For Wells Fargo Lesson #1, see last week’s blog.
The heart of a competitive advantage is a culture of confidence. Such a culture emerges in companies that have developed success patterns to a point of such sustainability that the "flywheel effect" has kicked in, as Jim Collins describes in his book Good to Great. There is momentum and your people know it; and they know it because they are driving it. Such a business has a competitive advantage because a culture of confidence is not "copyable." It is an outgrowth of having all the human elements working in a unified, passionate fashion within a company. Think Disney. Think Apple. Think any great company. Unfortunately, you can no longer think Wells Fargo—and that’s a shame.
The best word to describe the mindset of the workforce within organizations that have developed the culture I’m describing is stewardship. The dictionary describes a steward as "a person who acts as the surrogate of another or others." In the context I’m using, it implies that employees act in the best interest of owners; more than that, they do the things ownership would do because they think like owners. They think like owners, in part, because they are treated like one. This has nothing to do with whether or not the employees own stock. It simply means the organization’s leadership has effectively framed the employees’ stake in the company's success as a partnership and built its pay strategies with a long-view of that relationship in mind.
Pay and Trust
Organizations that adopt a stewardship approach to managing their people nurture trust and confidence in their employees by focusing more on desired outcomes and results than methods and behaviors. They communicate standards and values, vision and strategy, roles and expectations. Then they engender a unified financial vision for growing the business in the way they share value with those that create it.
The businesses just described inherently understand that they can't use incentives as a tool to manipulate behavior or to reinforce methodology. It's not that they ignore behaviors and methods, rather they recognize that pay can’t enforce the spirit of stewardship they want to promote. To use incentives to "force" certain behaviors is the ultimate act of mistrust. It undercuts the core sense of personal responsibility and accountability that a workforce must achieve if the "flywheel effect" is going to be realized. Mistrust erodes a culture of confidence and pay, when engineered improperly, further enables that dissension. That kind of spirit of suspicion becomes pervasive; it starts within the organization but then ultimately infects all of the company’s important relationships. This is the Wells Fargo effect.
As a result, businesses need to recognize that their approach to compensation either encourages or diminishes trust. Think about it. If I work in your organization, and hear you talk about the company's vision and mission, and what the growth strategy is for the next two or three years, but I participate in a rewards program that either has no bearing on those outcomes or is at odds with them, what level of confidence do I have in your leadership? How should I interpret the significance of my contribution to the company's future?
Likewise, if I have been allowed to develop a mentality of entitlement or complacency because my remuneration has no real link to the right performance standards, what are you communicating to me? What incentive do I have to take a stewardship approach and adopt an ownership mentality in my work if you haven’t defined success for my role or tied my rewards to clear outcomes for which I’m responsible?
The Speed of Trust
Organizational trust exists when employees experience operational integrity between mission, vision, strategy, roles, expectations, results and rewards. If that trust is to be sustained, a company's pay philosophy and associated strategies must enable continuity between each of those elements, not diminish it. That consistency between professed belief and organizational execution offers your employees evidence that they can have confidence in where the company is headed, how it's going to get there, what their contribution should be to that future and how they will be rewarded if those results are obtained.
In his book, The Speed of Trust, Stephen M. R. Covey explains it this way:
The low trust environment is a result of violating principles--not only individually, but organizationally. Leaders are missing the solution because they are not looking at the systems, structures, processes and policies that affect day-to-day behaviors. They are focused on the symptoms instead of the principles that promote trust.
This misalignment creates symbols that represent and communicate underlying values to everyone in the organization. A symbol can be either negative or positive; from a 500-page employee handbook, to a newly appointed CEO who refuses to accept a pay raise because it might send the wrong message to workers.
Simply put, trust means confidence. The opposite of trust is suspicion. Covey makes the point that whether it's high or low, trust is the "hidden variable" in the formula for organizational success. Traditionally, most organizations think about results generation in the following terms:
Strategy x Execution=Results
However, inclusion of the hidden variable reveals a more accurate results reality:
(Strategy x Execution) x Trust=Results
The author asserts that the trust level in an organization affects two things: speed and cost. When trust goes down, speed goes down and costs go up. Conversely, when trust goes up, speed goes up and costs go down. I would add that when trust and speed go up, sustained results also go up.
At VisionLink, we have observed that in most organizations the trust level is virtually palpable. In high trust organizations there is an obvious culture of confidence. That confidence is the product of sustained success patterns that produce consistent results in such companies. Those success patterns can only exist in a high trust environment.
Compensation is a strategic tool. Smart business leaders use it to ensure certain key outcomes and make their results more predictable. In doing so, they ensure that their rewards approach lubricates the channels of trust that poor practices damage. They recognize that an effective and comprehensive pay strategy should accomplish two things: 1) provide a systematic means of remunerating contributors for the achievement of well-defined performance standards (outcome fulfillment), and; 2) clearly communicate and encourage the behaviors and results that the organization considers to be its highest priorities. And they must accomplish both those ends while simultaneously instilling a sense of fairness about how their people are paid.
In summary, get compensation right and you will see trust increase in your organization. If you increase trust, you increase the speed of performance. And when you increase both, costs go down and sustained results go up.