Is Money What Really Drives Success? Really Is Money What $14.95 Us / Can / Us $14.95

THE MONEY & MOTIVATION ISSUETHE MONEY & MOTIVATION

THE ENEMIES OF ENGAGEMENT OF ENEMIES THE PLUS: | GONZALEZ A. FERNANDO CHIEF CEMEX IS MONEY WHAT REALLY DRIVES SUCCESS? REALLY IS MONEY WHAT $14.95 US / CAN / US $14.95

www.KornFerryBriefings.com THE MONEY & MOTIVATION ISSUE BY FUNCTIONAL AREA

ENTRY LEVEL SENIOR LEVEL ENTRY LEVEL SENIOR LEVEL ENTRY LEVEL SENIOR LEVEL ENTRY LEVEL SENIOR LEVEL

JOB TITLE JOB TITLE JOB TITLE JOB TITLE JOB TITLE JOB TITLE JOB TITLE JOB TITLE

JUNIOR AUDITOR VICE PRESIDENT OF FINANCE HR ASSISTANT VICE PRESIDENT OF HR IT SUPPORT ASSISTANT HEAD OF IT SYSTEMS PARALEGAL EXPERT ATTORNEY LEGAL FINANCE ANNUAL BASE SALARY ANNUAL BASE SALARY ANNUAL BASE SALARY ANNUAL BASE SALARY ANNUAL BASE SALARY ANNUAL BASE SALARY ANNUAL BASE SALARY ANNUAL BASE SALARY TECHNOLOGY INFORMATION $ $ $ $ $ $ $ $ HE GREAT ARGENTINIAN SOCCER 54,000 239,000 HUMAN RESOURCES 42,000 226,000 47,000 199,000 66,000 182,000 star Lionel Messi once said, “Money is not a motivating factor. Money doesn’t thrill me or make me play better. I’m just happy with a ball at my feet. My motivation comes from playing ENTRY LEVEL SENIOR LEVEL ENTRY LEVEL SENIOR LEVEL ENTRY LEVEL SENIOR LEVEL the game I love. If I wasn’t paid to be a professional JOB TITLE JOB TITLE JOB TITLE JOB TITLE JOB TITLE JOB TITLE footballer, I would willingly play for nothing.” PUBLIC RELATIONS HEAD OF MARKETING R&D SCIENTIST HEAD OF RESEARCH SALES REPRESENTATIVE VICE PRESIDENT OF SALES The cynic might say that it is easy for a fabulously ASSISTANT SALES OPMENT wealthy superstar athlete to sound so altruistic. But ANNUAL BASE SALARY ANNUAL BASE SALARY ANNUAL BASE SALARY ANNUAL BASE SALARY ANNUAL BASE SALARY ANNUAL BASE SALARY Messi’s feelings about money and motivation bespeak MARKETING $ $ $ $ $ $

a deeply important issue for organizations around the 50,000 370,000 RESEARCH & DEVEL - 64,000 219,000 49,000 160,000 world. In a global economy, where the battle rages for finding and retaining the best talent and companies know that the difference between success and failure IC Based on Korn Ferry L

A I Hay Group PayNet

largely rests with an impassioned and engaged work- RUSSIAN AL O database, including

MB M

U C E KAZAKHSTAN O U

L IL predicted salary increases ENTRY LEVEL SENIOR LEVEL ENTRY LEVEL SENIOR LEVEL K RICA

R EXI force, the challenge is clear. TU R O

UATE

A PANAMA

C CH UADOR TA as reported by global HR FED M

PE RKE INE SALVADOR EL G C E E departments for 2016.

COS

RATION % %

R Y % % % NICARAGUA

OM 1 %

1 9 JOB TITLE JOB TITLE JOB TITLE JOB TITLE 4.7%

. 4.9 5.0 3 L 4.6% DOMINICAN REPUB 1.5% 5.0 5. I

BULGARIA 8 3 NA we explore the question: How can A 5. .5% % Z IN THIS ISSUE, . HONDURAS TI 0 N 7 5 0 .4% % % N L IA 6. E I 7 BRA G THUANIA . 6.2 % 0% 10 AR 4 6.4 % A LOOK AT AVERAGE EARNINGS we motivate others—and what role does money play? .8% 7 4 7. VENEZUELA LAT . 0% N ASSISTANT BUYER SENIOR BUYER ACTUARIAL ASSISTANT CHIEF ACTUARY 0 1. PA RE VI 4 % 5 3 % A E A .0 0 J PO STONIA % 0. A What must corporate leaders do to trigger a Messi- 7 % NG G IN SELECT INDUSTRIES, ACCORDING 3. 0 SI ON HUNGARY 7% 2. G K 3 % N .0% 0 4.0 HO SERVICES CONSUMER ANNUAL BASE SALARY ANNUAL BASE SALARY FINANCIAL ANNUAL BASE SALARY ANNUAL BASE SALARY like fervor and commitment in their people? AUSTRIA 3. 5% EA 0% 4. KOR TO KORN FERRY HAY GROUP .0% GERM 3.0% 5 AN % MALAYSIA Y 2.9% 6.0 D $ $ $ $ “What People Make” data based on median salary from Korn Ferry Hay Group’s PayNet LUXEMBOURG Projected THAILAN 2.9% 6.0% 50,000 125,000 57,000 266,000 database which contains salary information for four million employees in more than 7.0% PHILIPPINES 2,000 organizations in the U.S. Globally, we operate pay databases in more than 110 POLAND 2.6% Global Sal- 8.0% CHINA countries, with data from over 20 million employees in more than 25,000 companies. NORWAY 2.6% THE 8.6% 2.5% ary VIETNAM SLOVAKIA 9.1% 2.5% INDONE Increases 10.3% SIA INGDOM .5% IND WORLD NITED K 2 4. IA U 0% 2.5% 4. OMAN ETHERLANDS 2016 5% N 4% ITALY 2. 5.0 BAHRAIN % % SEES BIG- 2.2 5. ENTRY LEVEL SENIOR LEVEL ENTRY LEVEL SENIOR LEVEL ENTRY LEVEL SENIOR LEVEL 0% UN % 5 SWEDEN 2.0 .0% ITED ARK 5 KUWAI A M E 2.0% .0% R EN % 5 SA AB D EEC .0 .0 T E GEST R 2 % 9. % U MIR G 9 Q DI ARABIA JOB TITLE JOB TITLE JOB TITLE JOB TITLE JOB TITLE JOB TITLE ND . 2.6% 3 A AT LA C 1 % % T ES I .8 3.0% JORDANA 1 % R IRE E 8 2 . 3.0% L C 1 .5% E .7%

N 1 C BAN .4% %

% A % PAY RAISE 6% A

1 0%

S . . UNITED STATES MANUFACTURING HEAD OF APPLICATION

0 .0 0 1.3% 3 N 9%

. 8% H REPUBLFR . . . ON

C 1 6 AUS ADA SPAIN 10 6 WELLNESS CONSULTANT CHIEF MEDICAL OFFICER MACHINE OPERATOR APPLICATION DEVELOPER M 6 6 NE CZE U D PLANT MANAGER DEVELOPMENT CYPRU AL W TR

LGI A

G IA

IN THREE RIA A

C ZE E

BE IS LIA ANA RI A

EGYPT

W ANNUAL BASE SALARY ANNUAL BASE SALARY ANNUAL BASE SALARY ANNUAL BASE SALARY ANNUAL BASE SALARY ANNUAL BASE SALARY TZERLAN L

AF UN I ALG A

FINLAND INDUSTRIAL

TECHNOLOGY PORTU MOROCCO N HEALTH CARE HEALTH W H YEARS S D BOTS $ $ $ $ $ $ SOUT 55,000 365,000 38,000 191,000 76,000 231,000 11.4% 6.5% 6.4% 5.3% 2.8% 2.8% 2.8% LATIN AMERICA AFRICA ASIA MIDDLE EAST EUROPE PACIFIC NORTH AMERICA REGIONAL AVER- REGIONAL REGIONAL AVER- REGIONAL AVER- REGIONAL REGIONAL REGIONAL AVER- BY INDUSTRY AGE AVERAGE AGE AGE AVERAGE AVERAGE AGE Rockets did not take us to the moon; it was the engineers and the dreamers.

The Internet did not create a globally networked economy; Without it was the innovators and creators. Since the beginning of time, people have been the ultimate differentiator.

Yet today, this simple truth is all too often plastered on office walls, but rarely acted upon in the halls. people, We need a new conversation about people.

Today, we are proud to announce that Korn Ferry and Hay Group have come together, creating the preeminent global people and organizational advisory firm.

We are 7,000 of the best and brightest minds in our industry who have a single there is purpose: helping leaders, organizations and societies succeed by releasing the full power and potential of people.

And why do we do this? no show. Because we believe that by designing the people strategy, we can help realize the business strategy.

We are the global leader in the business that enables business—the people business.

And, together, we are ready to help shape your future.

We are the new Korn Ferry.

Executive Search | HayGroup | Futurestep

The Internet did not create a globally networked economy; Without it was the innovators and creators. Since the beginning of time, people have been the ultimate differentiator.

Yet today, this simple truth is all too often plastered on office walls, but rarely acted upon in the halls. people, We need a new conversation about people.

Today, we are proud to announce that Korn Ferry and Hay Group have come together, creating the preeminent global people and organizational advisory firm.

And why do we do this? no show. Because we believe that by designing the people strategy, we can help realize the business strategy.

We are the global leader in the business that enables business—the people business.

And, together, we are ready to help shape your future.

We are the new Korn Ferry.

Executive Search | HayGroup | Futurestep

18 Getting the Right Measure on CEO Comp BY IRVING (IRV) S. BECKER & LAWRENCE M. FISHER The aim for Briefings is audacious: 24 The New Shape of Income Inequality to provide BY KAREN KANE great insights to help leaders lead. Not by telling them what to think, 32 The Enemies of Engagement but what to BY CHRIS HODENFIELD think about.

Gary Burnison Chief Executive Officer Michael Distefano Chief Marketing Officer & President, Korn Ferry Institute 40 8 Ways Compensation Becomes a De-motivator Joel Kurtzman Editor-In-Chief BY VICTORIA GRIFFITH Glenn Rifkin Managing Editor Barry Adler 46 Inequality in the Workplace BY RUTH MALLOY & AMY CORTESE Senior Editor Melissa McCoy Copy Editor 54 Mastering Motivation Pays Off BY DAVID BERREBY

60 Engaging the Multigenerational Workforce Creative Directors BY GLENN RIFKIN Robert Ross Roland K Madrid Mary Franz Parting Thoughts 72 Marketing and Circulation Manager Stacy Levyn Project Manager Tiffany Sledzianowski Digital Marketing Manager “If you can communicate what you Edward McLaurin think should be done in a compelling way, people will follow you.” —MIKE JACKSON Contributing Editors Chris Bergonzi Briefings Q&A David Berreby Lawrence M. Fisher 10 AutoNation’s Mike Jackson Hank Gilman Victoria Griffith 66 CEMEX’s Fernando A. Gonzalez Dana Landis Stephanie Mitchell Christopher R. O’Dea P.J. O’Rourke Adrian Wooldridge

4 BRIEFINGS “Motivation is everything when it comes to engaging people CEO THE FROM and inspiring them to achieve—raising their sights to even greater heights than what they had thought possible.” The Drive to Achieve he desire to achieve determines human destiny. productivity (output per worker). The paradox for civilizations, organizations and In 2007, they were overtaken by people, however, is that prolonged success becomes workers in other countries—most recently by the Germans and the its own undoing. It is a fact of human nature, French. Achievement can never be evident through the millennia: When the hard work taken for granted. of the past produces fruits of rewards in the present, So how do we keep alive the drive complacency can set in. (Think of the Roman to achieve—as individuals, organiza- Empire’s decline.) tions and society? Will people in the future possess the drive to achieve What, then, advances. When people become on the scale of previous generations does it take to complacent, they dull their edge that mass-produced automobiles keep humans and undermine the resilience of or launched the first rockets to the engaged, well the next generation. Achievement moon—advances that, in their day, beyond the first wanes, and civilization declines. seemed to be near-impossibilities? tastes of success? To avoid complacency, no one Motivation is everything when The question is would want to trade our current stan- it comes to engaging people and as relevant to organizations today dard of living for a “hungrier” time. inspiring them to achieve—raising as it is for historians studying the It’s a fair guess that most of us, even their sights to even greater heights rise and fall of the great civiliza- with our long hours and 24/7 con- than what they had thought possible. tions of the past. nectivity, don’t work as hard physi- Yes, money is part of that motiva- Enterprises today might wonder cally as our forefathers did. (What tion, but only part. While it would be if more money is the answer. Or are would past generations make of the extremely naïve to dismiss monetary other factors even more important fact that we have to go to a gym and rewards, we cannot overestimate their than extrinsic rewards? actually pay to break a sweat?) importance, either. Money can’t buy To explore these questions we People tend to equate “progress” loyalty—it merely “rents” it for a while. turn to the seminal work of the late with less toil and more leisure. John Within any organization, an over- David McClelland, a pioneer in the Adams, the second president of the arching purpose is the greatest moti- study of human motivation and United States, once reflected in a vation. Purpose taps into the universal achievement. (Today, Korn Ferry letter to his wife that his responsi- and deep-seated human desire to be Hay Group’s McClelland Center bility was to study “politics and war” part of something bigger than oneself. continues his legacy and focus on (what we might think of as the hard With an enduring sense of purpose, human motivation.) work of nation-building) so that people will actually work harder for In his book, “The Achieving their sons might study mathematics less money, because what the organi- Society,” first published in 1961, and philosophy—and the next zation is trying to achieve resonates McClelland undertook a sweeping generation could devote time to deeply with them personally. account of history—from ancient painting, poetry and porcelain. Through purpose, we can foster Greece, through the Middle Ages Consider that Americans alone a drive to achieve for individuals in Europe, to England during the spend more than $70 billion each and organizations. Purpose then Industrial Revolution and to the year on lottery tickets and $20 bil- becomes both a meaningful reward postwar United States—to under- lion-plus on video games. What does and an ongoing motivation that stand the fundamental reasons that say about society’s priorities? keeps driving achievement.  for economic growth, as well as I’m not suggesting that we give up —GARY BURNISON the causes of decline. McClelland the creature comforts and techno- discovered a “force” that drives rapid logical tools of modern life. But, as economic development—one that McClelland’s history lessons teach lies largely within humans. That us, we can’t allow ourselves to be Korn Ferry CEO Gary Burnison force is the desire to achieve. lulled into complacency because life is the author of the new book The Leadership Journey: How It is a timeless truth that when becomes easy. No one can afford to to Master the Four Critical the drive to achieve is strong, rest on his or her laurels. Areas of Being a Great Leader individual and collective achieve- For years, American workers  LeadershipJourneyTheBook.com ment are on the rise, and society were the standard-bearers for

TALENT+LEADERSHIP 5 ILLUSTRATIONS BY ALEX WILLIAMSON 6 BRIEFINGS Getting What You Pay For: MVP Talent Must Be Rewarded

BY PETER ZHEUTLIN

ou get what you pay for. Or do you? When it comes to high-level talent, the answer is: Sometimes you do and Y sometimes you don’t. Just ask sports fans. David Ortiz, the Boston Red Sox slugger, made $14 million in 2013, and was among the team’s highest-paid players. He led the Sox to the World Series championship that year and was named Series MVP. The star player with the outsized contract who lives up to the hype, and the salary, can lift all boats.

