and they lead with inquiry as well as advocacy, and with engagement as well as command, operating all the while from a deeply held humility and respect for others. (10 Principles of Strategic Leadership, Strategy+Business, May 18, 2016, Jessica Leitch, David Lancefield, and Mark Dawson)
A good way to ensure you give clear definition to the most critical roles in your organization and provide them with strategic context is to spend time on your company’s performance framework. An organization’s performance framework has three dimensions: The Business Framework, The Compensation Framework and the Talent Framework. These three parts are separate but interdependent. Learn more about constructing a performance framework here: http://blog.vladvisors.com/blog/priority-1-for-2017-define-your-performance-framework
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3. Define Success. Team members cannot meet standards of performance that have never been clearly defined. And most roles lack clarity in this regard. If people are going to fulfill the strategic purposes described in the previous key, they must understand the ends to which they are working and how their performance will be measured.
In one way or another, a role’s definition of success should be tied to value creation. This has both a macro and a micro dimension to it. On a macro level, company leaders need to clearly define what value creation means to the company as a whole. This requires business leaders to calculate and track the company’s productivity profit, the threshold at which net operating income can be attributable to the performance of people in the organization as opposed to other capital assets at work. Once there is clarity on this issue, then the value creation component can be broken into pieces so every person knows how their role impacts it.
Let’s look at an example. Suppose a company decides that the first $40 million of the company’s operating target is attributable to shareholder assets at work in the company (as opposed to the performance of people). Once an employee knows that superior value creation starts at that $40 million mark, she can then focus her attention and energy on the outcomes for which she is responsible that can leverage the business model to achieve a superior result. It is assumed that once she understands the results she needs to produce (as opposed to the duties she is assigned to perform), her unique skills and experience will be unleashed to produce them—provided she feels aligned with the purposes of the organization and has strategic latitude to make decisions and initiate action.
This kind of outcome-based approach to role definition is what prompts strategic and innovative thinking and performance. An employee’s role and performance is further nourished if her compensation is also linked with the performance structure just described. Perhaps the company’s pay philosophy can stipulate that once the $40 million mark is achieved, the next $20 million will be placed into value-sharing plans for employees and anything beyond that will be shared 50/50 between the company and its workforce. Tie success to financial rewards and you now have a growth partner and not just an employee working for you (see #5).
4. Nurture Stewardship. The dictionary defines stewardship as “the responsible overseeing and protection of something considered worth caring for and preserving.” Chief executives and business owners should want people working for them that apply this mindset to their roles. You want individuals who will become stewards of shareholder interests and goals and apply an owner’s mentality to their work. This simply means owner and employee attitudes about priorities and “what’s important” are aligned. So how does this happen?
It begins with the clear purpose talked about earlier. Business leaders should bring a purpose context to every discussion they have with employees about roles and outcomes. A company’s purpose serves as both a continuity component that unites the interests of employees and shareholders and the motivational factor that give gives a team member a reason to assume a stewardship frame of mind.
Beyond a sense of purpose, your key people also need to sense you trust them. This is one of the reasons performance management systems are being transformed and more flexible systems of employee evaluations are being adopted. Ongoing dialogue about roles, outcomes, problem solving, strategic intent and resources, coupled with a pledge of support, creates an environment of confidence that allows your strategic leaders to breath and grow. In that kind of environment, stewardship is given birth naturally.
As to the impact of a high trust environment, in his book The Speed of Trust, author Stephen M.R. Covey suggests that the trust level in an organization affects two things: speed and cost. When trust goes down, speed goes down and costs go up. Conversely, when trust goes up, speed goes up and costs go down. I would add that when trust and speed go up, stewardship increases as well. And when stewardship takes over, sustained performance results.
5. Frame a partnership. The pay strategy of your organization performs an essential role in framing the financial partnership you want to have with your employees, particularly with your key talent. If the financial component isn’t well defined, engineered and communicated successfully through a clear pay philosophy and strategy, performance suffers. This is because your strategic leaders look at the compensation portion of your value proposition as the element that completes the line of sight they need in their roles to feel there is operational continuity and integrity at play in their relationship with your organization. The way you pay people creates clarity about “what’s important” and, therefore, where they should direct their focus and priorities. It is part of how you make expectations clearer to them.
Let’s look at an example to make this point clear. Suppose an executive has a salary that is at the 90th percentile of market pay and participates in an annual incentive plan that pays him an additional 50% of his salary if certain performance standards are met. One could say such an arrangement is very “fair” in terms how much that executive is being compensated. After all, the person in question is being paid at the high end of what market data say he should be paid.
However, let’s further assume that same executive is sitting in meetings where the CEO is talking about the company’s goal of doubling revenues over the next three years—and how important it is that the management team get behind that target. What part of that key performer’s compensation plan communicates to him the importance of that long-term goal? (Answer, none.) Is it likely the executive will perceive there is a disconnect between the priority he’s hearing about in strategy meetings and how he is being paid? More specifically, might he be left wondering what part of his pay arrangement will compensate him for the long-term value he’s being asked to help create? When he discovers there is no such mechanism, is it likely disillusionment will set it? And if he becomes disillusioned, what happens to his performance level?
This issue is remedied when you take the time to articulate a clear pay philosophy and then implement a rewards strategy that is consistent with that philosophy. The compensation philosophy should be written and referenced any time a decision about pay is being considered. Among other things, it defines what value creation means in the business and how it will be shared with those who help create it.
6. Be a Coach. As indicated earlier, all of the performance management trends are away from formalized annual employee appraisals and towards a mentoring role that is ongoing throughout the year. This trend is happening because of the fluid nature of our business environment and the need to be constantly developing talent that can help create the future company. The historical orientation of so many performance management systems doesn’t lend itself to this new reality. A Harvard Business Review article explained it this way:
When rapid innovation is a source of competitive advantage, as it is now in many companies and industries, that means future needs are continually changing. Because organizations won’t necessarily want employees to keep doing the same things, it doesn’t make sense to hang on to a system that’s built mainly to assess and hold people accountable for past or current practices. As Susan Peters, GE’s head of human resources, has pointed out, businesses no longer have clear annual cycles. Projects are short-term and tend to change along the way, so employees’ goals and tasks can’t be plotted out a year in advance with much accuracy.
…regular conversations about performance and development change the focus to building the workforce your organization needs to be competitive both today and years from now. Business researcher Josh Bersin estimates that about 70% of multinational companies are moving toward this model, even if they haven’t arrived quite yet. (“The Performance Management Revolution,” HBR, October 2016, Peter Cappelli and Anna Tavis)
This trend means anyone responsible for managing talent in your organization must replace their “supervising” tactics with a coaching role. As CEO, if you have surrounded yourself with a team of strategic leaders, they are not looking for tactical direction. They want you to provide guidance and influence that affirms and encourages their plans when they are headed in the right direction and offer appropriate challenges when they are not. They want a coach not a manager.
Performance cultures do not create themselves. They are envisioned and planned for, shaped and formed, nurtured and developed. The relationship between the enterprise and the employee has shifted dramatically in recent years and the way to elicit high performance from your talent has changed along with it. To succeed in this new environment, you must commit to a different mindset and a new way of leading; one that allows strategic thinking to take root and flourish.
Hopefully, these six secrets will help you envision how that can be done.
