Originally published Aug. 10, 2008
In my last column I wrote about the family trip to Pigeon Forge. When the hotel staff was unwilling to change a light bulb, it didn't ruin our trip, but it did leave a bad taste in my mouth.
I had a very different experience in Pigeon Forge a few years ago. Within minutes of arriving at Splash Country, I lost my keys.
As an aside, the locker rental they offer is a pretty good deal after all.
I lost my keys in the landing pool at the bottom of one of the water slides. I asked one of the 16 year old life guards if there was any hope of recovering them. He told me they would have to close down the slide and dive for them. If they turned up, he would take them to the lost-and-found office.
To be honest, he sounded as interested in finding my keys as I would have been at 16 - not very. I spent the rest of the day wondering how I would replace each key.
Late in the day I decided to visit lost-and-found, just in case.
When I told them I was looking for lost keys, someone opened a desk drawer with about 20 sets of keys. Much to my amazement, my keys were there.
I really don't know who found the keys, but I was pretty impressed for several reasons. First, I know it was my own fault, but Splash Country had a plan in place for handling customer mistakes. The light bulb incident was frustrating because the hotel did not have a plan for dealing with its own very simple problems.
I was also impressed that the teenagers who run Splash Country actually used the plan. I know it's wrong to stereotype, but I really didn't expect much help from anyone at Splash Country. At the hotel, however, the staff looked grandmotherly. When I asked for a new bulb, I almost expected them to bring some homemade cookies along with the bulb.
In these two simple examples, there's a pretty important message for companies. Research on customer service shows that customers are satisfied when their expectations are met. When their expectations are exceeded, however, customers become loyal devotees of the company. When customer expectations are not met, they become ex-customers.
At the hotel, I felt like my very low expectations were not met. At Splash Country, I also had pretty low expectations, but they were exceeded.
Several companies have become very successful by exceeding customer expectations. Every day, employees at Ritz-Carlton hotels around the world gather before their shifts to hear "Wow" stories. These are stories about hotel staffers who go above and beyond the call of duty to help customers.
But you don't have to be the Ritz-Carlton to make use of this principle. Most people have pretty low expectations when they go into a fast food restaurant. On a visit to the Ritz-Carlton, Chick-fil-A founder Truett Cathy noticed that when he thanked anyone on the hotel staff, they always replied, "My pleasure." That's why you get the same response and outstanding service from Chick-fil-A employees.
In the last year, Chick-fil-A has been recognized by Zagat's and Business Week for their outstanding service that exceeds customer expectations.
It's interesting to think about what might have happened at my hotel if Chick-fil-A employees had been working there. I'm pretty sure the response would have been, "It's my pleasure to change your light bulb."
Thursday, August 7, 2008
Thursday, July 24, 2008
Customer Service Matters
Customer Service Matters
I probably shouldn't admit this, but I spent last week trying to take advantage of the alleged economic recession. The Timmerman family packed up and headed to Pigeon Forge. I assumed that, since the American economy is collapsing, we would be the only ones at Dollywood.
It seemed like half the people in the US were in line ahead of us at the Old Mill Restaurant. Apparently, when the going gets tough, the tough go out to eat $18 fried chicken.
I was especially amazed at the number of out-of-state license plates I saw in the parking lots. Pigeon Forge isn't just a recession destination for Tennesseans. People are coming from all over the United States.
But this trip will be memorable for another reason. It was a small incident, but one that will stick with me.
After spending the day standing in lines, we returned to the hotel about 5:30. When we turned on the light switch, it seemed as though we were in a disco from the 1970s. The fluorescent light bulbs in the room were going bad and flickering like a bad strobe light.
No problem, I thought. I'll just call the front desk and ask them to send someone to fix it. But the person at the front desk simply said, "Sorry, we won't have anyone available to fix it until tomorrow morning."
I wasn't sure what to say. Is this hotel incapable of changing a light bulb at 5:30 on a Monday afternoon? I offered to fix it myself if she could simply find the bulbs. She told me that she would see if she could find them and let me know.
About thirty minutes later, I was walking near the front desk, so I decided to stop in and check on the search. That's actually when the search began. Both the receptionist and someone in an office behind the desk said that they didn't know where the bulbs were stored. That's when she looked at me like I was supposed to go away.
