One weekend during the Final Four in New Orleans, I was on call. I turned in on Saturday night after watching the games, but was jarred awake by the shrieking pager at around 4am. I groaned, hopped on email, and helped the editor in New Orleans solve his problem. No big deal–just doing my job, as all of my co-workers did when they were on call.

On Monday morning, the gregarious editor-in-chief was strolling down the aisle cubes, said hi to me, and then said something like:

“Hey, thanks a million for solving that problem on Saturday night. I was on the email chain and I really appreciate you helping my editor out.”

Never having been thanked so genuinely in the workplace before, I stammered something about just doing my job. The editor walked off, jovially cracking jokes, as I sat there with a big smile on my face and wondered why I felt like a million bucks.

This happened over four years ago. It was so out of the blue, and (unfortunately) such a unique incident, that it’s stayed with me this long.

My co-founder at Education Revolution, Jon, recently told me a similar story. When he sold his last company, he sent a hand-written thank-you note to each member of his his team, which was distributed all over the world. In the note, he enclosed a small amount of cash ($50 or so.) His team loved the gesture, but told him that the note was 100x more important to them than the money.

Here’s a story about how most of corporate America thinks about motivation. Earlier on at ESPN, a senior exec was telling all the employees the results of the employee satisfaction survey. He said that people were generally unhappy with the money they made, but also said that should be expected: “if you aren’t here to make more money for yourself, you’re probably in the wrong job.” I had a visceral response to that phrase. I had taken a $17k paycut to come to ESPN to build kick-ass sports technology products, not to maximize my income.

So there’s the challenge: we live in a culture where money is assumed to be the be-all and end-all, but often the more motivating and appropriate reward is genuine recognition and thanks.

So how do you solve this problem?

Dig Alfie Kohn’s well-researched perspective on how compensation relates to motivating your people:

• Pay people well.
• Pay people fairly.
• Then do everything possible to take money off people’s minds.

In other words, if your compensation is equitable, the best reward is NOT more money.

The small, simple act of saying “thank you” can make everybody at your organization feel great about themselves, and want to run through walls for you. And as long as you’re also paying your people fairly, and are creating work that’s meaningful to the people doing it, you’ll be well on your way to creating an amazing place to work.

I felt this perspective was short-sighted, and that people are generally able to accept decisions they don’t like, if they’re involved in the process and understand all the data. I haven’t had data to support this until last week, when I read the comments in this post, detailing the recent community revolt on participatory media site Digg involving the publishing of a key that decrypts HD-DVDs.

Briefly, that “secret” code was published on Digg, got a record number of “Diggs” (aka votes), Digg removed it after receiving a take-down notice from the lawyers representing the MPAA, and the community went nuts: Diggers published the code over and over again on the site in songs, tattoos, encrypted forms, etc. Basically, the community revolted because it didn’t agree with the decision Digg made behind closed doors to take down the original post.

This Demand Satisfaction post describes how Digg should have made the decision about whether or not to take down the original post: transparently, with community involvement. This comment on the post sums it up nicely: if people feel involved in the decision-making process, they’ll accept a decision they don’t like, and then refers to this delicious HBS article from 1997 (!) called Fair Process: Managing in the Knowledge Economy.

This article is a treasure trove of data, but here’s the gist:

Individuals are most likely to trust and cooperate freely with systems–whether they themselves win or lose by those systems–when fair process is observed.

Much of current management theory is based on Frederick Winslow Taylor’s methods, which are based on economic theory that dictate that humans are rational beings. While those methods may have worked in the industrial age, we’re dealing with different inputs in the knowledge age, and thus the methods to best maximize the outputs differ:

Unlike the traditional factors of production – land, labor, and capital–knowledge is a resource locked in the human mind.

As the delightful Anna Farmery says,

People will forget what you said, people will forget what you did, but people will never forget how you made them feel.

In other words, this desire for fair process is a basic human need: the need to feel important, heard, respected, and not to be treated as a “resource”. It’s an important need to satisfy given that

Creating and sharing knowledge are intangible activities that can neither be supervised nor forced out of people. They happen only when people cooperate voluntarily. (emphasis mine)

Now, let me ask you a question. Which of these two types of employees would you like to have or work with?

