What makes a great employee ownership company? Over the last 30 years, Corey Rosen has written about this in a series of columns for the NCEO's newsletter titled "Working Better." Drawing on lessons from employee ownership companies, research on employee engagement, and leading thinkers on both business and other issues, he looked at ideas that can truly make a difference. This book collects the best of these essays and adds updates and reflections on the issues they raise.
Table of Contents
Part 1: Communicating
Making Communications Sticky
Block That Analogy
Part 2: Participation
Why Sharing Control Can Give You More Control
Why Participation Programs Can Be So Much Work to Get Going
Banish That Banality: A Simple System for Identifying Practical Participation Problems and Solutions
Building a Better Meeting
Creating Balance in a Participation Program
Imprisoned by Hierarchy?
When Groups at Work Go Bad
Small Ideas Matter
Simple Rules for Complex, Productive Behavior
Part 3: Leadership
The Value of Values
Managing Consent or Building Consensus?
Creating an Entrepreneurial Mindset
Nattering Nabobs of Negativism
The Lake Wobegon Effect at Work
Six Myths About Creativity at Work
Finding Meaning at Work
The 80-20 "Rule": The Employee Ownership Version
Economan Doesn't Work for You
Ownership Companies Are Different
A Final Word: Grace
The 80-20 "Rule": The Employee Ownership Version
I read far too often about the so-called "80-20" rule that says that 80% of the improvement in corporate performance comes from 20% of the people. Good management, then, focuses rewards on the top 20%. This "rule" goes back to an Italian economist named Wilfred Pareto, who used it to describe land ownership patterns in Italy around the turn of the 19th century. In the 1940s, organizational development consultant John Juran decided this applied to all things managerial, too, concluding there were the "vital few and the trivial many." Well, that seemed a bit harsh, so he amended it later to call it the "vital few and the useful many."
Today, it is all the rage among compensation consultants, who argue that, especially in difficult times, incentive pay should not be wasted on the 80% but focused on those who really add value. Since among this 20%, presumably the 80-20 rule still applies, and among that 4% it applies again, and so on, this means the people at the top should get most of the incentives. Not surprisingly, it is these people hiring the compensation consultants.
That would all be fine if the 80-20 rule were true, but, in fact, not only is there no research to support it (nor was there ever), but research shows the opposite: it is a corrosive approach that hurts companies by discouraging cooperation and initiative. When I wrote the 2008 column that is incorporated here, I got a lot of feedback, some of which took the discussion in a new and fascinating direction. Doug Smith of Lumber Traders in Port Angeles, Washington, had a particularly insightful response. He wrote, in part, that "the establishment of the 80-20 rule is a benchmark of bad management. I believe that the frustration you are speaking of is similar to my frustration that our society always looks to the dark side, self interest and fear. No wonder so many people are only looking out for themselves."
Then he went on to make a surprising statement: "Yes, we do have some percentage of 'vital few,' and we do have pockets of perfection, but our overriding goal is to identify these resources and to propagate them." Smith's perspective takes the kernel of truth in the 80-20 rule and stands the conclusion of the benefits consultants on its head. He says that these star performers should be focusing their efforts not on distinguishing themselves from everyone else, but working to bring the other 80% up to their level. So these "vital resources" might spend 25% of their time supporting and developing coworkers. That makes the other 80% much more productive, bringing some of them up to or closer to the level of those training them. Then these people can repeat this process with other people.
If the 20% people spend 25% of their time working with others, then they are only now producing 60% of the improvement, but the other 80% might raise their output enough to more than compensate. After all, if the 80% could become 25% more productive in the process, then the extra time will have paid for itself. But that's just the start. As the process continues, maybe half the work force now is producing at a high level, and even if they are still spending a lot of time helping the other half, total production will be much greater.
Smith's insight is a gem, one of the best I have heard in 30 years of doing this work. If it is really true that some people are so much more productive, shouldn't the goal be to for them to help others learn the things they do to get there, too?
There are lots of ways to do this. At W.L. Gore and Associates, everyone is assigned a mentor to help them learn how—and where—to make their best contributions. At open-book management companies, employees are trained to be businesspeople so that the decisions they make can be more productive. Cross-functional teams and job sharing may provide opportunities for people with different perspectives to share ideas that people working every day in an area may not have thought about. Employee teams make it possible to create synergy as ideas are created and shared. Many companies have internal career counseling so that people hired for one thing may end up on a different career path if it turns out their real skills are better used elsewhere.
Smith concluded by saying that using "an arbitrary rule such as the 80-20 rule is lazy and ineffective. In fact, it is plain giving up." I couldn't say it better.