On the flip side, Samir Nasri, once one In the traditional corporate workplace, of the brightest stars in the Premier League statistical measures of performance are harder soccer universe, has in the past two seasons to come by than in sports (except, perhaps, in become something of a black hole, virtually sales departments or investment firms). Assess- invisible on the pitch while soaking up a ment of potential and talent is more subjec- salary of $350,000 a week (over $12 million tive, which can make a rewards system more per season) for Manchester City. After fraught and harder to defend. Nevertheless, scoring seven goals in 34 league appearances from the locker room (where salaries are figu- in 2012-2014, he scored just three in 31 ap- ratively, and sometimes literally, on steroids) to pearances over the last two seasons before the boardroom, it’s a given that to attract the being sidelined by injury. best talent you have to pay top dollar. In sports there’s no shortage of statistical In major league sports, the compensa- data available to measure a player’s on-field tion gap between top stars and all the rest performance and, therefore, to justify com- can be enormous. But even the minimum pensation differentials. But those statistics salaries are well beyond those of most other should come with a warning: Past perfor- working professionals, and far more than mance is no guarantee of future results. most athletes could ever expect to earn in

TALENT & LEADERSHIP 7 other lines of work. This, said Liz Boardman, senior maximize the potential of the best talent, organiza- client partner in Korn Ferry’s Global Sports Practice, tions must do more than offer top dollar. Whether an may blunt in big-league sports some of the challenges organization is able “to amplify and utilize that talent disproportionate pay for top talent poses in more has to do with how you lead them,” Hill told IdeaCast. traditional workplaces. While compensation is often She said that organizations need to “build a culture the most important reward in other fields, “sports is where there is a sense of community, where people feel a whole different ballgame because most players, at a part of something that’s bigger than themselves, that whatever professional level, are in it for the passion, the is also quite aligned with their own passions and their competition and to win,” said Boardman. own identity.” According to Tom McMullen, U.S. reward When it comes to compensation, however, “the THE LATEST THINKINGTHE LATEST expertise leader for Hay Group, a Korn Ferry company, 800-pound gorilla in the room is how rewarding top as the fight for top global talent intensifies, there are talent affects others,” said McMullen. Fifteen to compelling reasons why organizations should reward 20 percent of employees typically “pull the organization the best people accordingly. through and can be seen as mission critical,” he says. “Compensation-related issues dominate the list “But 80 percent would probably consider themselves to of factors that impact a company’s ability to retain be in that group.” top talent,” added McMullen. “You have to identify it For that reason, most companies that have formal and nurture it. Key employees have to reap rewards programs to reward key talent don’t broadcast their commensurate with their value and with their peers at existence even to the management base. Knowledge of other organizations but with a gentle balance so as not such rewards can be demoralizing or even infuriating to topple the culture for everyone else.” for those not seen as “the chosen,” even if they are still Pay has long been the subject of water cooler gossip. valuable and valued employees. But most employees won’t know exactly what Dick or Another reason for not disclosing such programs, Jane in the next office is earning unless he or she shares even to those benefitting from them, is to keep expecta- that information. Unlike ballplayers, especially stars tions in check and tamp down a sense of entitlement. whose contract details are widely published on the Thus, in many organizations even top talent may sports pages, few companies make individual salaries not know they are part of a formal rewards program. public (with the exception of top executives of public But McMullen argues that this is part of the compensa- companies, whose compensation is often a matter of tion problem. Employees should be made aware that public record). Employees can, however, easily compare they are getting extra benefits; more frequent raises; their compensation to others in similar positions, more restricted stock option grants; more opportuni- inside and outside the company, using websites such as ties to work with C-level executives; and more conver- glassdoor.com, which can sort salary information by sations with HR and senior management about goals position and geography. This puts added pressure on and hopes for their future within the company. Making companies to recognize and reward top talent. top talent feel special is the goal. In that sense, rewards Linda Hill, professor of business administration programs do what has long been done informally, and at Harvard Business School and faculty chair of the naturally, in many companies: Recognize strong per- High Potentials Leadership Program, argues that to formance and incentivize potential.

“15-20 % of employees typically pull the organization through and can be seen as mission critical, but 80% would probably consider themselves to be in that group.” — TOM McMULLEN

8 BRIEFINGS

Despite the risk that a secret rewards program and roughly four in 10 haven’t even defined what key could become public knowledge and cause widespread talent means for their firms,” said McMullen. “That’s disaffection, the need for management to attract and step No. 1.” keep top talent makes it a risk companies have to take, As rewards programs are put in place, he added, according to McMullen. organizations need to be cognizant of how such pro- McMullen believes formalizing the process brings grams can exacerbate or mitigate concerns about pay the discipline needed to retain high-value employees in and opportunity equality in the workplace, especially a competitive market where turnover is costly. “The best with regard to gender and ethnicity. companies were doing this before these programs came Once that’s been done, said McMullen, “you need to into vogue,” he said. “What’s new is the consistency, rigor show your top talent not only the money but also the and formalization of efforts to nurture talent. love in non-financial areas of reward such as quality “Nevertheless, one-third of 600 companies in time spent in discussions about career development two studies we’ve done haven’t identified key talent, and meaningful future roles.” 

TALENT & LEADERSHIP 9 Briefings Q&A Mike Jackson CEO of AutoNation Inc.

The buying and selling of cars at dealer showrooms, one customer at a time, has been around almost as long as the steering wheel. The business of retail automotive franchises has attained sophistication, scale and profitability. As such, it’s attracting attention from entrepreneurs, innovators and investors. Which is why Mike Jackson, CEO of AutoNation Inc., finds himself in the spotlight.

at Mercedes spread. Legendary Sears and Kmart, is another big dealmaker Wayne Huizenga AutoNation shareholder with recruited him to AutoNation whom Jackson frequently consults. Inc. in 1999 to lead a difficult The reason for the interest restructuring. Jackson turned a of billionaires isn’t hard to jumbled collection of disparate understand. Automotive businesses into a focused retailing is evolving rapidly— juggernaut with a market and profitably—from an era capitalization of nearly $7 billion. characterized by high-pressure, Today, as CEO, Jackson, 66, fast-talking salesmen and ew people know as much commands the world’s biggest questionable practices. Today’s about automotive retailing publicly owned dealership chain. consumers are savvier. Modern F as Jackson. He got his AutoNation Inc. operates nearly car dealers, as in other retail start in the 1960s at an old-school 350 franchises coast to coast, businesses, increasingly must car dealership, a Mercedes-Benz selling about 25,000 new vehicles manage a digital technology franchise near Philadelphia— a month with annual revenue of revolution. Prodigious net profit fixing cars rather than selling about $20 billion. still awaits the retailers who them. His storied 40-year career Jackson’s stewardship of can adapt to this change. Under has included ownership of AutoNation cemented his position Jackson’s leadership, AutoNation franchises followed by a stint as as a respected voice representing is investing $100 million to build president and CEO of Mercedes- franchised auto dealers across a digital platform designed to let Benz’s U.S. distribution arm in the the country, as well as a source consumers buy, trade and finance 1990s, where he was responsible of market intelligence for global vehicles online. for all U.S. sales operations and 311 vehicle manufacturers and a guru Jackson was interviewed for franchised Mercedes dealerships. for politicians and regulators. Briefings by Doron Levin, a Detroit- He led a turnaround after the Along the way, his automotive based journalist who specializes in German luxury maker temporarily retailing savvy has attracted automotive industry coverage, and lost its mojo. During his tenure, the likes of Bill Gates, whose Brad Marion, a Chicago-based Korn Mercedes-Benz went from the charitable foundation is a major Ferry senior partner and leader third biggest-largest premium AutoNation shareholder. Eddie of its global automotive sector, at luxury automotive brand to No. 1. Lampert, the billionaire investor AutoNation headquarters in Ft. Word of Jackson’s triumph known for his acquisition of Lauderdale, Fla.

10 BRIEFINGS 21st Century Solutions to Selling Cars

TALENT+LEADERSHIP 11 ONE OF AUTONATION’S NEWEST MERCEDES-BENZ DEALERSHIPS, IN WESLEY CHAPEL, FLA.

Tell us a little more about the Did college lead directly beginning of your career. to an interest in business? I got in the transportation business 55 years ago. I thought I wanted to be a lawyer or work in the One day my father sat me down and said, “You’re a State Department. After buying an old Mercedes Jackson, and if you’re a Jackson, work will define you.” 190 SL, the knock-knock of practicality hit again. I I was 10 years old when he sat me down to tell me didn’t have money for repairs so I got a job as an ap- this. The next week I started as a stable boy mucking prentice mechanic for a Mercedes-Benz dealership. out stalls for a dollar a stall. I fell in love with cars and with Mercedes-Benz. I had a technical aptitude, probably from my father, Where was this? since he was a mechanical engineer. I could fix It was in southern New Jersey, on a farm outside Phila- anything, and there was something about German delphia. One of the things missing in much of America engineering that clicked. today—not that I’m arguing for child labor—is holding jobs at a young age. For me, mucking out stalls was When did you first think you might my first encounter with the concept of productivity. I have leadership characteristics? could bemoan the pile of manure and spend the whole In the Boy Scouts. I think I was 14. I applied to a day saying, “How did I ever end up here?” and earn a wilderness camp for the summer. The day comes to dollar at the end of the day. Or, I could figure out how leave for camp and something was amiss: I’m told I’m to move these horses around and get it done in the too small. I say to my father, in front of everyone, “The most efficient, effective way, and earn $10 in four hours form doesn’t say anything about height. The form instead of a dollar for the entire day. doesn’t say anything about weight. The form says if you’re 14, you can go, and I’m going! I’m not getting It sounds as though horsepower off the bus!” didn’t fascinate you. I was fortunate to attend St. Joseph’s University in You wouldn’t budge? Philadelphia; I was not a particularly good student. Nope. I went to Philmont scout camp in New Mexico But a professor saw something in me. He convinced and we were in the mountains. Lots of drama from me that the degree and grades were not the goal. poisonous snakebites, bears, flash floods; real life-or- He infused me with intellectual curiosity, the belief death situations. I stayed calm. I always intuitively that learning would never end, that my goal was to knew what to do. Everybody listened to me, and we be smarter than the day before. That’s how to live an got out of the predicaments. At the end of the camp, enlightened life. at that big campfire, I got the leadership award.

12 BRIEFINGS Briefings Q&A Mike Jackson

You went from 4´2˝ kid refusing going to sell ’em one at a time, we’re going to fix to be thrown off the bus to the ’em one at a time, and you’d better have an under- leadership award. standing of what’s happening on the showroom Exactly. I also realized that adversity had distinguished floor and the service department. me; adversity was my friend. Leadership is not about age, size, rank or authority. If you can communicate You started out as a technician what you think should be done in a compelling way, fixing cars—and now you’re chief people will follow you. I showed I have that. executive officer of hundreds of dealerships, dealing with multiple Your work at the Mercedes-Benz manufacturers and thousands dealership at an early age obviously of employees. made a strong impression. That experience (as a service technician) uniquely I was 24 in the early 1970s when I joined the qualified me because when I go into a store, I can Mercedes dealership as a highly skilled technical immediately relate. When I walk up to a technician I specialist. I was making $75,000 a year, which was can say, “Oh, I can see the problem here. It’s that little very good money. But I saw greater opportunity out actuator for that flap that you’ve got to take half the there. I went to work for Mercedes U.S. corporate at car apart to get to. Why the hell did they ever build a 90 percent pay cut because I felt I could learn more that?” He instantly says, “Yeah, you know, this is the and grow more. When I was 29, I left the company stupidest thing I ever saw, but this is what it takes!” and bought my first Mercedes dealership. I built that Pretty soon you have a circle of technicians around up into a large group of dealerships, and then I was you. Then you can say: “OK, how’s the work distrib- asked to return to Mercedes at age 39 to lead the uted? Is it fair? You got the tools you need?” Once you turnaround in the U.S. can relate, then you find out what’s going on.

The decision to leave Mercedes- Automakers weren’t convinced a Benz in 1999 and join AutoNation public company should own a lot of meant you were going from a car dealerships. But that controversy very large organization in the has faded. Did you make the case United States, a distributor for that there shouldn’t be limits on the Mercedes-Benz, to the top spot at number of dealerships a public a public company. What were the company could own? leadership skills needed to run a The manufacturers’ concerns in the late 90’s were big subsidiary of a global brand legitimate. It really was unclear how this was going to like Mercedes-Benz? work. AutoNation was a turnaround, and I had been I divide automotive into several categories. Retail, promoted to captain of the Titanic! A beautiful ship which is selling cars one at a time, fixing cars one at that hit an iceberg. a time, plus the skills it takes to deal with retail. Then you go to the (Mercedes) fac- tory and it’s very strategic, very analytical. INAUGURAL AUTONATION CURE BOWL IN ORLANDO, FLA. You’re making billion-dollar decisions that you have to have thought through back- wards and forwards a hundred times.

How did this transfer to AutoNation? My career was perfect training for AutoNation because the job is big, it has scale. You have to know how to lead something large that requires strategic, analytical thinking. But we’re in vehicle retailing. We run car dealerships. We’re

TALENT+LEADERSHIP 13 Briefings Q&A Mike Jackson

What was the toughest call? Closing the (used car, no-haggle) megastores. I joined “Most the company in October, and between Thanksgiving and Christmas we closed 2,500 megastores. It was a executives are tough conversation with Wayne because it was his baby, and his attitude was, “Mike, I brought you in pathological here to turn this around because we can’t go on like we are.” I agreed and said, “We’re going to close ’em about growth. because there was no fixing them!” Otherwise, it was There’s good going to take the company down. So public companies owning growth and numerous franchises then became more valid to automakers? there’s bad. Yes, because we narrowed the focus to auto retail. We were going to be the best in the world at auto retail. We had to Everything else needed to go off and do its thing. go backward The brand is AutoNation. If I’m really interested in buying a Chevy before we Cruze, I’m going to go look for a Chevy dealer. I don’t necessarily went forward.” think I’m going to go look for an AutoNation dealer. How do you lead the retail customer to think AutoNation when looking for a car? Our brand position is “whatever you want, we’ve got it.” If you live or work in a market where AutoNation is, you What was the fundamental issue cannot make an intelligent decision without consid- necessitating a turnaround, and ering us. We have the positioning of the biggest. That what was the fix? says to consumers “if we’re the biggest, we probably Our founder is the legendary entrepreneur Wayne have attractive pricing and the best selection.” That’s Huizenga, still my best friend. Coming to AutoNa- natural in retail. We are on our way to having all brands tion was going to be magic or tragic with Wayne. in all markets. Whatever you want, there’s AutoNation. He is an extraordinary founder of companies and a serial acquirer. How you make it work is not his skill That’s the starting point—how has set. He’s more like, “You just buy everything, tell the brand further separated itself everybody to keep doing what they’re doing, and we’ll from other dealerships? be fine.” He put together everything from car dealer- We go beyond and say if you want a transactional ships to National Rental Car to Alamo Rental Car to digital experience, we’re the only ones who can give a garbage company. We had sign companies, we had that to you. If you want a company that cares deeply toilet rentals, we had everything. about issues and making a difference on issues, like “Drive Pink,” (support of breast cancer research) we’re Did Huizenga give you latitude to your company. We’re a company that puts your safety make strategic decisions? first by resolving all open recalls, even if it creates all I said, “We’re going to have to make some tough kinds of problems and complications for us, that’s calls.” He promised to back me a thousand percent. our problem, but we will not sell you a car with open We tackled the issues, one at a time, spinning out Re- recalls. We fix every open recall before we present it public (waste disposal) and the rental car companies. to consumers or even put it back in inventory.

14 BRIEFINGS 2017 ACURA NSX

2016 BMW MINI COOPER CLUBMAN

2016 MERCEDES-BENZ G-CLASS SUV

You say that Wayne Huizenga is one of your key mentors. I learned so much from Wayne. Back in the early days I had a particularly complicated issue that I really couldn’t figure out. I start laying it out, and You’ve essentially created he gives me a point of view that’s insightful. I begin a small management board. to gravitate to his position and agree. Just about the It’s very rare that four people will all agree to do time I think we’ve found a common ground, Wayne something stupid. The quality of the decision is does a 180 and starts arguing from the other direc- much higher. Everyone has classic buy-in. tion. I call these 360s, because Wayne argues it from every direction. In the end, I am a hundred times Did you have other mentors? more confused. “OK, I really came here to find out First, was my father. Next was my professor in col- what you would do, and you haven’t told me!” He goes, lege. When I started as an apprentice technician, “Mike, that’s too easy! You’re the CEO. You make the the most senior technician was a curmudgeon decision.” I think for a minute. “Wayne, what if I get Hungarian who wouldn’t speak to anyone. Somehow, it wrong?” He says, “Well, then you’re screwed.” he adopted me and transferred a lifetime of technical expertise in several months. Then my partners in What have you borrowed the dealership who were Europeans based out of from Huizenga? Vienna. This was the height of the Cold War. They My management style is participatory. The had friends and business trapped behind the Iron company’s run by four executives, of which I’m Curtain. I would go behind the Iron Curtain with one. We meet right here at this table at least once, them. They broadened my worldview. (Daimler AG sometimes two, three times a week. My responsibility chief executive officer) Dieter Zetsche was a fantastic is the quality of the discussion, to see it from every mentor. His line that stuck with me: “Take the risk, direction, to ensure we have everything to make a then manage the risk.” Put the goal post out there. decision. The biggest benefit of this style is that you That’s step one, then you’ve got to manage from minimize mistakes, which is not a bad thing. where you are.

