Wednesday, January 23, 2008

What is Pay. Really? This.

So here I am, about four months late, writing something I thought I'd be knocking off last October. Well I'm like that and I hope you are too, because then I get to feel just as smart and conscientious as you, and that way we can call it a draw.

What is pay? Sounds so obvious, so boring, like one of those things that everyone knows without thinking about it. One of those ideas you have bouncing around in your head every day and take as a thoroughly vetted, completely settled aspect of the universe that always was, always will be, and is therefore right and just.

Pay is complex but simple. Obvious but obscure. Definite but tenuous. Or the inverse.

Pay is not money.

Money enters into the world of pay but it is only part of the story, and a relatively minor part, even if you work only for the money. Because you don't. Even if you do.

And even if you are desperate for it, you aren't.

How arrogant am I? How stupid could I be if I only tried harder?

Hold on -- it's true.

What you need and what I need are those things that the terminally dense recite without thought. Because they are cliches: food, shelter, clothing. That's what money gets us, and a little more. Without a minimum to exist on things are ugly, but it takes very little to get by. More money, more food, your own house, more clothes, maybe a car or two, splashy vacation trips. Then more junk, bigger TV sets, golf lessons, a second story on the house. More stuff in the closet. And then more of the same. And then again more of the same. And then you're dead, but not happier, even just before you died.

"Our profits were above the average for our industry, and our financial statements showed every sign of health. We were growing at a rate of about 20% annually with sales that were strong in our home state. Our quality was high. We were respected in the community I was making a lot of money. And I had a knot in my stomach that wouldn't go away."

Those are the words of Ralph Stayer. They open his article in the Harvard Business Review of November 1990.

"What worried me more than the competition, however, was the gap between potential and performance. Our people didn't seem to care. Every day I came to work and saw people so bored by their jobs that they made thoughtless, dumb mistakes. They showed up in the morning, did halfheartedly what they were told to do, and then went home."

I've been there. Maybe you have too. Maybe you are now.

Mr. Stayer did something drastic. He raised everyone's pay, but not their paychecks.

"The image that best captured the organizational end state I had in mind for Johnsonville was a flock of geese on the wing. I didn't want an organizational chart with traditional lines and boxes, but a "V" of individuals who knew the common goal, took turns leading, and adjusted their structure to the task at hand. Each individual bird is responsible for its own performance."

OK, it's a metaphor. Whatever. Pay attention though. Somehow this business owner was able to realize that both he and his company had a problem, and that no obvious or traditional solution would be a solution.

Instead of cracking the whip or scraping off the lowest-performing 10% of staff every year, or just firing everyone and starting over, he did something else.

He turned the company over to the people who knew how to run it, who were the people who already worked there. They were the ones with the greatest stake in the company's success, because the company was the support for them and their families. Once they were in full charge they were truly responsible for their own destiny.

Years later Mr. Stayer was able evaluate his experiences.

"Everyone at Johnsonville discovered they could do considerably better and earn considerably more than they had imagined. Since they had little trouble meeting the accelerated production goals that they themselves had set, members raised the minimum acceptable performance criteria and began routinely to expect more of themselves and others. The cause of excitement at Johnsonville Sausage is not change itself but the process used in producing change. Learning and responsibility are invigorating, and aspirations make our hearts beat. For the last five years, my own aspiration has been to eliminate my job by creating such a crowd of self-starting, problem-solving, responsibility-grabbing, independent thinkers that Johnsonville would run itself."

That is a good description of pay.

Another person who followed approximately the same path was Ricardo Semler. His company is in Brazil. You can think of his approach this way: "We transfer responsibility to our people. We hand them their freedom."

He has written several books. The one I bought and read was "The Seven-Day Weekend: Changing the Way Work Works."

His basic ideas run like this: If work is meaningful then people will do it because it has meaning. If work is fun then people will do it in order to have fun. If the workplace accommodates the lives of people then they will embrace the workplace as part of their lives. If people are allowed to take charge they will do much better than if they are told what to do. And the business will benefit as well.

His business is called Semco. Here is an example of how it runs differently than any place you and I may have worked: Employees set their own salaries.

There are five pieces of knowledge involved, three known by the company and three by the employee. The company has salary surveys so it knows what people outside the company earn. The company also knows what everyone inside the company earns. And the company knows current market conditions and what it can afford to pay.

The employee knows what he wants to make and what his coworkers make.

The company then shares its information with the employee so he can make an informed decision. The types of compensation available are salary, bonuses, profit sharing, commissions, royalties on sales, royalties on profits, commissions on gross margin, stock, stock options, initial public offerings, and sale of business units. (He explains all these in the book.)

How well does this work, then, really?

"The flexible reward system mirrors our philosophy that people will understand that it's in their best interest to choose compensation packages that maximize both their own pay and the company's returns." Because "if workers understand the big picture, they'll know how their salaries fit into it."

