No one can deny today that every environment changes at speeds never experienced. Today any child would laugh at Moore’s Law veracity, which dictates that the ability of processors doubles every two years. In this new social background, everyone mentions the change as the solution to today’s depression. Heraclitus probably catches sight of us with a sly smile from Olympus. Yes Heraclitus, you are right: the only thing that stands still is change. But I would add a wedge: the only thing that still stands are change and our organizations incentives’ system. And these incentives are the ones that lead us to no change. Is this a paradox? Step by step.
We don’t have to be as Mr. Punset to know that any behavior is caused by an emotion. You eat because you are hungry, you kiss when you see your beloved smile and you work because you earn a salary. Let’s go deeper into the last premise. We work in order to earn the maximum amount of money, or according to business language, to receive the maximum remuneration: the fix salary and the whole variable salary. This amount is the one that causes us the most intense emotions, and the one that let us to be defined such as excellent professionals.
We have data on the leading companies Board of Directors remunerations, we also have the results of the elections, and judging by the results, both theoretically denote that all professionals have done their jobs excellently. However, these compensations are not aligned with macroeconomic data from the major European countries or its leading companies. In plain words, goals are not achieved but they are paid as if so.
* Results on the same variable in the previous year.
And I have not mentioned the political class yet because I guess the concept of variable remuneration is not introduced at all…
Managerial classes are not moved by social benefit or by the 6 million unemployed tears in Spain, or by and the closing of 19 public hospitals … The responsible (those who literally have the legitimacy to influence on these facts and not in the sense of guiltiness) are mere workers who are doing their jobs very well.
The human mind does not respond to gossip or lofty promises, but to needs. Directing and managing is a job, and even if your statutes clearly state, as in the case of BBVA, long-term value creation and internal equity and external competitiveness must be assured; your mind is tricky. Your mind only tries to satisfy the need to achieve the greater profitability through your job.
The current incentive system for senior managers is obsolete. Do not be utopian. Our leaders are excellent professionals and they achieve their goals without breaking any law. Perhaps, what it is wrong is the nature of the benefit or it is just the organizations goals are not designed to satisfy the social benefit.
Moving forward into the new world, an exercise of courage and rules’ change are needed. And not only change of rules, but having the need for this change.
The managerial remuneration system has to include commitment and consistency, which effectively invoke the required change. The more wrong you are, the more valuable is the output. And as work complexity increases, the more difficult is to realize how wrong you were. Thus, you only realize your failure if you can emphasize your error. How?
Imagine some variables, such as commodities consumer price you pay for, national unemployment rate or customer satisfaction, are introduced in your incentives… Why? Because these results are the real outputs you have to be paid for.
2,500 years ago Confucius said that “to govern is to rectify“, Alexander Pope added that “rectifying means wisdom” and I conclude that currently anyone govern nor is wise. Why? We do not have to.