TALENT+LEADERSHIP 15 Briefings Q&A Mike Jackson

How about current influences? Few stereotypes are as persistent I have a large shareholder, Eddie Lampert, who’s been as that of the fast-talking car with me 15 years. Today he owns 16 percent of the salesman who relies on slippery company. He gave me a Ph.D. in capital allocation. We tactics. How have you addressed have another large shareholder, Michael Larson (who automotive retailing’s poor manages assets for the Bill and Melinda Gates Foun- reputation? dation), who represents 15 percent of the company. He This is a culture question. When I arrived and had a taught me very much how to think long-term, which vision for what we’d be, I concluded there were 350 taught me discipline and patience. He encouraged me key positions in the company that would determine to make bold decisions that would be controversial success or failure. I had a clear view of the character- in the near term. I don’t have to worry about activists istics of leadership and talent for those positions and because nobody’s going to take on those two! did an assessment of the people in them. It took two years. Ten percent met the criteria, 30 percent might You talked about adversity being someday fit the criteria, and 60 percent absolutely your friend. What did you learn did not. A big chunk of that 60 percent were our from the extraordinary adversity top producers. This is the moment of truth when of 2008 and 2009? culture becomes just a poster on the wall or how the We were prepared in 2008, which was the big one. In company really performs. Most leaders blink at that my first year at AutoNation, the industry was run- moment and say “I’m not firing 180 people.” ning at (new vehicle sales of) 17 million. I had a planning meeting then where I said we have to prepare for What did you do? the day this industry sells 10 million vehicles. We fired 15 percent per year and still functioned as a company. We would ask 15 percent to leave, and we Your management team must have would recruit and attract new people who fit our pro- thought you delusional. file. The next year we did it again. We had a cultural I insisted that we have a plan. We ran it, we built the war between the believers and the non-believers over model, and there were consequential decisions that who was going to win. I’m sure there was a betting we took in 2001 to 2004 as a result. We said if sales pool whether I would make it. It took five years. fall to 10 million, there will be big problems. When the moment arrived, I said, “This is an exceptional Does reinforcing your cultural opportunity. We will come out of this bigger and values require constant firings stronger relative to the competition.” The hardest and upheaval? thing to do in business is to open gaps from the com- Once it’s clear you’re going to win the cultural war, the petition. The goal during the downturn—and I didn’t old guard self-selects out. People who fit the old guard know how long it would last— was to dramatically profile don’t apply anymore. The type of talent that outperform the competition. It worked. Our profit- you’re looking for, that you value, all want to work for ability, our results were greater than all the other you. A major disadvantage, a major disruptor, becomes publicly traded groups combined. an advantage. I can sit here today and say 90 percent of the company fits our profile. The other 8 percent Did your management we’re working on; they’re in development programs. style have to adapt? And a very minor 1 or 2 percent, I don’t have to find. Most executives are pathological about growth. There’s They know they don’t belong, and they leave. good growth and there’s bad. We had to go backward before we went forward. Besides the companies we Can you explain the characteristics benched, there were structural issues within the auto you were seeking to define retail part of AutoNation that had to be resolved. That AutoNation’s culture? meant slower growth. For people who are hardwired For starters, automotive entrepreneurial talent; it’s for growth, it was very difficult. I needed shareholders one of those things you either have or you don’t. If who understood, and they’ve been rewarded. They God hasn’t given this to you, Mike Jackson’s not going came in at $10, the stock is now $65; and we’re not done. to be able to instill it. Step two: We’re in it for the

16 BRIEFINGS “Leadership is not about age, size, rank or authority. If you can communicate what you think should be done in a compelling way, people will follow you.”

long haul, so I’m looking for high ethical standards. In auto retail, that’s not where everybody’s at. It’s a little bit like the Wild West. As long as the numbers are coming in, don’t tell me too much as to how you got there. We are a knowledge transfer company. We benchmark best practices to define ideal processes and technology. I need people who understand if you put in place a process that yields 10 basis points year in and year out, it’s worth doing.

Do the previous characteristics sum up the ideal AutoNation employee? Not entirely. I want people who want to be part of something big and transformational that’s changing the business. They must like a collaborative environment. They have to be passionate about the business. They have to love this business, because retail is too demanding on time and energy. You can’t force yourself to be the best at it unless you just love it.

You’re a year beyond the normal retirement age in many public companies. What are your thoughts on the future? We have to execute an ambitious agenda that’s ex- citing, ambitious and transformational. We’ll make history if we do it. That’s in front of me. I have supportive shareholders. I have an outstanding senior management team. As long as I have my health and it’s this much fun with this ambitious agenda, I’ll do it. I may have a five-year contract, but in my mind I’ve got to earn it every day. 

TALENT+LEADERSHIP 17 Getting the Right Measure on CEO Comp Google “how much are CEOs paid?” you will get about 6.3 million results. Clearly somebody has been giving this question some thought. But perhaps a better question Iwould f be,you “compared with what?” The press, and some politicians, tend to compare the compensation of corporate chief executives with the pay received by the average worker. Corporate boards and compensation committees typically benchmark “peer group” pay; they compare their CEO’s package with that offered to his or her peers at competing companies. These are easy comparisons to make, and depending on your point of view, satisfying ones as well, but neither provides a meaningful guide to setting CEO pay in a way that is equitable, credible and fair. CEO pay gets a lot of attention because of the truly enormous packages awarded to some company leaders. Oracle Corporation paid Larry Ellison, who vacated the chief executive post in 2014, $67.3 million for his final full year in the job. Keep in mind that nearly all of Ellison’s compensation consisted of stock options; for the fiscal year 2014, his salary remained $1. But Oracle has done well, and so has Larry Ellison, as his purchase of a Hawaiian island and sponsoring of the most costly America’s Cup campaign in history attest.

BY IRVING (IRV) S. BECKER + LAWRENCE M. FISHER

18 Percent change in CEO compensation, stock prices and typical worker compensation. Getting the Right Measure on CEO Comp I f you

19 SOURCE: ECONOMIC POLICY INSTITUTE 2014 [ Getting the Right Measure on CEO Comp ]

irksome are big pay packages for the chief executives of companies that underperform. Marissa Mayer of Yahoo is the highest-paid female CEO at $42.1 million, but the company has continued its decline since she came on board in 2012. Forbes magazine described Ms. Mayer’s tenure as “A Case Study in Poor Leadership.” MoreSo how does the Yahoo board justify $42.1 million? And while such huge packages are unusual, compensation of CEOs has continued to grow across all indices. According to Equilar, median 2014 compensation in the S&P 500 was $10.3 million, up 2 percent year over year. Median pay in the S&P 1500 increased 7.8 percent in 2014, reaching $5.3 million. When The Wall Street Journal reports that the pay of top CEOs is 373 times that of the average worker’s salary, it gets attention.

the problem with huge difference in CEO pay among according to the relative size and comparing CEO companies, regardless of their loca- impact of their roles. pay with that of the average or tions, if they compete in interna- The board must determine the Butmedian employee is that the ratio tional markets,” Matos wrote. goals it has for the CEO and how it can be distorted by many factors. A Benchmarking CEO pay against will measure and reward that person multibillion-dollar global corpora- peers is problematic. It assumes for achieving those objectives and tion may have many employees in that CEO pay must be competitive milestones. It must also factor in developing countries who are paid or the chief executive will depart any challenges associated with the a competitive wage for that envi- for another company, but research role and evaluate the differences and ronment, yet very little in absolute shows that CEOs rarely do this. A expectations of the CEO relative to terms, driving down the average. better comparison would be against the market, such as needing to turn The CEO of that company makes the CEO’s direct reports, who are around a struggling business. Map- decisions that can have nine-figure often paid far less, and who are ping these answers against the CEO consequences, dwarfing the size often poached by competitors job requirements and expectations of even the most generous pay offering fatter pay packages. Is the will foster a holistic view of pay that package. Nevertheless, the Securi- chief executive’s contribution to the is both fair and effective. ties and Exchange Commission bottom line twice that of the chief Boards must also look inward issued rules last August requiring operating officer? Four times? Ten? to evaluate CEO pay. Consider the most public companies to regularly These are questions board members CEO’s experience, skill set, leader- report the ratio of the chief ex- should ask. ship style, motivators and appetite ecutive’s pay to that of the median Boards are under pressure to for risk. Will the chief executive employee, beginning in 2018. make informed CEO pay deci- thrive on a low-base salary, with Do CEO’s make much more in sions that are seen as “fair” by an high potential payouts from incen- the United States than elsewhere? expanding pool of stakeholders— tives, or would a more balanced pay The A.F.L.-C.I.O., the federation from investors and employees to program be more compelling? His or of trade unions, says they do. But the CEO and affected communities her pay should reflect the company’s a 2013 study by Pedro Matos, an and the general public. Korn Ferry overall compensation philosophy associate professor of business Hay Group recommends that board and corporate culture. Also consider administration at the University members go beyond benchmarking, succession planning; are CEO suc- of Virginia’s Darden School of and instead use multiple lenses to cessors standing in the wings? In- Business, says that once you control evaluate compensation via a more ternal candidates will generally not for firm size, ownership structure complex and rigorous assessment of require a marketplace premium to and the greater use of equity-based both internal and external factors. assume the role for which they have awards in the United States, the The goal is to establish “internal been groomed, and they also reduce world of CEO pay is essentially flat. equity,” or the perception that the risks associated with bringing “Our study finds that there is no the organization is paying people on a leader from outside.

20 I wonder if our options are the same?

Peer grouping

often justify paying their always pay the median and more. It’s based on the CEO an immense com- assumption that CEO talent is transferable, and it’s not. pensation package through competitive benchmarking, It’s much more homegrown. We discovered that it’s quite Bin which o compensation a r d levels s are generally targeted to the rare that CEOs move between peer companies.” 50th, 75th or even 90th percentile, referenced to the pay Thus “the process of peer-group benchmarking creates of the executives at other enterprises in similar industries a model of a competitive market for executives where and of similar size and complexity. As noted, the assump- it otherwise does not exist,” Elson and Ferrere wrote in tion is that the executive can easily depart for a similar their paper, “Executive Superstars, Peer Groups and Over- position. But a much-cited paper by Charles M. Elson and compensation: Cause, Effect and Solution.” “Instead, the Craig K. Ferrere, both professors with the John L. Wein- independent and shareholder-conscious compensation berg Center for Corporate Governance at the University of committee must develop internally consistent standards Delaware, argues that this notion is simply not true. of pay based on the individual nature of the organization CEO pay is “out of whack because it’s based on peer- concerned, its particular competitive environment and its group pay,” Elson said in an interview. “Benchmarking internal dynamics.” This won’t be easy, they concede, but against other CEOs is problematic. Their pay is com- the shareholder value movement has empowered directors

GETTY IMAGES pared to somebody in another organization, and boards to do the right thing as never before.

21 “Compensation has to be related to the productivity may be necessary to compensate CEOs for the increased that the executive provides the company; pay for per- risk associated with their growing level of equity-based formance is critical,” Elson said. “Secondly, I think their incentives. Third, conventional, unindexed stock and op- pay package needs to be created in the context of how tions may provide an optimal solution to two conflicting others in the organization are paid. You need neutral demands: shareholders’ insistence on tying executive metrics, designed by boards that have long-term inter- rewards to company performance and executives’ prefer- ests in the health of the company themselves, because ence to diversify their wealth. CEO equity ownership in anything can be gamed. That’s why I’m a big believer in the United States remains high. restricted stock,” he said. “Let the market itself figure “If I was trying to monitor exec compensation I would out the value you’ve created.” focus on the equity part,” Guay said. “If a CEO gets 10 percent too much salary, that’s small potatoes compared with a CEO who doesn’t have proper incentives. Pay for performance to my mind is about giving execu- Pay for performance tives incentives to look after shareholders’ interests. It’s bout 10 years ago, Wayne Guay of the University often mischaracterized as about the fairness of the CEO’s of Pennsylvania’s Wharton School co-authored pay, but it’s really not about that. Many now hold many a paper with John Core of the MIT Sloan School of millions of dollars in stock, and that is what I would AManagement and Randall Thomas of Vanderbilt with monitor. Is that a significant chunk of their wealth? If I’ve the succinct title: “Is U.S. CEO Compensation Broken?” got a CEO with a net worth of $100 million, making them Their answer was surprising to some. hold $10 million in company stock might not be enough; “Certainly the takeaway from that paper, is it broken, for a net worth of $12 million, it’s probably plenty.” was more or less no, in contrast with popular concep- tions,” Guay said in an interview. “That was one of the reasons we wrote that paper, to debunk the common criticisms. A lot of the things people go on and on “Say on pay” politics about are not the ones I’m concerned about.” nder the Dodd-Frank Wall Street Reform The article, published in the Journal of Applied Cor- and Consumer Protection Act, shareholders porate Finance, concluded that most, if not all, concerns have had a “say on pay,” or the right to vote on are exaggerated by the popular tendency to focus on the the compensation of CEO and other “named executive annual income of CEO’s, consisting of salary, bonus and officers,” beginning with the first annual shareholders’ stock and option grants, while ignoring their existing Umeeting taking place on or after January 21, 2011. Pay has

holdings of company equity. not gone down. IMAGESGETTY Guay said the pay-for-performance relationship is “The problem with CEO pay is it’s a political football,” strong and has grown in recent years. said Kevin Murphy, a professor at the University of A second conclusion, closely related, is that what may Southern California’s Marshall School of Business. “Since appear as above-normal growth in annual pay levels Dodd-Frank, we’ve had say on pay and most of these pay

2010 The Growing Emphasis on Performance in 2011 CEO Compensation 2012

2013

2014 0% 20% 40% 60% 80% 100%

Salary Bonus/ Stock Restricted Performance annual options stock awards salaries

SOURCE: THE WALL STREET JOURNAL/HAY GROUP 2014 CEO COMPENSATION STUDY, BASED ON A SAMPLE OF 300 LARGE COMPANIES [ Getting the Right Measure on CEO Comp ]

packages are passing with overwhelming shareholder “We use some quantitative methodologies to identify approval, at the same time the headlines are saying CEOs what we consider pay-for-performance outliers,” Bowie are being paid too much. The politics of CEO approval said. An especially large award, such as one of 2 million are laser-focused on pay, and inequality, but shareholders stock options, she said, is known as a mega-grant. “By are focused on whether CEOs are incented to create value. anyone’s measure,” she added, “this was an exceptional That tension has, if anything, gotten worse.” award. In the case of G.E., the board came back and In a chapter he contributed to the “Handbook of the modified those option grants. They did what we felt Economics of Finance,” Murphy wrote that government investors deserved.” intervention has been both a response to and a major Not everyone agrees. “What is lost in this conversa- driver of trends in executive compensation over the past tion is that stock options have a built-in performance century, and that any explanation for pay that ignores basis, because only if you raise the share price are they political factors is critically incomplete. In an interview, worth anything,” said V.G. Narayanan, a professor at the he put the case more bluntly: “If you asked me how to fix Harvard Business School. “By and large, ISS gets many compensation, the best thing to do is get rid of all regula- things right, but this isn’t one of them.” tions and start from scratch. So many of the problems we Bowie said share prices often go up for reasons that do see are the result of prior attempts to regulate pay.” not reflect long-term performance, and that large option Murphy is at his most scathing describing the role of grants increase the pressure on CEOs to take short-term proxy advisory firms, which are hired by shareholders actions that may be harmful. “There’s a lot of risk with of public companies (usually an institutional investor of these extreme rewards,” she said. “They could incentivize some type) to recommend proxy statement votes to the the wrong behavior. We see that over and over again. There shareholders. Government regulations have increased are so many variables. Giving someone these extreme the reliance on such firms, the most prominent of which rewards can raise the risk that they will do something with are Institutional Shareholder Services Inc., known as ISS, catastrophic consequences for the company. The other and Glass, Lewis & Company. risk is that shareholders are simply overpaying.” “One of the culprits here is everyone hates ISS and Glass Lewis, who have played this increasingly controversial role,” Murphy said. “They’ve got this business model where on the one hand they are providing Paying enough, recommendations to people holding proxies and on the but not too much other are providing advice to companies looking to get oards should also keep in mind the law of un- good recommendations. There’s this inherent conflict intended consequences when setting CEO pay. of interest and they can talk about Chinese walls and no Consider this article, in the Harvard Business one believes them.” Review, “Executive Compensation: The More Leaders Make, the Meaner They Get.” Mean CEOs tend to push Btheir employees into the state psychologists call “frazzle,” Balancing act and frazzled employees are less productive. surprisingly, Carol Bowie, ISS’s head of Outsize CEO pay is also a major contributing factor Americas Research, takes exception to the to the income inequality roiling society. Thomas Piketty suggestion that the firm is conflicted. “There is a unit of of the Paris School of Economics, author of the surprise NotISS that does supply advisory services,” she said. “We have best seller “Capital in the Twenty-First Century,” shows a very thick firewall between that business and my part, that two-thirds of the increase in American income in- which is supplying research to institutional investors. What equality over the last four decades can be attributed to a they are trying to do is educate companies that feel they steep rise in wages among the highest earners in society. will benefit from that sort of advice. My guess is they’re not This, of course, means people like CEOs. “The system is advising companies on the specifics of their program.” pretty much out of control in many ways,” Piketty told ISS is powerful. When the firm recommended a The New York Times. “no” vote on Jeffrey Immelt’s award of 2 million stock Those with outsize income also include the singer options in April 2011, G.E.’s compensation committee Taylor Swift, who earned $80 million in 2015, consider- amended its chief executive’s pay package accordingly. ably more than G.E.’s Immelt, according to Forbes’s The company had shifted his compensation from annual list. But entertainers and sports stars are less so-called performance shares, which are granted subject to scrutiny than the leaders of publicly held com- contingent upon achievement of previously defined panies. There’s a reason for that. When you shell out big performance objectives over a multiyear period, to bucks for Taylor Swift tickets, the pay-for-performance stock options, which simply vest over time. equation is pretty clear. 