Occasionally someone has to leave the company to make what they think they're worth. Occasionally the company pays someone more than he thinks he's worth. Generally, all sides pretty well agree on it though.

There are several companies under the Semco umbrella. They have been sweetly profitable. Most of those who work there stay for decades. But, you may ask, if this is so good, why hasn't Semco taken over the world? Because they have more important things to do.

Because work and profit are not the most important things for Semco.

Not as important as weekends, for example. "If the workweek is going to slop over into the weekend -- and there's no hope of stopping that from happening -- why can't the weekend, with its precious restorative moments of playtime, my time, and our time, spill over into the workweek?"

If you have a job at Semco, and you need to do something outside of work, and you can schedule it, then you go, even if it's a movie on a Tuesday afternoon, or a day at the beach, just because you want to stick your toes into the sand and sit for a while. No one comes around to sniff your chair seat. No one touches it to see if it's still warm. You are expected to act like an adult, and so is the company.

What about the bad times, when you just have to ax people and ignore the blood? That happened too. They decided together. Meetings sometimes go on for weeks there, with people drifting in and out, and hashing and rehashing ideas until they find a reasonable consensus.

It was like that when the company hit the skids some years back. The conclusion for most was to take a 38% pay cut, and make it up later with an increased share of the profits. Some people were spun off with a grubstake to start their own businesses, some retired, some went elsewhere. But there were no massive layoffs.

There was no loss of valuable staff, no slow bleed until the company was brain dead. They all pulled together, and it was their decision as a group of adults. People is all any company has anyway. Staff is all any company is. Without people who know the business, its history and philosophy, there is no business. It's not the buildings or the advertising or the bank statements. It's all people, all the time.

To give you an idea of how much Semco respects people, the company devised a custom email system. It is impossible for the company to read staff email. It was so fundamentally important to them that they wanted to ensure that it could never happen even by accident and certainly not in secret, if anyone was ever tempted to peek.

They are strong cooperative individuals working together in good faith toward a common goal. People naturally want to do, and to do well, and to do well together. That is pay.

Don't believe it? Skeptical about a smallish sausage company and some foreigners you've never heard of?

They aren't alone. There is a good article in "Fast Company" magazine from a few years back, about a company you have heard of.

"Bill Gore threw out the rules. He created a place with hardly any hierarchy and few ranks and titles. He insisted on direct, one-on-one communication. He organized the company as though it were a bunch of small task forces. To promote this idea, he limited the size of teams to 150 to 200 people at most."

So what?

"Pound for pound, the most innovative company in America is W.L. Gore & Associates."

Listen to Diane Davidson. "I came from a very traditional business." At first she didn't know who did what.

"I wondered how anything got done here. It was driving me crazy."

"'Who's my boss?' she kept asking."

"'Stop using the B-word,' her sponsor replied."

"'Secretly, there are bosses, right?' she asked. There weren't. She eventually figured out that 'your team is your boss, because you don't want to let them down. Everyone's your boss, and no one's your boss.'"

At Gore people are free to communicate, collaborate, and to follow up on their own ideas, just because they want to, because something might come of it. The company mixes up people in diverse groups containing researchers, engineers, designers, production workers, sales people and others.

"You're supposed to morph your role over time to match your skills. You're not expected to fit into some preconceived box or standardized organizational niche. Your compensation is tied to your 'contribution' and decided by a committee. The company looks at your past and present performance as well as your future prospects, which takes away the potential disincentive for investing time and effort in speculative projects. Gore encourages risk taking."

People go there, people work there, people stay there, and people make the company successful because they get more than a paycheck. They get true rewards. They are fully paid.

"No one has to follow. You attract talented people who want to work with you. You draw them with your passion and the credibility that you've built over time." Just like that.

In 2004, Gore was a $1.6 billion company. They must know something.

How is your job?

Update January 29, 2008: A Semler talk of September 22, 2005 at MIT called "Leading by Omission" is available at


How I Learned to Let My Workers Lead, by Ralph Stayer, (online) and in book form.

Ricardo Semler. His books: "Maverick!", "The Seven-Day Weekend: Changing the Way Work Works", "Managing Without Managers"

"The Fabric of Creativity: At W.L. Gore, innovation is more than skin deep: The culture is as imaginative as the products.", by Alan Deutschman, Fast Company, Issue 89, December 2004


  1. Letting workers lead is the wave of the future. What Semler did sounds a lot like ROWE, a concept I’ve been reading about lately. It stands to Results-Only Work Environment and it’s all about giving people complete control over their time as long as the work gets done. The power shifts to the masses. Sounds like productivity is going through the roof at the companies that have implemented it. The creators of ROWE, Cali Ressler and Jody Thompson, actually have a pretty good blog, too – Would love to know if Semler has one so I could follow that, too…