Winslow’s old-school system of incentives, resources, and organizational structures that produces edicts from on high result in “distributive justice”, where the psychology goes like this:

When people get the compensation (or the resources, or the place in the organizational hierarchy) they deserve, they feel satisfied with that outcome. They will reciprocate by fulfilling to the letter their obligation to the company.

The alternative is fair-process psychology, which is also called “procedural justice”. It operates like this:

Fair process builds trust and commitment,trust and commitment produce voluntary cooperation, and voluntary cooperation drives performance, leading people to go beyond the call of duty by sharing their knowledge and applying their creativity. In all the management contexts we’ve studied, whatever the task, we have consistently observed this dynamic at work.

I damn well know what kind of company I want to work for (I’m building it at Education Revolution).

What about you?

Three Principles

The authors of the HBS article describe three principles that form the base of any fair process decision-making system. Here they are:

1. Engagement

Engagement is the first principle. Notice that it’s only possible to really engage your employees in this way by putting aside your ego and realizing that the best ideas may not come from you. Seems to me that you can’t just engage in asking people what they think if you’re not going to listen to them, either.

Engagement means involving individuals in the decisions that affect them by asking for their input and allowing them to refute the merits of one another’s ideas and assumptions. Engagement communicates management’s respect for individuals and their ideas. Encouraging refutation sharpens everyone’s thinking and builds collective wisdom. Engagement results in better decisions by management and greater commitment from all involved in executing those decisions.

2. Explanation

Explanation of the ins and outs of why a decision was made is the second principle.

Explanation means that everyone involved and affected should understand why final decisions are made as they are. An explanation of the thinking that underlies decisions makes people confident that managers have considered their opinions and have made those decisions impartially in the overall interests of the company. An explanation allows employees to trust managers’ intentions even if their own ideas have been rejected. It also serves as a powerful feedback loop that enhances learning.

3. Expectation Clarity

Clarity about expectations after a decision has been made is the third principle.

Expectation clarity requires that once a decision is made, managers state clearly the new rules of the game. Although the expectations may be demanding, employees should know up front by what standards they will be judged and the penalties for failure. What are the new targets and milestones? Who is responsible for what? To achieve fair process,it matters less what the new rules and policies are and more that they are clearly understood. When people clearly understand what is expected of them, political jockeying and favoritism are minimized, and they can focus on the job at hand.

Do you use a fair process to make decisions at your company? Why, or why not?

BTW, if you want to read the whole article, which is excellent, here’s the PDF, and here’s the web version.

a complete system for organizational governance and culture at the leading edge

that promises to answer questions like:

What if we questioned all of our most basic assumptions and sought to uncover a more natural way of organizing ourselves? Is there an entirely new tier of systemic health and performance available to us? If we rewrote the most basic rules of human engagement, could we make a quantum leap in organizational design, as fundamental as the leap from feudal systems of old to the democracies of today?

Ternary made WorldBlu’s list of most democratic companies, and was written about in the Wall Street Journal two weeks ago.

Here’s the flyer for the seminar. I’ve never met or heard of Holacracy before this passed through my inbox the other day, but I’m excited to see what it’s all about.

I’m going to the seminar in Orange County on May 16th. If you’ll be there, please drop me a line (blog at reemer dot com) so we can meet up!

If you’re new here, you might want to check out these posts:

• Democratizing Business (this sums up our philosophy on the future of organizational design)
• Best Buy’s Focus on Results is like “TiVo for your work”
• 7 Ways to Make Your Company More Human, Part 1 (part 2 is neeeeearly done!)
• Two Ways To Make Your Company A Happier (and Better) Place to Work
• Passion Will Help Your Business Kick Butt

You can also get notified whenever HiddenMojo is updated:

• Subscribe to Hidden Mojo by Email (it’s free, and we solemnly promise: no spam, EVER.)
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And, you can always have a look around the archives.