23 BY KAREN KANE

ILLUSTRATIONS BY HEATHER LANDIS

NCOME INEQUALITY IS NOT NEW, nor limited to the United States or modern Western democracies. In fact, inequality has been growing steadily and globally over the past 30 years. In a January 2016 study, Oxfam reported that the world’s 62 richest billionaires own as much wealth as half of the world’s entire population, or 3. 5 billion people. The trend path appears to be set: Whether recession or boom times, inequality continues to grow. Digitization and globalization are reshaping the market economy, advantaging some and leaving others behind.

Nor is it the first time that innova- has observed: “Digital technologies tion has rocked our world. While this change rapidly, but organizations and revolution is digital, it was the elec- skills aren’t keeping pace. As a result, trification of homes and the internal millions of people are being left behind.” combustion engine that prompted The latest research from global man- John Maynard Keynes in the 1930’s to agement consulting firm Hay Group, a predict that such innovation would lead Korn Ferry company, reveals that since to an increase in material prosperity 2008 the pay gap between lower-level but also to widespread “technological employees and senior managers has wid- unemployment.” ened in every region across the world. The digital era that has brought us Indeed, that gap between lower- the Internet of Things, big data, cloud level workers (who fill skilled manual, computing and the ubiquity of mobile clerical, supervisory and graduate-entry devices is upending and transforming jobs) and senior managers (heads of the way we do business, with the po- departments or equivalent) is now on tential for eliminating employment for the rise in twice as many countries as it many workers. is falling (42 to 21). New labor markets have opened Hay Group’s Nick Boulter, global because of globalization. At the same head of reward services, can speak with time, the world economy continues to authority about the megatrends that are adjust to the accelerating technology shaping income inequality, based on the that causes jobs to disappear. firm’s huge database of salaries from tens As Erik Brynjolfsson, director of the of thousands of companies worldwide, MIT Initiative on the Digital Economy, compiled over a 30-year period.

26 The December 2015 Pew Research study concluded that the middle class is now only 50% of the U.S. adult population, down from 61% in 1971.

27 The United States The average has posted a cumulative increase in the pay gap by country has been only 10.6 % increase in senior manager pay compared 2.2% with lower-level employees in Europe since 2008. since 2008.

“The strong economic forces of globalization “The entry of all the Chinese and Indians into and digitization continue to drive inequality,” said the global labor market is part of the globalization Boulter. While technology has eliminated many story,” added Holtz-Eakin, the former director of the mid-level jobs, pay is going up for senior managers Congressional Budget Office and now president of because skills such as emotional intelligence, creative the American Action Forum, a Washington-based thinking and advanced judgment are in high demand policy institute. and short supply. Not surprisingly, the rhetoric and emotion over pay In addition, senior managers are increasingly inequality is reaching a fever pitch in a presidential being asked to take on more responsibilities and in- election year, reviving talk about the 99 versus the 1 creasingly complex work. Simultaneously, those who percent. “Wages are rising proportionately faster for have not improved their skills find themselves adrift jobs that are at a higher level and for those with high in a growing global market of unskilled workers, know-how requirements,” said Hay Group’s Boulter. which ensures the continuation of low wages. He contends that a society can have less inequality Douglas Holtz-Eakin, an economist, concurs. and fewer jobs or more inequality and more jobs. “Beginning in the early 80’s and continuing through Europe is a case in point, with the smallest regional the mid-90’s, we saw that the earnings distribution change globally. That is, the average cumulative was beginning to widen in the labor market—the increase in the pay gap by country has been only bottom fell in real terms and the top rose,” he noted. 2.2 percent in Europe since 2008. It is also the region “Then, in the mid-90’s, the bottom stopped falling with the greatest number of countries that have expe- and stabilized but the top continued to rise. That’s a rienced a decrease in the gap during that period, with well-established pattern. It happened not just in the Switzerland, France and Poland recording declines of U.S., but around the world. 3.3 percent, 5.6 percent and 12.8 percent, respectively.

2 8 N SPITE OF THE reduces the number of jobs available and increases headlines and current political competition for those left, keeping pay down. debates, the United States sits at “In the late 80’s, we saw the rise of information the midpoint of countries that technologies that make middle management roles ob- are experiencing a rise in the pay solete,” said Holtz-Eakin. “The sole purpose of these gap. North America has posted a middle managers was to take retail reports, write 7.2 percent increase in senior memos for the [senior] managers and pass them up manager pay compared with the line.” At the time, this was information transmis- lower-level employees since 2008. The United States sion—but now we live in an age of big data. alone has seen a 10.6 percent increase. “Once the executive was able to connect directly Hay Group also points to the type of business and with the information, you didn’t need those memo size of a company to explain the disparity between writers and paper shufflers,” he said. “They’ve been the salary of the CEO and the average worker. For gone for a long time and that’s a very real and pow- example, manufacturers and retailers that employ erful phenomenon.” many people at lower wages will have a higher dis- New technologies—mobile devices, cloud com- parity than a company of professionals that has fewer puting and the “app economy”—have created a pro- people, such as a consulting or law firm. ductivity revolution. Employers with access to data Economists agree that following the Great Reces- analysis can anticipate business needs and schedule sion and a record drop in labor participation, the U.S. employees with precision. Entrepreneurial compa- employment market is still distressed. Lower-level nies divide what otherwise might be full-time jobs jobs are increasingly automated and off-shored. This into discrete tasks that can be farmed out.

29 In the global economy, returns come from skills and education. HE widening gap in income “What’s required of all workers is an attitude of also reflects an education gap. continuous learning,” said Boulter. “Many of our cli- “Success in our age is depen- ents have found that they need to put a much greater dent on working with tech- emphasis on training and development.” nology,” said Boulter. “Today, And it shouldn’t stop there, he said. “Companies you need a higher degree of need to do a better job speaking openly about the emotional intelligence to succeed. People worked in skills they need and expect to need in the future. At functions and in silos 20 and 30 years ago. Today, you the same time, companies should be engaged in stra- have to work in teams and across functions.” tegic workforce planning and subsequent training.” U.S. schools are not keeping pace. “Our school Adding to the debate is a recent report that the systems are failing,” according to Holtz-Eakin. “We have middle class no longer constitutes the majority of far too many Americans who are not learning in the K-12 the U.S. population. The December 2015 study, system. Many of them have to do remedial work if they conducted by the Pew Research Center and based go to college. Some do not finish college. We have lots of on an analysis of government data, concluded that problems there. We need to do much, much better.” the middle class is now only 50 percent of the U.S. While technology has eliminated many mid-level jobs, pay is going up for senior managers because skills such as emotional intelligence, creative thinking and advanced judgment are in high demand and short supply.

adult population, down from 61 percent in 1971. ness, or our tradition of starting one’s own business.” In one sense, the shift represents economic prog- Yet the cliché remains: The rich get richer and the ress. While the share of U.S. adults living in both poor get poorer. upper- and lower-income households rose from 1971 However, an extensive study by researchers at to 2015, as the middle class share declined, the share Harvard University found that economic mobility in the upper-income tier grew at a faster pace. has not changed in the past 50 years—there has been Put another way, the middle class may be no real difference in the ability of people to go from shrinking, but it’s not just because people are falling the bottom 20 percent to the middle, and from the into poverty. Some are getting richer. middle to the top. Yet income doesn’t tell the full story. The pro- “My takeaway from the Harvard study is that we gressive American system, including government have more rich people,” said Holtz-Eakin. “And we transfers net of taxes paid, has mitigated some of the have the same chance for someone to become a rich rising inequality, according to Holtz-Eakin. “And person. So what’s the problem?” if you look even further at measures of how people As for the future, some experts say, it doesn’t live—measures of consumption such as their rent, matter who wins the upcoming presidential election. their purchase of such things as cell phones, TV’s, “By 2020, we will have to have begun and, by the that is, anything that is a consumable—you get very end of the second term of whoever is elected, we will little change.” have to have finished, a serious restructuring of some The closer you look at actual lifestyles and living of our federal policies,” said Holtz-Eakin. “Out of standards, the less there has been a dramatic change necessity, whoever is elected is going to have to look in inequality in the United States, said Holtz-Eakin. at the social safety net and figure out what we’re While there is much hand-wringing over the going to do about Medicare and Medicaid and the Af- shrinkage of the middle class, the U.S. economy, and fordable Care Act and Social Security to put them on the American worker, have always proven themselves a sustainable trajectory.” adaptable to innovation and new technology. At one That review of the safety net is inevitable, he said, time, 95 percent of workers were farmers; today, that because there will no longer be an option “to not look share is just 1.5 percent. As Holtz-Eakin points out, at it. And, in the process, we can endeavor to make everyone learned to do something else and earn a the entire social safety net much more pro work.” higher standard of living in the process. The dividing line between poverty and “not pov- Nor does Holtz-Eakin think the gig economy—the erty” in the United States is work, he added. “We have Ubers and Lyfts and TaskRabbits—presents a threat. to support work and address poverty. “The vast majority of employment is still either tradi- “That’s the agenda for the next president, whether tional employment with a big company or small busi- they know it or not.” 

BY CHRIS HODENFIELD

ILLUSTRATIONS BY NIKLAS ASKER

33 33 he multinational pharmaceutical company was pros- pering, but something was clearly amiss. While the leaders considered their workforce a highly engaged team, the job-satisfaction surveys painted another pic- ture. The employees’ comments echoed with laments about stresses and strains. What was going on here?

When Korn Ferry’s Hay Group 200 people who would tell you they division did a deep dive into em- could be contributing at a higher level ployee attitude at the company, they if problems in their work environ- found a startling clash of emotions. ment could be resolved.” On one hand, workers admired The frustration is not limited to the business (“Best company I ever the back office or shop floor. “If you worked for!” “The sky’s the limit!”) think about a team of five people But then came the revelations: sitting around a conference table,” “Why does everything have to go Royal said, “at least one of those through 12 people?” “Why is our people is in that position.” parent company so involved in our Twenty-five years ago, when Jack operation and slowing us down?” Welch’s Vitality Curve, his famed “Why are we ‘managing around’ and rank-based employee evaluation not dealing directly with perfor- scale, held sway, the assumption mance problems?” was that the top 20 percent of the The overarching challenge is one workforce was the most productive, that continues to plague legions of the next 70 percent was adequate executives: what to do about the and the disgruntled bottom 10 per- disengaged worker. Recent studies cent should be fired. But studies by have shown that an estimated 15 MIT and others showed that such a to 20 percent of people across the rigid application of rank-and-yank workforce feel frustrated. dynamics has its costs. That’s a lot, said Mark Royal, a With millennials rapidly moving Hay Group senior principal. “If you’re into the workforce, the message has talking about a 1,000-employee orga- become clear: Find out what’s ailing nization, that is equivalent to 150 to your employees.

34 “Being invisible is one of the hardest things for people in big organizations. People like to be seen, they like to be recognized.”

34 One need only look at the get a better decision than when two shifting fortunes of General of them are telling everyone else Motors, one of the world’s largest what we’re going to do.” corporations. For most of the past “She really focuses on ‘Your 40 years, GM has been a perennial problem is my problem,’ ” added John punching bag in the business media. Quattrone, GM’s senior vice presi- Its bloated inefficiencies and obtuse dent of human resources (a position management reflected a company once held by Barra). “In the old GM that had lost its way. days it was ‘Do your job well and to In 2009, when GM filed for hell with the next guy.’ ” Chapter 11 in the wake of the recession, the government stepped n Old GM: Rigid dress code, strict in with a bailout and essentially hierarchy protocols. Take a sug- swept out the executive chambers. gestion to your boss and know Two years ago, the new GM found that he’ll lose the memo before itself with a new and unlikely CEO, he sees his boss. Mary Barra, a GM lifer who knew n New GM: No dress code, leave firsthand how the old top-down your ego at the door, behave management style had served to likes it’s an entrepreneurial com- quash all the talent at the middle pany, walk into anyone’s office levels. She gathered the top execu- with a suggestion. And listen. tives and insisted on an atmosphere of openness and responsibility. She “The biggest change with Mary made a point of listening. is that she zooms in and gets her “And guess what?” said Alan leaders to concentrate on their Batey, GM’s North America behaviors,” Quattrone said. “Be president. “When you get 10 people accountable for your behavior. En- around a table actively engaged, you courage candor. Don’t hide things. If things go bad, bring it up.” Such good behavior, she believes, will push down through the next eight or nine layers of management. In a voluntary group called GM 20/20, employees are given free rein to reimagine the way work is done. “We give them permission to posi- tively disrupt the business,” Quat- trone said. The payoff, he added, is reflected in the company’s return to solvency. “Those behaviors are driving those results.” trust. “Don’t spin,” she said. “Tell the truth. If not, you will spend an incred- ible amount of time unspinning, and The Best Rewards that’s the death of speed.” According to Hay Group research, frustrated employees tend to take one of three paths. Some employees, Royal found, are actually When an employee feels vironment. So I tell my people, ‘You able to work things out with their abandoned, he or she often stops have to be able to remake yourselves. managers. But the other two actions producing. What you did yesterday is no longer likely to be taken are not so ben- “Being invisible is one of the a valuable skill.’ The trainers and the eficial for the company. One group hardest things for people in big or- employees should be free to push simply gives up trying. The others ganizations,” said Iris Goldfein, chief each other to new heights. walk out the door within 12 to 24 people officer at Sutherland Global “They learn something on months. These workers are not only Services. “People like to be seen, they Monday, they go to bed and wake taking some hefty intellectual cap- like to be recognized.” up a new person on Tuesday,” ital with them, Royal pointed out, The important thing, said Gold- she added. “That’s my advice for but they had a lot of time to spread a fein, is to recognize that it takes people coming up: Be incredibly noxious airing of their grievances in more than just a Starbucks gift card open to learning to be agile in this an organization’s hallways. to enrich the hearts of your people. environment.” Even if your employee turnover “People make the mistake that Although last year Sutherland rate is nowhere near Walmart’s engagement is all about parties and Global was named to the Achievers list annual 44 percent churn (or, seven contests and having a pizza brought of Top 50 Most Engaged Workforces, times the rate of Costco), it is well in to celebrate a good win,” she said. this was not always the case, Goldfein worth identifying those unseen “They try things, like the engage- admitted. What brought about the obstructions to a fully engaged and ment du jour. But nobody says ‘I’m change was more consistent mes- enabled workforce. going to stay working for you saging to its people. The way to build First, it is critical to recognize because you have the best Hal- a successful company today, she said, that the frustrated workers are not loween parties.’ ” is not ramping up the speed but es- necessarily malcontents. They might The critical issue is to connect tablishing an atmosphere of truth and well be highly motivated people who engagement with the strategy of the business. “To have a truly engaged individual, first they have to connect with their work. They understand the context, their impact, what their role is “Minimize the and why it’s important. People need to understand their place in the whole.” Thus at Sutherland, the strategy is barriers that stand to free up the first line of supervisors so that they can spend 80 percent of in the way. Get rid their time with the people they lead, coaching them to do their jobs better. of unnecessary Hay Group’s Royal found that the most engaged employees are those procedures, who feel they can advance to another level. Goldfein concurred: “I have long thought that people’s ability to non-value-adding remake themselves is essential to survive and thrive in this work en- tasks, red tape.”

37 don’t want to be seen as part of the sure you’ve created a work environ- problem. “They want to be seen as ment where people get all the infor- pulling from the right side of the mation and collaborative support they rope,” Royal said. “So they suffer in si- need to function properly. Recent studies lence and soldier on. You don’t notice “Minimize the barriers that it until Joe is walking out the door.” stand in the way,” said Royal. “Get have shown that an These departures often involve rid of unnecessary procedures, estimated the most talented people “because non-value-adding tasks, red tape. they tend to be the most sensitive to Over and over we’ve seen that when barriers at work and have opportuni- organizations combine the want to ties elsewhere if they want them,” he that comes with engagement with said. “They didn’t hear Joe because the can do that comes with enable- they weren’t asking the right ques- ment, they see results.” of people across tions and Joe wasn’t volunteering. So why don’t all companies find the workforce feel And Joe is one of the good guys!” these things readily apparent? We frustrated. There are two keys to enabling can blame the usual blind spots. Or employees, said Royal, co-author along maybe it should be called deaf spots, with Tom Agnew of “The Enemy of because the real deterrent to success Engagement.” First, match people to is simply not listening. Or worse, their roles so they’re able to use the said Royal, managers sometimes just full range of their skills. Then make don’t want to know.

