I love business, I love history and as a process minded Operations and Supply Chain Management major and Six Sigma Black Belt it is no surprise that I love Henry Ford- the pioneer of mass production and the assembly line. Early in the last century Henry ford produced one of the strongest companies in American history. Most people know about how he revolutionized mass production but fewer know about his radical ideas about employee compensation. Throughout the industrial revolution labor was abundant and cheap, so most businesses took full advantage by paying the market rate for labor which was quite low, but Henry Ford did something very different.
Ford realized that labor was a commodity and that like other commodities you often get what you pay for. So by paying his workers the best rate he got the best workers but more importantly he got the full commitment and loyalty of the best workers. The radical economic idea of Ford was that instead of cutting costs he decided to try and boost production and sales by increasing his investment in people. Still, Ford did not just hand out Gobs of money with faith they would produce. He had a "profit sharing" model in which his employees had very healthy stake in the business and earned more based on performance. This aligned the incentives and goals of the employees with his own and rewarded them generously for doing so. In return for this high pay he also had very high standards for productivity, professionalism and did not tolerate heavy drinking, gambling or "deadbeat dads". Henry Ford understood that people have enormous productive potential and through the right incentive strategy you can unlock it creating more revenue for yourself and those you employ. I know this may come across as idealistic feel good nonsense and it may well be if it is not done in the right way, but Henry Ford and many others have proven that employee compensation does not have to be a win/lose, zero sum game.
Its not as simple as just paying people more.
One of the biggest issues that employers face is getting people who are as committed as they are to the goals of the business. My father has run a construction firm his entire life and many nights I would hear him say "what I need is an employee who is like me". What he rightly was saying is that most employees are not as committed or as skilled as their employer. An employee can be trained to be more skilled but getting their full commitment is much trickier. Don't think for a minute I am saying to just pay people more and they will be more committed. It's not that simple and Ford did not do this. His idea was to offer high pay that was contingent on production.
I am often baffled by the lack of creativity by most employers in their compensation structures. The standard practice seems to be finding out how little they can get away with. Thus employees return the favor by doing as little as they can get away with. Equally baffling is how often creative compensation structures are used to screw over employees. Just the term "creative compensation structure" has a bad ring to many because they have been the victim of a commission scheme that made big promises but was either deceptive or near impossible to achieve. Throwing money at people without any link to performance and stingy commission structures are the two extremes you need to be aware of and avoid.
Step 1- Financial compensation and the "enough" point.
All of us have at some point been an employee. Most of us were not planning on that job making us millionaires, but our goal was for it to provide a reasonable level of financial support for our situation at that time. If it provided "enough" for our situation we felt it was a "good job" if not we generally were looking for the first chance to jump ship. Why would an employee give their all if they feel they are not making enough to support their situation to their satisfaction? This does not mean you have to offer a 70K salary with full benefits to all employees. All people are in different situations and "enough" can vary greatly. The key is to find people whose situation works with what you can offer. Getting a "great deal" on an employee by paying them very little relative to their needs may not be as great as you think.
Most employers don't really deeply think if the compensation structure will genuinely meet the situational needs of an employee in the way Henry Ford did. Most employers find a good person and make the lowest offer possible and hope the other guy takes it. Just because a person takes an offer does not mean they are happy with it. Starting day 1 with an unhappy employees creates high turnover, higher retraining costs, bad company culture, lack of loyalty, a poor experience for the customer, and you and your company getting a reputation for being "cheap". However, this seems to be standard practice for most employers I have encountered. The cost of unhappy employees is much greater than most realize. The funny thing is how often the difference between a unhappy and a happy employee can be a simple bonus/commission structure or just a couple extra dollars an hour and this can be the difference between A grade employees and a good culture vs a B team who just gives the minimum effort. All of this must be done within your financial framework and tight budgets do make it more difficult but if done right a small investment contingent on measurable performance produces returns and avoids costs that can drastically affect your organization.
Step 2- Non-financial compensation and motivation.