Thanks for visiting!

- Eric & Kareem

Parkinson, who pulled in $1.69 million in 2006, quit in December after an auditor’s report raised questions about expense claims he billed to Hydro One, the giant transmission utility.

A simple solution would have prevented this: open-book expense reporting. That is to say, making all expenses public to the whole company, like Linden Labs does:

If you travel you have to send an e-mail to everybody that says how much you spent and why it was worth it.

Public accountability puts a lot more pressure on your people to spend money in productive ways, and make it nearly impossible to abuse the system.

I don’t have a data point for this, but I’m also willing to bet that it also lowers the overhead on your accounting division, as there’s a reduced need to hire people to scrutinize every single expense report for abuse.

Our approach to engineering was this: Tell everybody in an e-mail every week what you are doing, then make some progress of some kind and tell everybody in an e-mail how you did it. That was our organizational scheme. We said, Everybody is smart here. Identify what you are going to do today and get it done.

That evolved over time into the work system that we have today. We have this huge database of stuff to do. You choose your own work from it. So groups are formed more organically. I am pretty critical of traditional business styles. The biggest way you avoid that is you continue to make everybody entrepreneurial, which is easy to say–everybody says garbage like that in big companies. But the way you really are entrepreneurial is that you have to set your own strategic direction. That’s what entrepreneurs do. You have to take risks and you have to expect to be held accountable.

We have this thing we built called the Love Machine. The Love Machine allows anyone who works here as a Linden employee to send anyone else a brief note that says “Thank you for doing this for me.” There is a little webpage where you can go to send an e-mail, and then you get a little e-mail that says “Love From Philip” in the subject and it’s got text in it. Now, you think, what’s the big deal about that? Well, all of that stuff goes into a database. Your review carries that. Everybody is sending love to each other. It creates a positive collaborative environment.

Most businesspeople communicate in a mostly negative way. If people are encouraged to be entrepreneurs and take risks, they can also become combative and competitive. You have to balance that. So we built the Love Machine for balance. We joke that some day we will be more famous for the Love Machine than for Second Life.

We use a lot of the ideas from The Wisdom of Crowds. We vote internally on tasks. And when you get something done you can say, “Oh, I got 17 votes on this.” And again, you use that as part of your review.

We also use anonymous spot surveys for a lot of stuff. So I send out surveys saying, like, “Should we get rid of me as CEO?” Or I send out several options: “We should get a new CEO: now; when we have 200 people; when we have 500 people; never.”

We don’t even have a concept of budgeting here, really. For example, we don’t have a travel budget. If you travel you have to send an e-mail to everybody that says how much you spent and why it was worth it.

It’s certainly not a coincidence that WorldBlu named Linden Labs to its list of most democratic companies earlier this month.

Alex shares the framework for how decisions were made at his old company, and it’s an insightful read that provides practical direction on how you can go about running your company democratically.

Check it out here!

—

Growing up, I was crazy about two things:  sports and technology.  So when I found a job posting to go work at ESPN.com, I stayed up for several weeks perfecting a website demonstrating why I was the perfect candidate for the job.  Interviewing there was awesome–everybody had TVs at their desks with live feeds for all the games (I could tell you stories about conversations between the on-air personalities during commercial breaks!), and the first question I was asked by all 8 people who interviewed me was about sports.  What was my favorite sport?  Favorite teams?  Name the commissioners of all the leagues.  What did I think of the upcoming NHL season, and what were my thoughts on the MLB strike (I interviewed on the day the MLB strike was averted in 2002, and a cheer went up in the newsroom at the players and league reached an agreement very close to the deadline.)  It was only after making sure that I was as passionate about sports as everybody else there did the interviewers talk about the technical requirements for the job.

The message was clear: we only want to work with passionate sports fans, so if you want a job here, we’d better make damn sure you’ll fit in.