38 “There’s something comforting effectiveness. We needed our leaders about defining performance in to be better coaches.” motivational terms. ‘If you’re not There was no way to turn a deaf performing, whose problem is ear to the findings. “When you get that? It’s your problem! Get more a survey return rate of 99 percent,” motivated!’ said Short, “leaders just can’t ignore “But motivation is only part of the voice of the employees. It’s all it,” he said. “We also want to enable right there.” motivated people to succeed. Now Kimberly-Clark went to work the finger points back at the orga- with Korn Ferry’s Hay Group divi- nization and the manager. And not sion on building what they called every manager wants to take that the Trust Index. Diversity inclusion on. So the manager has a blind spot became a major driver. And while because the enablement message is millennials were very happy to not as comfortable to them.” see these changes, Short believes Good management, as Mary that all generations prosper when Barra has been advocating at GM, they feel involved. “In the end, we is one that pushes the message all have basic needs to feel valued through the ranks. and have control of our destiny,” This was learned eight years he said. ago at Kimberly-Clark, the The mistake was getting caught personal-care products goliath. up in the technology-driven mael- Things were going well, but they strom of run harder, faster, farther. could have been better. When a “That’s when we drop the little things

“In the end, we all have basic needs to feel valued and have control of our destiny.”

comprehensive survey was con- that tend to add up,” Short said. ducted among its employees, man- “Then we ask, ‘What happened?’ agers discovered that not everyone Well, we didn’t spend as much time knew, so to speak, where the trains with our people. We didn’t listen, we were running. didn’t coach as much.” “Our strategy was clear at the Positive results were swift, and top of the house,” observed Gary Short pointed to the great trend line Short, director of talent manage- in the stock price, which doubled in ment, “but it was not embedded five years. all the way down to the individuals.” “It’s the small things that make Discouraged workers felt that reg- a big difference,” Short said. “The ular feedback just wasn’t happening. most important things you can give “We didn’t listen,” said Short. “It to inspire and to empower are your was clear we needed to share infor- heart and your ears—and less of mation and improve our leadership your mouth.” 

38 39 By Victoria Griffith

illustrations by russell cobb

Eight Ways Compensation Becomes a De-Motivator a University of Utah study compensation and incentives to maximize In 2014, on pay at the upper echelons financial performance.” of corporate management upended long-held Researchers who study behavior in beliefs that high compensation is linked the workplace say monetary rewards to strong performance. According to the can indeed be a disincentive, and it can research, between 1994 and 2013 the best-paid happen at all levels of an organization. CEOs in the U.S. actually turned in the worst Not surprisingly, given the growing performances as measured by stock price, body of research and controversy around racking up average losses of $1.4 billion per CEO compensation, corporations are year in market value. The startling reason augmenting their focus on compensation the CEOs performed so poorly, argued the strategy to avoid such scenarios. researchers, was overconfidence. “The key is for an organization to get Exorbitant pay, they theorized, made behind a set of beliefs and principles around corporate chieftains less likely to pay rewards,” said Tom McMullen, U.S. reward attention to others’ views and more likely expertise leader for Korn Ferry Hay Group. to ignore evidence that ran counter to “Companies need to ask themselves what their plans. “Companies want to have is important? Is it time on the job? Share a glamorous, highly paid CEO,” said price? Sales? Team performance? Companies Michael Cooper, an author of the study that get in trouble are the ones that haven’t and professor at the University of Utah’s articulated a compensation strategy or have David Eccles School of Business. “However, not put it into action across the organization.” this runs counterintuitive to what is What should managers watch out for? Here actually smart business. Businesses should are eight of the most common reasons that reexamine how they approach executive money can become a de-motivator:

Despite generous paychecks, employees see the compensation as unfair

IN THE ULTIMATUM GAME, ings care deeply about fair- always rational. Most workers a popular economic experi- ness, and this has a big impact would actually prefer a lower ment created in 1982, partici- on how our salaries can bonus, as long as it was higher pants are given options for motivate us. than the amount their col- making money. They can split “Bonuses, in particular, are leagues received.” a monetary reward evenly, un- a real challenge because of How can companies ensure evenly or forgo it altogether. the perception of fairness,” that their generous com- Repeated experiments show said Tomas Chamorro- pensation packages aren’t that players almost always Premuzic, professor of busi- sabotaged by a sense of prefer to earn nothing at all ness psychology at University unfairness? Corporations often rather than receive less than College London and Columbia attempt to conceal salary the other player. Human be- University. “People aren’t information so that workers

41 are unable to compare their fight against any sense of has taken transparency to the pay. However, this is generally unfairness.” extreme by publishing online unrealistic. Yet this is easier said than not only its formula for com- “People talk,” said Tom done. Many societies see pensation but its employees’ McCoy, president of The Em- openness about salaries as salaries as well. The formula ployee Engagement Institute, crass, and workers may feel takes into account factors which studies motivation in uncomfortable about making such as job type, seniority and the workplace. “They’ll find personal financial informa- location. Other companies out what the guy in the next tion public. Some companies, seeking similar transparency cubby is making. We recom- however, are overcoming such include such data as peer re- mend instead that companies age-old taboos. Buffer, a so- views or measurable achieve- use total transparency to cial media management firm, ments like sales levels.

The higher salary or compensation violates workers’ beliefs about their motivations or leaves them feeling isolated

WORKERS FOR a nonprofit organization, for instance, might feel that a high paycheck runs counter to their work and life goal of helping society, which is their main incentive for doing their job. In handing out big paychecks, managers should also be careful that their generosity does not crowd out other key sources of job incentive, such as a sense of camaraderie, or being part of a team. In organizations with transparency around employee compensation, high compensation may, for example, breed resentment among a person’s co-workers, leading the employee to feel excluded. And exclusion is a powerful de-motivator. The neuroscientist Naomi Eisenberger of UCLA has conducted experiments that show human brains process rejection as if it were physical pain. University of Georgia research has revealed that a sense of exclusion—even subtle forms, such as being left out of an invitation to lunch—can wreak havoc in the workplace.

42 The pay is in excess of the individual’s needs

IN 1943, the psychologist Abraham Maslow theorized that people are motivated by monetary rewards only to the point that they have satisfied their basic needs, such as food, shelter and safety. In a 2010 study, Princeton psychologists Angus Deaton and Daniel Kahneman found that workers’ needs are met, on average, with a $75,000 annual salary. Compensation in excess of that amount is less incen- tivizing. Yet an individual’s basic needs can vary: For one person, it’s the ability to buy food and pay the mortgage; for another, footing the bill for a child’s college education can be essential to a sense of well-being. While the theory is easy to understand—the more beer we have in the fridge the less we value any single bottle— those in the field say pinpointing a compensation value that meets an employee’s needs is harder than it seems. “It’s tough to have a universal truth in terms of absolute salary,” said McMullen. “Eighty-thousand dollars goes a lot further in El Paso, Texas, than in Silicon Valley. And even if people are no longer concerned about meeting their basic needs, they probably still want to be recognized.”

The job requires creative, out-of-the-box thinking

IN A FAMOUS 1945 behavioral In 1985, MIT researchers solving capabilities. Such study, the psychologist Karl Richard Ryan and Edward Deci “blocks” are familiar to those Duncker asked participants to discovered that students who in creative industries. Writer’s attach a candle to the wall in were offered financial prizes block is one such example. such a way that the wax did not to solve complex puzzles were For budding musicians, the drip to the floor. Participants less successful than a control “second album syndrome” is were given a box of tacks, group doing the puzzles for a feared phenomenon. Newly matches and a candle. Most fun. Ryan and Deci called successful artists choke under people tried unworkable ap- the phenomenon—by which the pressure of creating re- proaches—tacking the candle an extrinsic reward such as cordings as innovative and ap- to the wall, for instance, or money inhibits a person’s pealing as the ones that made trying to stick it to the wall motivation to perform a task— them famous in the first place. with some melted wax. The “overjustification.” They ar- Yet the phenomenon is by no solution was obvious after the gued that by paying the puzzle means restricted to artistic fact. Take the tacks out of the enthusiasts, they became ex- endeavors; it covers all out- box, attach the box to the wall ternally, rather than internally, of-the-box thinking. In today’s using the tacks, and place the driven. To operate at a creative work environment, where in- candle in it. Seventeen years peak, it seems, people need to novation is a paramount corpo- after the Duncker experiment, derive pleasure from the task rate goal, this pressure renders Princeton Professor Sam itself and not be distracted by some employees incapable of Glucksberg added a twist: He the money. getting the job done. How can offered payment to those who Neurologists believe that companies avoid this effect? figured out the problem. The another mechanism may be A growing number of results were surprising. Instead at work as well. They theorize companies address this by de- of improving performance, the that the promise of money and coupling creativity from salary, promise of a monetary reward other rewards activates the ensuring that workers are self- actually lowered people’s brain’s fight-or-flight response driven when it counts. The idea ability to arrive at the solution. and shuts down its problem- is to give employees paid time

43 to do nothing but think and Google and LinkedIn more many corporations have been create. 3M, the office supplies recently set aside up to 20 per- slow to embrace the idea of giant, championed this ap- cent of employees’ time to ex- employee free time, and some proach in the 1970s, and soon plore their own interests. Such later eliminated the practice. hit gold when an employee important offerings as Gmail, In 2013, for instance, Google thought up the Post-It during Google Maps and Google cited its international growth this free time. The biotech- Reader all reportedly emerged as one reason it needed to nology group Genentech and from this practice. replace the system with a more the Silicon Valley companies Despite these successes, top-down approach.

Extremely high compensation creates independently wealthy employees who no longer need to work

IN 1999, Bonnie Brown A 2014 Harris Poll for in- accepted a position stance, revealed that just 30 as corporate massage percent of those surveyed therapist with Google, would keep their current job at the time a brand new if they had $1 million. start-up. After five years, Yet extreme wealth af- her stock options were fects those at the upper worth millions of dollars echelons as well. In recently and she cashed in, quit announcing his decision to her job and bragged that give away 99 percent of his she was now the one wealth, Facebook founder receiving massages. The Mark Zuckerberg publicly waves of newly minted acknowledged that greater millionaires are familiar in many industry sec- amounts of money had ceased to be a source tors such as finance and investment banking. of motivation for him. But in Silicon Valley, the wealth often cascades “The question,” said Tom McCoy, “is whether down to lower-level employees who were the person is able to find other things in their fortunate enough to join a start-up early and job—the sense that they’re contributing to reap the benefits of stock options. Behavioral society, for instance, or that it gives them the psychologists say lower-level workers, in par- chance to interact with other smart people— ticular, can become de-motivated in this way. to remain engaged with their work.”

Compensation is high but too routine

UNEXPECTED REWARDS, say behavioral theorists, are a more effective incentive than those that have become routine. That may be why end-of-year bonuses are not considered useful in terms of motivating workers. The problem may be exacerbated by employees’ expectations that this year’s bonus will be larger than last year’s. “A company can easily get into a cycle of handing out a 10 percent bonus this year, 15 percent next and so on,” said Chamorro-Premuzic. “The year the employee gets a 5 percent bonus, what was supposed to be an incentive actually become a de-motivator.” A possible solution is to offer smaller rewards throughout the year for jobs well done. One Mountain View, Calif., start-up, for instance, found that employees seemed hap- pier with smaller, on-the-spot rewards, rather than a big end-of-year payment. The start-up’s CEO made it a practice to leave thank-you notes with small checks of about $100 on the desks of people she thought had performed especially well on a particular project. Yet even surprise rewards can quickly become routine. “The trick,” said McCoy, “is to main- tain the surprise element. Once you start handing out the checks, employees may soon start to expect them.”

44 High pay for an individual violates a company’s values

MOST CORPORATIONS place a strong value on teams, and big differences in compensation can create tensions and undermine the strength of teams. Consultants say they repeat- edly see this in Scandinavian countries and Japan. “Singling people out can be very normal in some cultures, but not at all normal in others, and managers need to be sensitive to that,” said Hay Group’s McMullen. “I’ve seen that happen in Nordic countries, for instance, where there is less differentiation in individual pay. Principles for compensation need to be aligned with the unique culture of an organization. Even within a country there could be significant differences between one corporation and another.”

Diva Syndrome or Impostor Syndrome

HOLLYWOOD HAS OFTEN pensation. In 1978, psycholo- depicted its own rich and gists Pauline Rose Clance and famous movie stars as unco- Suzanne Imes discovered that operative prima donnas who 70 percent of the successful demand constant special treat- people they had interviewed ment. Behavior theorists be- admitted to feeling like a fraud lieve that certain people, when at least some of the time. given very high monetary Those people believed their compensation, come to believe success could be attributed that they are superior to other to others’ misplaced faith in workers. This belief can in turn them. A 2011 survey by the In- lower their performance. The stitute for Leadership and Man- overconfident CEOs in the agement found that women, in 2014 compensation study men- particular, were susceptible to tioned above may have been Impostor Syndrome. The study suffering from a form of Diva named the phenomenon as a Syndrome. key reason why certain workers Impostor Syndrome can don’t seek promotions, or end be equally harmful. Impostor up leaving their job altogether. Syndrome, a sense of being Managers may avoid the most undeserving of the rewards a negative effects of Impostor successful person has attained, Syndrome by making clear to may be triggered by high com- that employee just why she is receiving such recognition and compensation. In the long run, paying more only to see employee engagement decline is especially disconcerting for managers because it affects both top-line and bottom- line growth. But the problem must be kept in perspective. De-motivation seems to occur only under certain circum- stances such as those outlined above, and is more prevalent at the upper echelons of management. In fact, those who monitor compensation issues say that overpaying workers is still relatively rare. “More people feel under- paid than overpaid, whether it is true or not,” said McMullen.  Inequality in the Workplace The Conversation That Won’t End BY RUTH MALLOY & AMY CORTESE ILLUSTRATIONS BY DAVIDE BONAZZI It’s 2016 and we’re still Talking about diversity.

Nearly eight years after the U.S. elected its first African- American president, 40 years after the U.N.’s first World Conference on Women and 50 years after the Civil Rights Act banned discrimination based on race, color, religion, sex or national origin, we remain deeply rooted in decades-old stereotypes when it comes to leadership and workplace inequality. This is especially true in corporate corner offices and board- rooms. Although women have made great strides, they are woefully underrepresented in the top echelon of Corporate America. Just 24 of the S&P 500 companies, or less than 5 percent, have female CEOs. Women hold about 14 percent of the

47 top five leadership positions at these firms, despite the fact that they make up a majority of college graduates and hold almost 52 percent of all professional-level jobs. At this rate, it will be 2085 before women reach parity with men in leadership roles in the U.S., according to the Center for American Progress. Minorities fare even worse. African-Americans, for example, hold just six CEO posts among the S&P 500 companies, while Hispanics hold nine. “It’s absolutely stunning,” said Rita McGrath, a professor of management at Columbia Busi- ness School. “The CEO and senior management selection process at most organizations has not caught up with the times.” Why is progress so painstakingly slow, and what can be done about it? Inequality in the Workplace

very corporate leader should be looking were also more likely than employees at non-diverse for answers to this question because a growing companies to take risks and challenge the status quo. body of research makes clear that diversity McGrath puts it bluntly: “The research shows E is good for business. A diverse workforce and diversity is essential for competitive advantage.” leadership team and an inclusive corporate culture are critical to winning and retaining top talent, un- locking innovation and capturing new markets. The Leadership Gap Women-led companies, in particular, have been shown to outperform the competition at all levels. For The best leaders know this. Hay Group’s top example, average returns from companies with female 20 Best Companies for Leadership, identified through CEOs were 103 percent during their leadership tenure, a survey the firm has conducted for nine years, are compared to the overall S&P average of 69 percent proactive in developing future leaders with the kind over the same time periods, according to Fortune. of skills their organizations will need to succeed in a Another study, from Catalyst Inc., revealed that more global, interconnected and volatile world: a strong companies with the most female board directors out- customer focus; global expertise; the ability to drive in- performed those with the least by 66 percent in terms novation and identify new markets; and a collaborative of return on invested capital, by 53 percent in terms approach. For these best in class companies—including of return on equity and 42 percent in terms of return Procter & Gamble, GE and Coca-Cola—that means on sales. Female entrepreneurs, meanwhile, bring in developing a diverse pool of potential leaders. 20 percent more revenue with 50 percent less money Among Hay Group’s Top 20 companies in 2014, invested, according to the Kauffman Foundation. half offer leadership development programs tailored Similarly, a broader embrace of diversity has been for women, compared with only 13 percent of all other shown to boost performance. A recent McKinsey companies, and 40 percent have programs aimed study of 366 public companies found that those in at diverse groups of employees, compared with 11 the top quartile for racial and ethnic diversity were percent of all others. These trailblazers also tend to 35 percent more likely to have financial returns above make leadership development programs available at national industry medians. In fact, among U.S. multiple levels (83 percent compared with 57 percent). companies, there was a linear correlation between Sadly, much of the rest of the corporate world seems diversity and earnings: For every 10 percent increase stuck in a Mad Men-era time warp when it comes in racial and ethnic diversity on the senior executive to leadership diversity. The reasons for the lack of team, companies saw a 0.8 percent rise in earnings. progress are complex and varied, and have been widely And in a global quest for innovation, diverse discussed. Some are cultural: Women and minorities organizations are more likely to foster creative and often tend to hold back or feel they are unqualified for supportive environments conducive to new ideas. a position compared with white men. They may also “Companies understand that we’re in a long era of have trouble negotiating if they do not feel they are slow global growth,” said David Dotlich, president in a position of power. Work-life balance issues also of Pivot Leadership, a Korn Ferry company. “They’ve weigh heavily on women, who bear a disproportionate reduced debt, downsized and refocused their busi- load of caregiving responsibilities, both for children nesses. They’ve done everything that’s easy to do. and elderly parents. Those duties can conflict with a Now they are in the search for growth. And they demanding career, and once women exit the workforce know that it’s going to come from innovation, cre- to have children, it can be hard for them to return. ativity, change and finding new ways to do things.” According to a Korn Ferry survey of global execu- The Center for Talent Innovation (CTI), a New tives, women and minorities also tend to lack mentors York-based think tank, has documented the link and sponsors to help them navigate their career paths between innovation and diversity. Employees at in white male-dominated firms. In general, a lack of companies with diversity-steeped leadership reported executive sponsorship is the biggest barrier to suc- in a study that their ideas were more likely to win en- cessful leadership development. dorsement from decision-makers, and get developed Mentors and sponsors—leaders who take an active and deployed into the marketplace. These employees interest in an individual’s career—are particularly

49 Every corporate leader should be looking for answers to this question because a growing body of research makes clear that diversity is good for business.