Financial compensation and providing enough for an employee is the starting point not the end point. Anyone with any real business experience knows that just throwing money at an employee to motivate them is simpleminded, risky and unwise. Those on tight budgets will be happy to know that much (if not most) of what can be done to increase performance and commitment doesn't involve spending more money, it just involves being creative. Dan Pink, a career analyst, recently gave a ted talk on this subject (http://www.ted.com/talks/dan_pink_on_motivation) and made me realize that compensation and employee motivation is not only complex but also vital to the success of a business or organization.
Steven Covey's 7 Habits of Highly Effective People and Dale Carnegie's How to Win Friends and Influence people are my favorite books on human relations and they both have a similar theme. It is the idea of seeing things first from another persons perspective and deeply understanding/empathizing what's important to them and then creating genuine win/win solutions for everyone involved. Most people seem to want very similar things. They want "enough" financially as a starting point, but then they want to be recognized and appreciated, they want to make a meaningful contribution, many want the chance to challenge themselves and to grow, they want to feel in control of a career that they are proud of. You may notice these are the same things you want. It seems if you can offer them all these things you will have a loyal, dedicated, long term team member whose potential is primed for release. Sure sometimes you just need some mindless busywork done, and cheap labor is a good option but it is surprising how often that same "cheap labor" mentality is applied to more important or even mission critical positions within an organization.
Its about people.
Many of us have heard the cliche "I would take a B product with an A team over a B team with an A product" but unlike Ford, most put very little thought is put into how to get and keep an A team. People are the key but people can be complicated! Henry Ford seemed to prove the golden rule is not just a sound moral principle but a sound business principle as well. People have incredible potential if you can learn to unlock it both you and they will benefit greatly. It seems that all eventually come to realize the most important things on our deathbed will be people and relationships. I believe if we take the lessons of Henry Ford to heart, our careers and business ventures have the ability to not just make us wealthy financially, but also in relationships and in the end that seems to be what matters most.
Questions for reflection
Steven Covey's 7 Habits of Highly Effective People and Dale Carnegie's How to Win Friends and Influence people are my favorite books on human relations and they both have a similar theme. It is the idea of seeing things first from another persons perspective and deeply understanding/empathizing what's important to them and then creating genuine win/win solutions for everyone involved. Most people seem to want very similar things. They want "enough" financially as a starting point, but then they want to be recognized and appreciated, they want to make a meaningful contribution, many want the chance to challenge themselves and to grow, they want to feel in control of a career that they are proud of. You may notice these are the same things you want. It seems if you can offer them all these things you will have a loyal, dedicated, long term team member whose potential is primed for release. Sure sometimes you just need some mindless busywork done, and cheap labor is a good option but it is surprising how often that same "cheap labor" mentality is applied to more important or even mission critical positions within an organization.
Its about people.
Many of us have heard the cliche "I would take a B product with an A team over a B team with an A product" but unlike Ford, most put very little thought is put into how to get and keep an A team. People are the key but people can be complicated! Henry Ford seemed to prove the golden rule is not just a sound moral principle but a sound business principle as well. People have incredible potential if you can learn to unlock it both you and they will benefit greatly. It seems that all eventually come to realize the most important things on our deathbed will be people and relationships. I believe if we take the lessons of Henry Ford to heart, our careers and business ventures have the ability to not just make us wealthy financially, but also in relationships and in the end that seems to be what matters most.
Questions for reflection
- Do target my search for employees to find people in situations where I can genuinely offer "enough" financially?
- Is my compensation strategy linked to production/performance that is relevant to the companies goals?
- Does my compensation strategy offer "non-financial" rewards that give meaning and excitement to the work?
- Do I sincerely care about providing meaningful employment, do my actions show this?
- Do I invest well in getting A grade people for mission critical positions?
- Do I know the difference between a mission critical position and busywork positions?
- What do my employees currently think about the financial and non-financial compensation strategies I employ?
- Do employees think I am cheap?
- Are my compensation investments designed as part of the companies budgetary plans and financial strategy?
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