So I ended up taking a $17k pay cut to go work in Bristol, Connecticut (a hell-hole if there ever was one) with displaced sports fans from around the country.  The first year working with passionate sports fans was awesome–there was a gym on campus, any game you wanted to watch available at your desk every night, ultimate, softball, basketball, and gatorball games during work hours, and tickets to NY-based teams floating around (although not as many as you’d think )  The work itself was also exciting and challenging.  I spent 7 days a week from May to August building a new fantasy football system with other passionate people for what was, at the time, one of the coolest brands in the world to me.

Halfway through the summer, when I started burning out, I told myself it would be worth it in the end.

It wasn’t.

Come bonus time, I probably got less than what I spent on dinners during the summer months spent working late at the office.  And my raise was the standard “you didn’t mess up, here’s 3%” raise that’s supposed to make you feel extra good about all that shareholder-value-building you did.

Now, what added to my sense of unfairness was that salary info came out into the open.  It almost always does, which is why secret salaries are a baaaaaad idea.  But what I–and many of my co-workers–learned was that our salaries were a function of how well we negotiated, and not how well we performed.  This practice of paying people is unfortunately standard operating procedure in most big companies.

So what are the lessons here?

First, when an individual is intrinsically motivated–like when my co-workers and I were building the best freakin’ fantasy football system in the world–he or she will run through walls to make something happen, and will have fun doing it.  The problem occurs when people start doing what they’re doing only for the money, like when I was burning out.  As Alfie Kohn wrote in 1993, “About two dozen studies from the field of social psychology conclusively show that people who expect to receive a reward do not perform as well as those who expect nothing. This result, which holds for all sorts of rewards, people and tasks, is most dramatic when creativity is involved.”  In other words, carrot-and-stick motivation is not effective.

And second, inequitable pay practices in corporate America contribute to much counter-productive wasted time, energy, and dissatisfaction.  Kohn sums it up: “I recommend that employers pay workers well and fairly and then do everything possible to help them forget about money. A preoccupation with money distracts everyone — employers and employees — from the issues that really matter.”

Synthesizing the take-aways means that you should

1. hire people who believe passionately in your company’s vision, and
2. pay people equitably, and then take their minds off of money so they can continue to be excited about fulfilling your company’s vision

It’s not brain surgery, but it does take courage to change or establish a new way of doing things, especially when it comes to a sensitive topic like pay.  But it can be done, and it will make your people happier and more productive, and your company better off and a more desirable place to work.

I’ll leave you with a success story that underscores the benefits of establishing a vision and paying equitably:

One of my favorite examples of a company that took this advice is Marshall Industries, a huge electronic components distributor based in southern California. Long locked into a pop-behaviorist sensibility, myopically concerning itself with the “dos and don’ts of financial incentives,” they finally realized that none of this advice seemed to help and that the problem was with the premises on which the use of any financial incentive was based. It was the very existence of sales commissions and other rewards that was preventing the company from moving forward. Only when this light bulb clicked on did things begin to change. After a full year of listening, reflecting, and “losing sleep,” CEO Rob Rodin and his associates first got rid of all contests and other practices that set employees against each other, then eliminated management incentives, and finally replaced sales commissions and everything else smacking of pay-for-performance with a base salary. [10] The result: turnover (one of the many hidden costs of reward systems) was reduced by 80%; morale soared; salespeople began coordinating their efforts more effectively; and sales, along with profitability, grew dramatically. About five years ago, when Marshall began its de-incentivizing process, its stock was about $8 and its annual sales were at $575 million; today, its stock trades in the $30-$40 range and annual sales have hit $1.3 billion.

Like all valuable things in life, it takes work to establish, but the rewards (ironically) of implementing such a system are worth it!

Technorati Tags: happy at work, salaries, slacker manager

The caveat: you must be a blogger.

So, if you are, go leave a comment on his blog to get your copy, but hurry–he’s only got 50 left!

Alex has been writing the book and asking for feedback on his site for the last few months. I’ve read an advance copy, and the book is full of great tips and stories about how to be happy at work, and why it’s important.

So if you’re looking for a christmas present (or for a white elephant gift, yankee swap, secret santa, etc), take a look at Happy Hour is 9 to 5!