50 Inequality in the Workplace

Outstanding Outstanding important given the unconscious bias that pervades Male Leaders Female Leaders many workplaces, experts say. Ingrained perceptions of what leadership looks like can stymie high-potential 89% candidates who don’t fit that mold. Leaders tend to 77% groom and promote others who look, sound and act 68% like they do. “It’s much more comfortable to pick someone who is just like you,” said Columbia’s McGrath. 42% Unconscious bias weeds out diverse talent at early

stages, stunting the professional growth of many KEY talented individuals. “We don’t have effective interven- FEMININE STYLES tions at those early stages,” she added. MASCULINE One high-profile study, by Harvard Business % of Leaders Using Masculine & Feminine Styles STYLES School, MIT Sloan School and the Wharton School of Business, illustrates how unconscious bias works. Par- ticipants were asked to listen to pitches presented by entrepreneurs. The pitches and the credentials of the Outstanding Outstanding Average entrepreneurs were exactly the same, but the voice and Males Females Females sex of the presenter varied. The “investors” in the study chose the male entrepreneurs 68 percent of the time, 89% 91% which helps explain why female entrepreneurs raise so much less than their male counterparts. “It’s pattern matching,” said Jackie VanderBrug, 77% a senior vice president at U.S. Trust who heads up 68% the firm’s gender-lens investing unit. “People tend to reflexively resort to what they’ve seen before.” 42% 27% Hidden Bias MASCULINE STYLES

Indeed, there is a fundamental disconnect between % of Group With Dominant Masculine & Feminine Styles generally accepted notions of leadership and femi-

ninity that puts women in a double bind: Female Note: Percentages exceed 100 because many people executives who are assertive and authoritative— use a mix of traits reflecting both styles

traditional male leadership traits—are viewed as Malloy, R. Women Executive Study Technical Paper—Hay Group (2004) competent but pushy and not well liked. Women who exhibit more feminine leadership styles, marked by a more caring, collaborative approach, are well liked boards. Even fewer—30 percent—thought racial but seen as incompetent or not up to the job. diversity was “very important.” Adding to the barriers for women is a percep- Dig deeper and interesting patterns emerge. Female tion gap: Not all men recognize the challenges that corporate directors surveyed were nearly twice as likely women face. McKinsey asked more than 1,400 execu- as their male counterparts to call gender diversity very tives whether women with equal skills and qualifica- important (63 percent of women vs. 35 percent of men). tions had more difficulty reaching top management The results were similar for racial diversity, with 46 of positions. Among female respondents, 93 percent female directors saying it is “very important” vs. 27 per- agreed compared with just 58 percent of men. cent of men. Nearly three-quarters (74 percent) of A more stark reminder of what women face comes women believed that general board diversity improved from a PwC survey of 783 corporate directors. When performance, compared with only 31 percent of men. asked about gender diversity, just 39 percent described There’s been plenty written about what women it as a “very important” attribute for their company and minorities can do: Speak up, try harder, lean in.

50 51 Inequality in the Workplace

But what about organizations? The evidence sug- lack of gender diversity has been the source of public gests that much more work needs to be done to raise criticism, less discussed is the ageism at play. According awareness about diversity and unconscious bias. to data from PayScale, an online salary and compensa- In too many companies, diversity is confined tion information firm, the median age for a Facebook to HR, but it does not rise to the level of strategic employee is 28, 29 at LinkedIn, 30 at Google, and 31 at imperative for top leadership. A true commitment to Apple. And founders under 35 receive almost double the diversity requires buy-in and leadership at the highest venture capital funding of older entrepreneurs. That levels of an organization. youth-worshiping culture is driving men considered Likewise, simply boosting the number of women young for most industries to cosmetic surgeons for and minorities in the workforce is not enough. These discreet Botox injections and other treatments. individuals must feel comfortable and empowered to By not bringing their full selves and experiences to voice their opinions and bring their full experience the job, individuals feel less satisfied and are less produc- and knowledge to bear. Too often, workplace cultures tive, and their employers lose out on their potential con- pressure employees to fit in with the norm—and that tributions. Companies also miss out on hiring top talent. is true at the highest reaches of the organization. Yoshino’s research dovetails with work done by Hay Group and others. In a 2014 study by CTI on executive presence, for example, African-American, Struggling to Fit In Asian and Hispanic professionals overwhelmingly reported that executive presence at their firms is based During the 1970’s, the first wave of female execu- on white male standards. Conforming to those stan- tives was advised to “dress for success” and donned dards led to feelings of resentment or disengagement. their shoulder pads and bow ties. Many of these same women emulated male leadership styles as well, rather than embracing their own style. But according to Hay The Diversity Group research, that doesn’t work. The study has shown that women who emulate traditionally male Imperative leadership styles were seen less favorably by their Clearly, corporations need to expand their organizations. Instead, women who rose to the top notion of leadership to one that is more diverse and were viewed as successful leaders by their peers, and inclusive. And organizations must create a blended masculine and feminine leadership styles. culture where employees feel free to authentically This is a broader challenge. Professor Kenji Yoshino, contribute—what CTI calls a “speak up” culture. And of New York University, has explored the struggles of that, as always, comes down to leadership. professionals outside the mainstream to assimilate “We need inclusive leaders,” said Andrés T. Tapia, and thrive in homogenous corporate cultures. As a gay, a senior partner at Korn Ferry who heads the com- Asian man, Yoshino was pressured to fit in at his first pany’s global practice for workplace performance, job and to tone down his LGBT advocacy. That experi- inclusion and diversity. That means leaders who not ence inspired him to embark upon research into what only recognize the need for diversity, but that are he calls “covering”—the tendency of minority groups skilled in managing it. “Many organizations are ready to hide elements of their authentic selves to fit in with for people who look different, but they’re not ready for the dominant workforce culture. people who think and behave different,” he added. Not surprisingly, Yoshino found in his study that More role models at the top can begin to shift women in general as well as blacks, women of color perceptions and implicit bias, whether those role and LGBT employees engaged the most in covering. models are women, African-Americans, or a twenty- More startling, his study “Uncovering Talent: A New something in a hoodie instead of a suit. And diversity Model for Inclusion,” illustrated the extent that begets diversity. Venture-capital firms with female straight, white males covered as well: Almost half of partners are more likely to fund female entrepre- them covered up something about themselves, such as neurs, just as boards with female and minority mem- age, religion or veteran status. bers are likely to hire more diverse leaders. Silicon Valley, that bastion of innovation and suc- In the end, companies have little choice. Inves- cess, is steeped in covering behavior. While the region’s tors and business partners are beginning to demand

52 diversity as part of an overall good-governance strategy. advantage, it may be diversify or die. That’s especially A multitrillion-dollar industry has sprung up around true as a wave of millennials—the most racially and gender lens- and ESG- (environmental, social, gov- ethnically diverse generation in American history— ernance) investing, as more investors see the link becomes a cultural and economic force. between deliberate, inclusive management and perfor- “The opportunity for companies around access mance. “Gender matters to investors,” said U.S. Trust’s to talent and understanding of markets is huge,” said VanderBrug. “It’s a factor that can inform and enlighten VanderBrug. Those that fail to diversify risk losing out in the opportunities and risks a company faces.” the war on talent and failing to spot emerging markets In an increasingly multicultural world marked and product opportunities. “Companies that are inclusive by a high rate of disruption and fleeting competitive are going to have greater advantages,” she said. 

53 B Y DAVID BERREBY

ILLUSTRATIONS BY PHILIPPE DE KEMMETER MODERN MEDICINE IS AN AMAZING ACHIEVEMENT. It cures once-fatal diseases, removes once-inoperable tumors, prevents once- overwhelming epidemics. Millions around the world are now thinking about life in their 90’s, people whose grandparents were grateful to reach 60. But modern medicine, like any complex enterprise made up of variable, fallible human beings, does have its flaws. Case in point: Modern medicine doesn’t wash its hands enough. Every year, according to the World Health Organiza- tion, hundreds of thousands of hospital patients die of infections because doctors and nurses didn’t practice proper “hand hygiene.” When you think about it, that’s amazing. All doctors and nurses know that a little soap and water, or alcohol gel, will stop the spread of germs. Even schoolchildren know it. Yet a recent 168-nation study, published in the journal Lancet Infectious Diseases, found healthcare workers followed WHO-recommended hand-washing procedures only half the time.

54 ILLUSTRATIONS BY PHILIPPE DE KEMMETER

55 The hand-washing conundrum ganization. This is true of customers everyone. The psychologist Abraham arises from a problem all of us en- too, who now expect to give feedback Maslow, for example, proposed a counter, in our organizations and— and exchange reviews in real time. hierarchy of needs. Satisfying the let’s face it—in our own psyches. It’s The new normal is a customer who basic ones, like the need for food and not a failure of knowledge. It’s not a expects a level of service that only a safety, leaves a person able to pursue matter of active malice or confused motivated employee can give. “higher” ones, like love and the es- thinking. It’s a problem of people And, of course, sometimes teem of others. At the top of Maslow’s not putting in “discretionary effort,” motivation is about more than the hierarchy is “self-actualization”—the which is “going above and beyond in bottom line. Hay Group has done desire to become “everything that one terms of performance, or integrity or research with Britain’s National is capable of becoming.” living the values of the organization,” Health Service, Hubbard said, said Ben Hubbard, European head “looking at the organizational of engagement at Korn Ferry’s Hay climate, measuring the health of the N THE MORE RECENT Group division. In other words, it is a team and its levels of engagement. motivational theory of Harvard problem of motivation. We’ve seen better mortality rates Business School’s Nitin Nohria All organizations want employees where management was creating the and the late Paul R. Lawrence, who will “put in the effort and do the right kind of environment.” advanced in their 2002 book, right thing,” said Hubbard, but, he The good news is that it’s possible “Driven: How Human Nature noted, motivation and engagement to “quantify motivation, measure Shapes Our Choices,” people have become more important with it and systematically improve it,” as have only four basic drives—to the macroeconomic changes of the Hubbard put it. (The vast majority Iacquire (which would orient them to- past 20 years. For one thing, younger of Fortune 1000 companies do so, ward rewards like money and all that employees expect to be fulfilled he noted.) But how, exactly, does it can buy); to bond (not only in per- and valued at work. If they aren’t motivation work? sonal relationships but in belonging motivated, they will leave, or at least In most modern models, mo- to an organization); to comprehend complain loudly. Second, disaffected tivation arises when some basic (to find the explanations that show us employees now have a social-media irreducible needs interact with our the world makes sense, and that what megaphone to let the whole world environment. In some theories, these we are doing in it is meaningful); know things aren’t right within an or- basic needs are held to be common to and to defend (to combat threats to ourselves, our people, ideas, values and so on). To get the most motivated people, they argue, organizations must satisfy all these needs, because “Doing a first-class they are present in different propor- tions, in all people. job because you want Other models, though, suggest that people aren’t that similar, and that not all people are motivated to is a profoundly in the same way. In the 1950’s, the renowned psychologist David Mc- different experience Clelland became intrigued by the way people differed in their motives, than doing that and by the consequences these differences had for organizations and societies. McClelland postulated job because you that there are only three basic needs motivating people: achievement don’t want to look (accomplishment, mastery of skills, winning competitions); power bad to friends.” (influence over other people); and

56 affiliation (a sense of belonging and nation. Certainly in today’s knowl- something of a mystery for those good relations with others). edge economy, in which innovation who would master motivation: If As might be expected, he proposed and disruption are sacred values, it our needs are constant, why do our that workers motivated mostly by seems that the achievement-oriented motivations feel so fickle? Why do achievement did best in middle- have triumphed. In an economy we tell ourselves we’ll do a good management and technical work. where those with this motive have it job today, but then find ourselves Leaders were those whose greatest all, it’s reasonable to ask if our pref- slacking off? Why do we eat what need was for power. More provoca- erence for this motivator over others we’ve resolved not to, or waver in tively, McClelland argued that orga- might not be making the problem of pursuit of a goal we’ve told ourselves nizations and societies that abounded inequality worse. means the world? in achievement-needing people All these theories of motivation, Behavioral psychologists say the would have greater economic suc- despite their differences, share the answer lies in the tricks the human cess. Achievement-oriented people, notion that motives are rooted within mind plays on itself, as it seeks to looking for new challenges, would us. Whether you’re doing a good job avoid overtaxing its limited attention. out-innovate and out-explore groups for its own sake, or for the reward Instead of facing reality and thinking whose members were more con- you’ll get later, the assumption is that through our problems, they say, we cerned with power or relationships. the desire to act comes from within— tend to rely on rough rules of thumb McClelland’s model aimed to from those deep, unchanging needs and comfortable habits. One of these, compare nations. But it might help rooted deep in your psyche. for example, is “future discounting,” explain different outcomes within a But this assumption creates which is the strong tendency to see

57 “Getting 100 percent of Or find that her company is using gamification to make employees want your people—or yourself— to go the extra mile. She might also use a smartphone app that tracks her to want to meet high sleep and a HAPIfork, which vibrates if she eats too quickly. If she works standards is probably in Google’s Chrome browser, she can use an add-on that scans her email impossible. But, then, you for words like “sorry” and “I think,” underlining them in red—they’re don’t need 100 percent.” supposedly the kind of phrases that make email sound less authoritative. the present as more important than makes lazy, impulsive choices. Many people, at work and in their the future. Thanks to this mental In order to fight off the monkey, private lives, have happily accepted habit, most people find it hard to resist behaviorists have come up with a these motivational prosthetics, as- spending for today and equally hard to host of new techniques and gadgets suming that in an overtasked world, put money aside for retirement. We’re to help people stay motivated. Most we all need as much help as we can also exquisitely sensitive to how others middle-class people nowadays have get. For example, though people are doing compared to us, and what seen some of these tools, and many generally disapprove of taking drugs they think. Which can cause us to buy own one or two. It might be a step- to improve one’s focus, memory or things we don’t need and conform to counting Fitbit, which gives you hard thinking skills, they go much easier on practices we don’t necessarily condone. data that you can’t deny, making the concept of taking pills for motiva- To behavioral economists, our it difficult to slack off. It might be tion, according to a survey published “unofficial” motives often work at a website like stickK.com, where in 2015 in the American Journal of cross-purposes with the ones we con- you publicly commit to a goal like Bioethics: Neuroscience. (This is not sciously choose to pay attention to. quitting tobacco or losing weight, a theoretical question. As the public- In their book “Phishing for Phools: counting on the dread of social health researcher Torben Kjærsgaard, The Economics of Manipulation & shame to keep you to your goal (you of Denmark’s Aarhus University, has Deception,” the economists George can also pledge to give money to a pointed out, drugs, like Provigil or A. Akerlof and Robert J. Shiller con- cause you hate should you miss the Adderall, that some take to stay sharp tend that many of our motivations goal, to make the dread even sharper). actually have more powerful and come from a sort of “monkey on the Today’s worker can also have an consistent effects on motivation than shoulder” part of the psyche, which “accountability partner” to report to. on memory and thinking.)