I was still baffled, so I offered to remove bulbs from an unoccupied room. The receptionist told me that they only had two empty rooms and they really weren't supposed to swap bulbs like that.
That's when I went from bewilderment to disappointment. I was the one coming up with possible solutions to the problem. They were making up excuses that really didn't make sense.
Finally, when I didn't go away, she offered to call "Walt" and find out where the bulbs were stored. A little while later, someone who obviously wasn't very happy with me showed up to change the bulbs.
I'm glad that the problem was fixed, but it still left me with a bad taste in my mouth. Obviously, my problem could be fixed. But until I persisted, no one wanted to help.
This incident stands out because customer service is something that can really separate any company from its competitors. There are 10,000 hotel and motel rooms in Pigeon Forge and to me they're all pretty much the same. I've stayed at this hotel many times, but this tiny incident has pushed me to shop around on our next visit.
I wonder if there's a hotel that offers room service from the Old Mill?
I probably shouldn't admit this, but I spent last week trying to take advantage of the alleged economic recession. The Timmerman family packed up and headed to Pigeon Forge. I assumed that, since the American economy is collapsing, we would be the only ones at Dollywood.
It seemed like half the people in the US were in line ahead of us at the Old Mill Restaurant. Apparently, when the going gets tough, the tough go out to eat $18 fried chicken.
I was especially amazed at the number of out-of-state license plates I saw in the parking lots. Pigeon Forge isn't just a recession destination for Tennesseans. People are coming from all over the United States.
But this trip will be memorable for another reason. It was a small incident, but one that will stick with me.
After spending the day standing in lines, we returned to the hotel about 5:30. When we turned on the light switch, it seemed as though we were in a disco from the 1970s. The fluorescent light bulbs in the room were going bad and flickering like a bad strobe light.
No problem, I thought. I'll just call the front desk and ask them to send someone to fix it. But the person at the front desk simply said, "Sorry, we won't have anyone available to fix it until tomorrow morning."
I wasn't sure what to say. Is this hotel incapable of changing a light bulb at 5:30 on a Monday afternoon? I offered to fix it myself if she could simply find the bulbs. She told me that she would see if she could find them and let me know.
About thirty minutes later, I was walking near the front desk, so I decided to stop in and check on the search. That's actually when the search began. Both the receptionist and someone in an office behind the desk said that they didn't know where the bulbs were stored. That's when she looked at me like I was supposed to go away.
I was still baffled, so I offered to remove bulbs from an unoccupied room. The receptionist told me that they only had two empty rooms and they really weren't supposed to swap bulbs like that.
That's when I went from bewilderment to disappointment. I was the one coming up with possible solutions to the problem. They were making up excuses that really didn't make sense.
Finally, when I didn't go away, she offered to call "Walt" and find out where the bulbs were stored. A little while later, someone who obviously wasn't very happy with me showed up to change the bulbs.
I'm glad that the problem was fixed, but it still left me with a bad taste in my mouth. Obviously, my problem could be fixed. But until I persisted, no one wanted to help.
This incident stands out because customer service is something that can really separate any company from its competitors. There are 10,000 hotel and motel rooms in Pigeon Forge and to me they're all pretty much the same. I've stayed at this hotel many times, but this tiny incident has pushed me to shop around on our next visit.
I wonder if there's a hotel that offers room service from the Old Mill?
Tuesday, July 15, 2008
The Value of Freedom
Originally published July 13, 2008
Like most good red-blooded Americans, I spent last weekend celebrating freedom by shooting fireworks made in China. We celebrate freedom because it is one of the foundations upon which our country was founded. Freedom is still one of the pillars that separates good countries from oppressive ones.
Oddly enough, freedom is also one of the things that often separates good organizations from bad ones. For the last two years, Fortune magazine has named Google as America's Best Company to Work For. Aside from their free food, one of the hallmarks of Google's culture is known as 20-percent time.
Google expects all of their engineers to spend 20 percent of their time working on projects of their own choosing. These projects are usually creative ideas that an engineer simply finds interesting. Some of Google's most successful products, like Gmail and AdSense, are the result of this freedom to experiment.
Another company on Fortune's list of Best Companies is the convenience store chain QuikTrip. Convenience stores tend to be quite dangerous places to work. So I don't typically think of them as being great places to work. At QuikTrip, however, employees report that the company provides them with the resources they need to be successful, and then they are left alone and trusted to do their jobs.