58 N THE FRONT feedback and commit to responding, it changes shape from organization to lines, working with he said, and avoid “that paternalistic organization, place to place, person to companies to improve dynamic where the motivating person and even hour to hour. (This their engagement comes down from above.” is why there are so many more gym metrics, Hay Group’s Moreover, when gadgets and memberships in circulation than gym Hubbard sees apps, websites support our goals, they members showing up to sweat.) Get- gamification, social- tend to be the goals that gadgets ting 100 percent of your people—or media incentives, gad- and websites are best at supporting. yourself—to want to meet high stan- Ogets and other new techniques as That means what is easily quantified dards is probably impossible. useful aids. Older workers may not and tracked (like money earned or But, then, Hubbard noted, you approve or understand, he said, but contacts acquired) has priority over don’t need 100 percent. “In an organi- younger workers are fine with it. goals that matter as much or more zation, you might have 33 percent of Others, though, have their doubts to engagement and the bottom line, your people highly motivated, 33 per- about these new types of motivational like the quality of relationships or cent closer to average and 33 percent aid. After all, doing a first-class job be- the feeling that work is meaningful. pulling at the wrong end of the rope,” cause you want to is a profoundly dif- If, as the psychologist McClelland be- he said. That’s plenty of material to ferent experience than doing that job lieved, achievement motivation can work with: turning around the wrong- because you don’t want to look bad to foster inequality, perhaps we should end pullers, motivating the average friends. If people feel their motivation be concerned that it’s the easiest Joes and Janes and getting even better comes from outside themselves—from desire to engineer with behavioral work out of the already enthusiastic. game badges, social media and the techniques. Companies that do it will have an prods and pokes of apps and gizmos— Gamification, wearable moni- advantage over those that do not. how can they know it’s their own? If tors, apps and nudges aren’t going And even attention to the bottom you need that much help to want to do away, of course. As Hubbard noted, third “shouldn’t be about weeding something, then can you be sure that for younger workers they are simply out,” Hubbard said. “Most of those you really want to do it? a part of life. But technology will people are not being managed well. After all, as Hubbard noted, cre- never completely replace a nuanced The organization is failing to channel ating the right kind of environment understanding of what makes each their emotional needs in a way that for motivated employees includes worker want to make that crucial helps them do their best. And when it addressing their need for a sense extra effort. addresses that, and improves, then it of meaning and empowerment. Motivation is an elusive quarry— will save quite a bit of money.” It’s important to listen to workers’ easy to sense but hard to pin down as And, perhaps, a few lives as well. 

59 ENGAGING THE MULTIGENERATIONAL WORKFORCE

DRAMATIC SHIFT IS UNDER WAY titudes, have been the dominant in the workplace: Sometime in the players for the past three decades. next few years, without fanfare, But millennials are surging into millennials, that generation of the workforce with a decidedly workers born after 1981, will sur- different set of experiences and pass baby boomers as the largest needs, and much has been written segment of U.S. employees. By about the clashing characteristics 2025, millennials will make up of these two groups. Sandwiched as much as 75 percent of the U.S. in between are the Gen Xers, who workforce. Eighty-three million already hold some leadership strong, millennials have already positions and are staking out surpassed Gen Xers, the group territory for more. Because their born between 1966 and 1980, and numbers are smaller—65 mil- Atheir presence in the global work- lion—they are poised for their force has had a powerful impact own battles with the upstarts on organizational dynamics. coming behind them. With multiple generations now filling the corporate ranks, the ability to manage and engage ACH GENERATION IS DEFINED these diverse cohorts will, in by a set of stereotypes that emerge from many cases, be a key determinant E some clear truths. Millennials in particular of the winners and losers in the are saddled with a raft of traits, both good and battle to find and retain the best bad, that have framed the discussion. They are the most-educated generation, the most techni- and brightest talent. cally savvy and the most socially conscious. Having employees of different Like the baby boomers, they are considered ages working side by side is self-centered—but they differ in several notable nothing new. But a heightened ways: They are impatient, for example, and in focus on generational differences need of constant feedback and hand-holding, in recent years has altered the residue from being raised by overly protective conversation. Baby boomers, parents. The knock on millennials is that they will abandon jobs quickly if their needs are not born between 1946 and 1965, and met. Nearly all millennials who graduated from known for their self-involved, college did so in troubled economic times and career-oriented, goal-driven at- have faced tough obstacles. Many are saddled

60 STORY BY GLENN RIFKIN

ILLUSTRATIONS BY SAM FALCONER

with heavy college debt—in 2015, student debt Hay Group analyzed its study, the results de- surpassed the $1-trillion mark in the U.S.—and fied conventional wisdom. have had difficulty finding entry-level jobs. “What took us by surprise is that in terms But there is disagreement among the experts of what really drives employee engagement over how much the generational differences and job satisfaction, we’re not seeing a great matter in terms of employee engagement. deal of differences across generational groups,” One camp says that despite the disparities Delaney said. “All of the groups are driven in age, experience and outlook, when it comes by well-run, well-managed organizations to engagement, these three generations tend to that demonstrate care and concern for their value the same things. employees. The employees want access to Molly Delaney, a consultant with Hay resources and authority to make decisions Group’s Global Insight practice in Chicago, that impact their work—and we don’t see that oversaw a recent research study of a cross- changing across generational groups.” section of multigenerational employees in Hay Group findings were supported by a order to identify what motivates and engages recent multigenerational survey at Dell Inc., people, based on age. She expected to find clear the personal computer giant based in Austin, disparities between the generations. But when Tex. According to Prema Ratnasingam, a talent

6161

ENGAGING THE MULTIGENERATIONAL WORKFORCE

management consultant at Dell, unsettling experiences as 9/11, the consensus view of the experts the survey went out to half of the Columbine, the Enron scandal, is that engaging all of the cohorts company’s nearly 100,000 em- Hurricane Katrina and the Okla- is critically important at a time of ployees around the world. homa City bombing. great demographic change. And Expecting to see stark intergen- “These disasters left an indel- woe to the organization, they say, erational differences about career ible mark on millennials,” the that doesn’t pay enough attention goals, training needs, work/life report stated, “but nothing shaped to the differences among the issues, and more, “we found more and defined this generation more groups that all agree exist. similarities than differences,” Rat- than the Internet and the World According to a recent study by nasingam said. “The key takeaway Wide Web, which opened a whole the Chartered Institute of Per- was that the assumptions about new world of opportunities.” sonnel and Development (CIPD), millennials are largely myths. These “digital natives” are less than one-third of organiza- Where there are differences, it technology savvy in ways previous tions report having an HR strategy was intuitively more a function of generations can’t match. Such in place for managing their aging the stage of life millennials are in. digital fluency may be a factor workforce. With the accelerating Because we are a global company in workplace conflict between retirement of millions of baby and 40 percent of our workforce is millennials and baby boomers, boomers and organizational in Asia, we found there are more according to the report. “Baby dynamics in flux, the CIPD report regional differences worthy of at- boomers were raised in hierar- predicted that “organizations that tention than generational.” chical workplace environments lack an effective strategy to ad-

WHETHER OR NOT THE GENERATIONS ARE HARD-WIRED IN DIFFERENT WAYS, THE CONSENSUS VIEW OF THE EXPERTS IS THAT ENGAGING ALL OF THE COHORTS IS CRITICALLY IMPORTANT AT A TIME OF GREAT DEMOGRAPHIC CHANGE.

where the flow of information dress intergenerational challenges ARE MILLENNIALS was severely constrained and the and focus on generation-specific A UNIQUE BREED? development of personal relation- needs may find themselves at a ships were the routes to moving up competitive disadvantage, mired the ladder,” the report said. “Mil- in conflict and missing valuable UT OTHER experts feel lennials, who expect information opportunities.” that millennials are indeed immediately and who communi- Increasingly, those opportuni- Ba unique breed in the cate through text messages, want ties tend to revolve around millen- workplace and require significant nothing to do with that hierarchy nials, and figuring out what they attention. The millennial genera- and reject traditional top-down need that is indeed different. tion is characterized by certain communication.” “Millennials are very con- life experiences that ought to be Benson Rosen, emeritus pro- cerned about being able to leverage considered when plotting manage- fessor of organizational behavior the full potential of technology,” ment strategy, these experts say, es- at Kenan-Flagler, believes that Rosen said. “They see many jobs pecially given the group’s growing organizations seeking to be the where people can set their own influence in the workplace. employer of choice need to care- hours and workplace, can do A 2014 report called “Managing fully consider strategies for at- the job effectively from home or the Multigenerational Workplace,” tracting millennials, who tend, he come in later and stay later. An from the Kenan-Flagler Business said, to be wired differently about organization that allows them to School at the University of North what engages them at work. build their own schedules is very Carolina, notes that millen- Whether or not the generations attractive to them.” nials came of age during such are hard-wired in different ways, Writing in the Harvard Busi- 63 ENGAGING THE MULTIGENERATIONAL WORKFORCE

ness Review in 2010, Jeanne C. the job candidates but to their daughter to consider it.” Meister and Karie Willyerd noted parents. In this way, parents of Companies such as Google that “millennials view work as millennials are bringing their he- and LinkedIn have initiated a key part of life, not a separate licopter parenting habits to their “Bring Your Parents to Work” activity that needs to be ‘balanced’ children’s careers. days and have encouraged by it. For that reason, they place a A Michigan State University the parents of their younger strong emphasis on finding work survey of more than 700 em- workers to get involved with that’s personally fulfilling. That ployers seeking to hire recent their offspring’s careers. When sense of purpose is a key factor in college graduates revealed that Google hosted the event in May their job satisfaction; according nearly one-third said that parents 2014, 2,000 parents arrived at its to our research, they’re the most had submitted résumés on their Mountain View, Calif., headquar- socially conscious generation since child’s behalf, some without even ters. In a 2013 study by PwC of the 1960s.” informing the child. A quarter parental involvement in the lives Unlike their individualistic reported hearing from parents of young workers, a survey of baby boomer parents, millennials urging the employer to hire their 44,000 recent college graduates were raised under close parental son or daughter for a position and in 20 countries revealed that a supervision with childhood sched- 4 percent said that a parent actu- global average of 13 percent, and ules filled with play dates, piano ally showed up for the candidate’s in some countries 30 percent, lessons, art classes, specialized job interview. wanted their parents to receive a summer camps and myriad other Parents are “an influencer,” copy of their job-offer letters. activities aimed at building an im- said Marie Artim, vice president Companies would do well pressive college application. This of talent acquisition for Enterprise to embrace this inherent desire is the generation that received tro- car rental company, in a report to overachieve, said Meister phies for simply participating, and that was broadcast on NPR. “So if and Willyerd. “They’re used to its members have closer parental they feel more comfortable that overachieving academically and ties than any before them. it’s a solid, stable, growing com- to making strong personal com- To that end, some companies pany with a lot of opportunities, mitments to community service,” have concluded that in order to and good culture and people who they wrote. “Keep them engaged, attract millennials, they need care, they’re going to feel better and they will be happy to over- to sell the company not only to about encouraging their son or achieve for you.”

THE WORKPLACE IS CHANGING

GENERATIONAL SIZE (IN MILLIONS) BABY BOOMERS 77 GEN X 65 MILLENNIALS 83 0 10 20 30 40 50 60 70 80 90

Baby Boomers are set to retire in large numbers: In 10 years, the median age of a boomer will be 70 years old.

Gen X will move into leadership vacuum caused by boomer retirement ... but there aren’t enough Gen Xers to do the job.

Millennials will be critical to filling upcoming leadership and talent gaps.

Hay Group / Pew Research Center

64 n Be intentional in your approach with more senior colleagues “for CROSSING THE to leadership to get greater symbiotic mutual benefit.” GENERATIONAL productivity and better results. A focused approach to man- DIVIDE n Determine which rewards aging the multigenerational work- are most valuable to different force can reap tangible rewards, employee groups and then give according to a report from AARP T THE COMPANIES managers the tools to offer on “Leading a Multigenerational that are the most focused those rewards. Workforce.” If both employers Aon the engagement issue, n Support the needs of different and employees are educated about the effort pays off with cross-polli- generations through flexible generational issues, there is likely to nation among the generations. work arrangements. be heightened inclusiveness, respect At Kimberly-Clark, the con- n Foster intergenerational teaming and productivity. In addition, a sumer products multinational and learning. company can expect to see these based in Irving, Tex., senior n Identify your most critical roles other benefits: leadership was concerned that it and skills gaps, and ensure you didn’t have a global perspective have succession plans in place. Improved on its top talent. To remedy that, competitiveness. the company instituted a reverse The Hay Group study noted Education about these mentoring program in which that millennials are well positioned issues reduces age dis- millennials were teamed up with to take over leadership roles. crimination and minimizes senior executives to help them un- Because of the 2008 recession, the organizational “brain derstand what would best engage many baby boomers delayed drain” as older generations their younger employees. their retirement. That left Gen leave the workplace. At Facebook, a company heavily Xers and millennials stuck in laden with millennial employees, the pipeline. But the number of More effective the negative stereotypes are often retiring baby boomers has been recruitment. turned on their heads. Employee growing lately and Gen Xers are Recruiting messages surveys over the past seven years increasingly filling their leadership specifically tailored to have revealed that “millennials’ roles. Because of that generation’s each generation will wants and needs are strikingly smaller size, however, “there simply attract talent across the similar to those of colleagues aren’t enough of them to do the generations. from different generations,” Lori jobs,” Molly Delaney said, “and this Goler, Facebook’s Head of People, means millennials are fast-tracking Higher rates wrote in a 2015 Harvard Busi- into these high-level roles far more of engagement ness Review article, essentially quickly than we expected.” and retention. Managers who know how echoing the conclusion of the Hay With so much at stake, compa- to motivate employees Group study. “Millennials want nies must “be far more intentional from different generations to do meaningful work and be about developing millennials to will improve their engage- part of something that will have be future leaders,” Delaney added. ment and retention. a positive impact on the world. “We need to do a better job of giving Some might characterize this them both breadth and depth of attitude as demanding and self- experience in the short time that In the end, Hay Group’s Del- centered—asking too much from they are in junior positions.” aney believes that most companies a job. But our data indicates that In the quest for higher levels of are trying to answer the wrong at Facebook—and probably many engagement across the organiza- question. other organizations—people of all tion, the key is leveraging the full “They ask, ‘What makes millen- generations have begun to redefine capacity of the multigenerational nials different?’ It’s an important fulfillment in this way.” workforce rather than segmenting question but it misses the mark,” According to Hay Group, the it based on age affiliation, -ac she said. “Instead, we think the best way for senior leaders to en- cording to Delaney. The best better question is, ‘What engages gage employees across generations method for doing this, she said, is a and satisfies employees at all levels is to take key steps for managing formalized mentorship program in of the organization, regardless of an age-diverse workforce: which junior employees are paired their generational group?’”  65 Photographs by HELIO VILLARREAL

Concrete Strategies for Tackling Climate Change and Sustainability

ement is hardly a environmental issues as catalysts aging increasingly scarce natural new product. Its his- for the continued evolution of building materials and water in tory traces back to the businesses. “It’s not just about urban development. Concrete, ancient world and the managing the impacts on climate, CEMEX added, offers the benefits Ccementing materials used by the it’s discovering opportunities— of durability, and the ability to Egyptians, Greeks and Romans, business opportunities—based on withstand such natural disasters the latter giving it the name opus the way the economy is going to as hurricanes and floods. caementicium. But for CEMEX evolve because of climate change,” For CEMEX, sustainability and S.A.B. of Mexico, one of the Gonzalez told Korn Ferry Briefings. environmental management are world’s largest producers of ce- Moreover, cement and related hallmarks of the latest phase in its ment, ready-mix concrete and ag- building materials are key to evolution. The company started gregate, these building materials sustainable construction and de- out as Cementos Mexicanos in have a vitally important future velopment (CEMEX is a founding 1906. For decades, it did business role in helping to address the most member of the World Business nearly exclusively in Mexico. Zam- pressing environmental issues. Council for Sustainable Develop- brano, who had been named chief A mission-driven global com- ment’s Cement Sustainability executive in 1985 and chairman in pany that operates across more Initiative). “We firmly believe 1995, is credited with CEMEX’s in- than 50 countries, CEMEX is com- that concrete has to play a major ternational expansion to become mitted to being a flag bearer for part in any successful transi- a global supplier of cement and sustainability and environmental tion toward a truly sustainable building materials, making its first management. society,” CEMEX says on its big move overseas in 1992 with the Based in Monterrey, the com- website. “Whether it is the in- purchase of two Spanish cement pany sees it as the responsibility stallation of renewable electricity companies. Many more acquisi- of global industrial enterprises to generation, the development of tions followed in North America, reduce emissions, promote alter- more efficient infrastructure, South America, Europe, Asia native fuels and make products the building of new roads or the and Australia. In its story on his in more sustainable ways—all construction of more sustainable passing, The Wall Street Journal of which are part of CEMEX’s housing—all of these activities called Zambrano “Mexico’s poster business practices. Furthermore, and others need concrete.” boy for globalization,” crediting Fernando A. Gonzalez, who took Given the growth of the world’s him for turning CEMEX into “the over as CEO of CEMEX in May population and migration of country’s first true multinational.” 2014, following the sudden death people from rural areas to cities, Zambrano’s death one month of chairman and chief executive CEMEX believes the construction after his 70th birthday left Lorenzo Zambrano, sees global industry is responsible for man- CEMEX with an unexpected lead-

66 BRIEFINGS Briefings Q&A Fernando A. Gonzalez CEO of CEMEX S.A.B.

ership transition—and big shoes Zambrano, Lorenzo’s cousin, was Ferry client partner based in to fill inside the company, which named chairman, in a change Monterrey. They talked about had been founded by his grandfa- of governance that split the top the legacy of the company (which ther. (Unlike other family-owned leadership roles. had sales of $15.7 billion in 2014), and/or controlled companies In late 2015, Gonzalez and his how it uses social networks to in Mexico, CEMEX is publicly team sat down with Michael Dis- promote the exchange of ideas traded, and Zambrano was not tefano, Korn Ferry’s senior vice across a global workforce of some a large shareholder.) Within president and chief marketing 44,000 employees, and its vision 72 hours of Zambrano’s death, officer; Hugo Lara, Korn Ferry’s for sustainability and proactive CEMEX promoted Gonzalez, senior client partner and office measures to counter climate then the chief financial officer, managing director in Monterrey; change. What follows is an edited to be chief executive. Rogelio and Gustavo Solares, a Korn version of their discussion.

TALENT & LEADERSHIP 67 Briefings Q&A Fernando A. Gonzalez

When Lorenzo Zambrano died, CEMEX faced an unexpected change of command, with you becoming the first CEO from outside the Zambrano family. How did you deal with his loss and with the sudden responsibility of leading the organization? His passing was a surprise—he was just 70. He was such a recognized person and known for his personal contribution to the development of global CEMEX. But we have a succession plan at the company that we review at least once a year. It allows us to develop and prepare people for different positions. For several years, we all knew the philosophy of our policy was to bring in people, develop people and have professional management. When Mr. Zambrano passed away in Madrid, the governance committee met immediately, then the whole board met right after that. The decision about successors was quickly made. After working shoulder-to-shoulder with Mr. Zambrano for 25 years, I was shocked and very sad. But I was confident taking which means traveling a lot. I say that because I on the CEO position. I have managed almost all the decided to make some adjustments in the way we CEMEX businesses and all administrative functions at manage the company. The executive committee different times. I had the opportunity to manage busi- continues to meet every month, but now we meet in nesses in six locations, countries or regions. On top of different locations—CEMEX locations. For example, that, I knew all the people in CEMEX, particularly the a couple of months ago it was in Warsaw, so I had the executive team, and I know how complete and com- chance to meet with the management team in Poland petent the team is—a very strong team of people, very and to meet with the people there. knowledgeable and experienced in the industry. That’s pretty unique. What is the Let’s talk about the decision to order of your meetings? split the CEO and chairman roles. First, I invest a couple of hours in meeting people. One of the things we did after Rogelio Zambrano Normally I do a brief description of the situation of was appointed chairman and I was appointed CEO the company—let’s say 15 to 20 minutes—then I hold is we sat for a while and started writing down what open office hours to discuss whatever people want to we were going to do with these roles—how to work talk about. Mostly it’s about the role of the business in together and complement each other. It was a three- their country compared with globally, and CEMEX’s day exercise. plans for the country, or concerns or interest about Rogelio spends most of his time with the board our financial situation. I tend to think that, for them, members and also dealing with company issues, it’s helpful; for me, it’s definitely really helpful. It’s an particularly with certain external stakeholders—au- opportunity to see thousands of people per year. thorities and opinion-makers—and also chairing the After that, I spend, I’d say, half a day with the re- board, of course, where the most relevant decisions gional team. So, for instance, we went to Manila. After

of the company are made. Rogelio improved the the open forum in Manila, I had the chance to visit one CEMEX OF COURTESY governance of the company, adjusting and creating of the plants that was close by. And then we met with different committees. There were some adjustments, the regional management team from Asia. After that, too, in the governance and some bylaws. Overall, during the executive committee meeting, we asked the he’s chairing the company, directing the strategy and local management team to participate. These visits making decisions for the company. and these meetings are very helpful to complement the And, in my case, I’m managing the business— way we communicate with each other.

68 BRIEFINGS Operating in more than 50 countries, CEMEX has become a global leader in sustainability leader of the network, on top of articulating this and environmental management. communication, is responsible for identifying what it is that we can do with these ideas and practices that might create value when replicated globally. So then we create a global initiative that’s coming from all these conversations. And that global initiative is executed through the network.

So, you’re seeing how these ideas can be fostered through a kind of groundswell from the local level and then through the digital networks? Yes, and I can assure you of that, because when I was based in Europe, I created the predecessor of the global networks—it was regional. To use an example, in 2008 or 2009, we created a network on alternative fuels, which has been a practice in the cement business for ages. But after acquiring some businesses in Europe, we learned how to use an alternative fuel that you can employ in massive ways—believe it or not, household waste and industrial waste. To make a very long story short, we started these conversations. The team in That’s a great segue into a Germany was pretty well advanced in the use of these discussion of culture and com- types of fuels, but their neighbors in Poland had never munication within the culture, heard of it, even though they had been part of the particularly with your social same company before we acquired them. We managed networks. How do you foster to move from almost not using alternative fuels at all, such an environment, and what to being the leader in the industry. lessons have been learned? We have been promoting for people to interact. In a And the key to these networks global company that means people have to interact is having a leader who has an with each other in different languages, in different ear to the ground and says, time zones, across different business practices. In the “That’s going to be a global ini- case of Facebook, which is a social network, things tiative,” and then fosters more work pretty simply: You share pictures or whatever conversation? you want in a very straightforward way. But in a busi- I’m purposefully using the word articulating, because ness network, you have to do things differently—the it’s a way to manage anarchy. You have to expect a word I like to use is articulate these networks. We certain degree of anarchy. This idea of facilitating develop networks either around common things—for and providing resources for people to communicate example, the network of cement experts—or exactly and to do almost what pleases them is a kind of an- the opposite, which is around an issue that requires archy. But what’s the alternative? For it not to happen completely different disciplines or approaches. But at all? Or to post a policy or something so people can we design the networks. read it? It doesn’t work! Or, it’s very expensive. Or, it We have six global networks; I assign a leader from doesn’t happen very fast. the members of the executive committee who, on top With global networks, I’m sure people will learn, of their business management responsibilities, each will share, will act and will replicate whatever creates lead one of these networks. The reason why these value. But when, on top of that, you can get these networks are working is because it’s an opportunity global initiatives, it is, in my opinion, a very effective for people to know each other and to learn from each way for the company to evolve. Going back to the other. So, a person learns that somebody is doing example of alternative fuels, who in the network is “X”—a thing that others never thought was possible. making and proposing the ideas for projects? It’s the And they communicate, start asking questions. The guys in the plants. Then it goes to the executive com-

TALENT & LEADERSHIP 69 “I’m in the group who says the most important stakeholders are our employees because they are the ones who will be pleasing customers.”

mittee for a decision. If the executive committee says, ones who will be pleasing customers. You need the “OK, let’s support X, Y and Z,” then the people ex- right people in the right place, day after day—because ecuting are the same people who made the proposal. I prefer to have excellent execution, rather than the You don’t have to sell the idea. It’s theirs. best strategy that I cannot execute at all! It sounds like a cliché—people are the most important asset—but As you talk about the impor- when you think of who is going to be doing every- tance of engaging and empow- thing, it’s people. ering people, it brings to mind So you’d better invest in people: Prepare them the fact that, earlier in your by shifting and rotating assignments. For instance, career at CEMEX, you were in we hire people just when they finish university, and charge of human resources. How we have professional development programs for two did being in charge of talent years for them to decide what their main interest is. contribute to your becoming a (We hardly hire executives from the outside except better CEO? for some very specialized areas.) We start moving That’s an interesting question. There is always a dis- them and preparing them, little by little. cussion about which stakeholder is more important to a company. Is it the shareholders? They are the owners Can we shift our attention to the of the business. Some say they should be the most im- CEMEX Way, which has been part portant stakeholder, and we should all be focused on of the company for a long time? guaranteeing returns for shareholders, which is true. How has it morphed, and what Some others say, “Yeah, but in order to provide reason- do you see for it in the future? able returns to shareholders, you have to take care of CEMEX Way has evolved—now it’s One CEMEX. your customers.” If you don’t manage that relationship When Rogelio and I defined our roles, as I described with solutions, ideas, products or whatever, at the end earlier, we also defined our priorities. To be sure, we you won’t be able to please your shareholders. So they have a long-term vision, and we will act in alignment say the first priority should be customers. with that vision. But at the same time, we defined I’m in the group who says the most important priorities that have more to do with short-term issues stakeholders are our employees because they are the than with the strategic and long-term issues. We also

70 BRIEFINGS Briefings Q&A Fernando A. Gonzalez clarified our operational model. The way to describe supporting sustainability. Can you it is very simple: We produce and sell cement, ready- talk more about that? mix and aggregates. (In 2014, cement accounted for Global companies, or at least global industrial com- 45 percent of CEMEX’s sales; ready-mix concrete, panies, have to decide what their position on certain 39 percent; and aggregates, 16 percent. By region, issues is. Climate change is one example. You have the three largest are Northern Europe, 27 percent of to take a position. You cannot take a position for sales; the U.S., 24 percent; and Mexico, 20 percent.) CEMEX in the U.S., another one for CEMEX in the The model we think is appropriate for a company Philippines, another one for CEMEX in France. Global like CEMEX is what some people call the replication companies need to have global positions. You cannot model; it’s standardizing as much as possible. Another have a philosophy on a regional or country basis. way to describe it is invest once and use it many times. So if you’re investing in a solutions system What is CEMEX’s position or whatever for Europe, also do as much as possible on climate change? globally. Of course, you have to adapt things locally, We do completely recognize and believe that there is but the idea is to manage as one company. So, one of a change in climate because of all of us. Our position the priorities we set is One CEMEX—the evolution of paper on climate change states, in part: “The overall the CEMEX Way. economics of dealing with climate change are clear. We continue to believe in standardization. We There is sufficient evidence … that the necessary ac- also believe that there are opportunities for a global tion to prevent dangerous climate change is far less company to properly and effectively manage itself costly than the consequences we will face if climate with much lower costs. For instance, over time we change goes unchecked. The economic argument for have been centralizing all transactional areas, all taking action early is clear.” the back-office areas. We discovered another step: to By understanding and accepting the challenge, outsource all our back-office activities. you start discovering ways to minimize your environ- One CEMEX has all the same ideas about stan- mental impact. That is very important. But we also dardization, reducing costs and expenses, integrating see an economy evolving because of climate change a global company and managing it as one company or sustainability. I mentioned the alternative fuel ex- regardless of the complexities of being in so many coun- ample. One of the reasons we want to use this type of tries. But we cannot standardize blindly; it can be risky. fuel—household waste, industrial waste—is because, on average, 50 percent of the content is biomass. And

Can you say more about that? if you use biomass, you get CO2 credits. So it is a good Just to describe one example, it’s not the same thing business proposition—and not just about avoiding to sell in an emerging market—Mexico, Colombia, the emissions. In one of our plants in the U.S., 40 percent Philippines, Egypt—as in a developed one—the U.S. or of the fuel is peanut shells! This is the organic mate- Europe. In an emerging market, about 70 to 80 percent rial we are using instead of coal or natural gas. of cement is sold in bags to retailers (although on a per Another thing to consider is growth in the global country basis it may be slightly different). In the U.S. or population, which will accelerate urbanization. But Europe, 90 percent of cement is sold in bulk, directly due to rising costs, cities in the future will grow to ready-mix companies. We are selling cement every- up—not out. A great natural byproduct of this ver- where, but in one country or type of country we have to tical expansion will be containing infrastructure and get to retailers, while in the U.S. and Europe we have to real estate in a way that is a far more efficient use of be integrated with the ready-mix companies. It’s about energy and resources. It will impact not just the raw being sensitive or more sensitive to the characteristics materials used. of our customers and the way to manage businesses in each and every geography. So because there’s both an economic rationale, as well as The philosophy behind your just a basic human need, you’re marketing practices—acting hopeful that there’s time to consistently globally, but with local- do something about climate market sensitivities—is also reflected change? in other areas: the environment, Yes. There will be technology allowing us—meaning controlling climate change and all of us—to act, so we better do it. 

TALENT & LEADERSHIP 71 Briefings / 1900 Avenue of the Stars, Suite 2600 BY JOEL KURTZMAN Additional copies: [email protected]

Lessons From Job #1 Los Angeles, CA 90067

HEN I WAS ABOUT 12 YEARS OLD, recent poll reported that just 13 percent of I started a pool-cleaning business in my employees are engaged at their jobs! PARTING THOUGHTS PARTING W neighborhood in Encino, Calif. I was re- That is a sobering number. In a world sponsible for cleaning three pools each week, where technology has created layers of and I discovered quickly that I loved my job. alienation and isolation, the price of a disen- The neighbors heaped praise on me, and gaged workforce can be steep, with lowered though I made very little money, I relished productivity, high attrition rates and sagging

the autonomy and sense of accomplishment. customer satisfaction scores. Circulation Customer Service: +1 (310) 556-8502 Reprints: Advertising: Stacy Levyn +1 (310) 556-8502 I remember looking forward to the work Given that real wages have stagnated over and never needed prodding from my parents, the past decade, perhaps the solution is higher

like many a 12-year-old, to get out there. Having pay. But we’ve read countless job satisfaction Tiffany Sledzianowski +1 (310) 226-6336 never read a business book or self-help guide, I surveys over the years and rarely does com- had tapped into something fundamental and pensation finish at the top. In a recent survey essential in my work life: I was motivated. of more than 200,000 employees around the Given the length and breadth of my world, the top factor that people cited for job working life, it is fascinating to think back happiness was being appreciated for their work. and realize that my pool-cleaning job jumps to That was followed by good relationships with mind as the most satisfying and colleagues, work/life balance and strong rela- “I had an rewarding of all my professional tionships with superiors. Salary finished eighth. unfettered positions. Don’t get me wrong. I In fact, roiling issues in the workplace are passion for the have enjoyed most of the jobs I’ve nothing new. But we are in the midst of a sea held over the years. I’m one of change when we think about how to engage and work—I was those people who loves work. motivate a workforce. How and where people in exactly the But there was something work has changed dramatically and workforce place I wanted about that pool job that reso- demographics are undergoing a massive shift. nates to this day. Perhaps it was Diversity, gender equality and opportunity for to be, doing being out in the warm Southern upward mobility continue to spark internal just what I California sunshine every day. conflict and conversation at most workplaces. fully wanted to be Or the lack of a boss telling me Corporate leaders today are faced with a with U.S.A. THE IN PRINTED environmentally responsible manner. what to do and when to do it. basic choice. Quarterly results and shareholder FSC ®

doing.” -

Or the words of praise from the contentment remain at the top of the agenda. in a inks soy-based and papers certified pool owners. Likely it was all those things and But a focus on results without an organiza- something else: I had an unfettered passion for tion-wide effort to achieve growing employee the work—I was in exactly the place I wanted engagement leads to lethargy. Companies to be, doing just what I wanted to be doing. that perennially make the list of Best Places to Many people have that sense of well-being Work understand this, and self-actualization

in their jobs. They are the lucky ones who becomes part of the corporate DNA. wake up every morning eager to get to work. So what comes to mind when you For most, however, engagement is a think about your best job? What triggers constant struggle, and finding that inflection the fondest memories as opposed to the

point between responsibility and rapture is a nightmares of terrible work experiences and challenge. Work becomes a means to an end, horrible bosses? Is that feeling I get when and the tip of Maslow’s famed pyramid for recalling my pool-cleaning business attain- © Copyright 2016, Korn Ferry 1949-8365 ISSN the hierarchy of needs—self-actualization— able in the real world of work? The smartest remains out of reach. Surveys show just bosses ought to believe that it is and set their how tenuous employee engagement is. One organizations on a path in that direction. 

72 BRIEFINGS EAST TO THE SUNRISE LOOK IN THE MIRROR

TRUE NORTH EMBODY PURPOSE

FACING SOUTH DON’T WALK ALONE

HEADING WEST NAVIGATE BEYOND THE HORIZON

THE LEADERSHIP JOURNEY

Successful leadership is about getting results. But how do the best leaders consistently deliver bigger and better things? The new book by Gary Burnison, CEO of Korn Ferry, uncovers what it takes to be an outstanding leader.

visit: LeadershipJourneyTheBook.com TAKE YOUR COMPANY TO NEW HEIGHTS ENGAGE YOUR EMPLOYEES IN VOLUNTEER SERVICE

“DOING GOOD” is also GOOD BUSINESS. Companies with highly engaged employees benefit from 26 percent higher employee productivity, experience less turnover, and are more likely to draw top talent.* A survey by Deloitte** found that Millennials who volunteer are significantly “more likely to be proud, loyal and satisfied employees.” Millennials will constitute 75 percent of the workforce by 2030. So, start empowering these young professionals to lift up the communities they call home and invest in your company’s future.

UNITED WAY PARTNERS WITH 70,000 BUSINESSES, including more than half of the world’s Fortune 500 companies. When you align your brand with United Way, you join a worldwide network focused on creating lasting community solutions. Learn more at UnitedWay.org/DoingGood

* Watson Wyatt’s 2008/2009 WorkUSA Report, Driving Business Results Through Continuous Engagement (Feb. 10, 2009). ** 2011 Executive Summary – Deloitte Volunteer Impact Survey. Copyright © 2011 / Deloitte Development LLC. All rights reserved. Member of Deloitte Touche Tohmatsu Limited.

BL-0116 Korn Ferry Ad.indd 1 1/20/16 1:54 PM