The value of freedom can be seen in non-profit organizations as well. In a nationwide survey of public school teachers, researchers from the National Center for Education Statistics searched for the strongest predictors of job satisfaction. They examined background characteristics like demographics, experience, and school size. They also looked at working conditions that might be under the control of school administrators.
The background characteristics had virtually no relationship with job satisfaction. Higher paid teachers were only slightly more satisfied than lower paid teachers. Two of the strongest predictors of job satisfaction were the teacher's influence over school policy and the teacher's control in the classroom.
In other words, teachers (like everyone else) are more satisfied when they are given more freedom to make decisions that influence their work.
So if organizational leaders want to offer more autonomy, where should they begin? Pretty much anywhere. One idea floating around lately is that employers should offer four-day work weeks. Aside from saving on gas, moving to a four-day week can offer a number of advantages.
Back when I worked at the underwear factory in South Carolina, we moved to a four-day work week only after the employees voted on it. Even though they were still working the same number of hours, this one move produced the biggest morale boost I've ever seen.
I'm still convinced that the morale boost came more from the vote than from the outcome. They simply appreciated being asked and having an influence.
You can probably come up with a number of reasons why a four-day work week won't work in your company. Sounds like another great opportunity for employee involvement. Ask your employees to overcome your reservations.
Any leader worth their salt should be able to come up with other opportunities for employee autonomy.
Organizational leaders then face the following choice. They can either provide their employees with some good ol' all-American freedom and reap the benefits. Or they can rule their company with the iron fist of a Communist fireworks manufacturer.
Like most good red-blooded Americans, I spent last weekend celebrating freedom by shooting fireworks made in China. We celebrate freedom because it is one of the foundations upon which our country was founded. Freedom is still one of the pillars that separates good countries from oppressive ones.
Oddly enough, freedom is also one of the things that often separates good organizations from bad ones. For the last two years, Fortune magazine has named Google as America's Best Company to Work For. Aside from their free food, one of the hallmarks of Google's culture is known as 20-percent time.
Google expects all of their engineers to spend 20 percent of their time working on projects of their own choosing. These projects are usually creative ideas that an engineer simply finds interesting. Some of Google's most successful products, like Gmail and AdSense, are the result of this freedom to experiment.
Another company on Fortune's list of Best Companies is the convenience store chain QuikTrip. Convenience stores tend to be quite dangerous places to work. So I don't typically think of them as being great places to work. At QuikTrip, however, employees report that the company provides them with the resources they need to be successful, and then they are left alone and trusted to do their jobs.
The value of freedom can be seen in non-profit organizations as well. In a nationwide survey of public school teachers, researchers from the National Center for Education Statistics searched for the strongest predictors of job satisfaction. They examined background characteristics like demographics, experience, and school size. They also looked at working conditions that might be under the control of school administrators.
The background characteristics had virtually no relationship with job satisfaction. Higher paid teachers were only slightly more satisfied than lower paid teachers. Two of the strongest predictors of job satisfaction were the teacher's influence over school policy and the teacher's control in the classroom.
In other words, teachers (like everyone else) are more satisfied when they are given more freedom to make decisions that influence their work.
So if organizational leaders want to offer more autonomy, where should they begin? Pretty much anywhere. One idea floating around lately is that employers should offer four-day work weeks. Aside from saving on gas, moving to a four-day week can offer a number of advantages.
Back when I worked at the underwear factory in South Carolina, we moved to a four-day work week only after the employees voted on it. Even though they were still working the same number of hours, this one move produced the biggest morale boost I've ever seen.
I'm still convinced that the morale boost came more from the vote than from the outcome. They simply appreciated being asked and having an influence.
You can probably come up with a number of reasons why a four-day work week won't work in your company. Sounds like another great opportunity for employee involvement. Ask your employees to overcome your reservations.
Any leader worth their salt should be able to come up with other opportunities for employee autonomy.
Organizational leaders then face the following choice. They can either provide their employees with some good ol' all-American freedom and reap the benefits. Or they can rule their company with the iron fist of a Communist fireworks manufacturer.
The Joy of Entrepreneurship
Originally published June 22, 2008
Two weeks ago I had more fun than I’ve had in a long time. My son and I packed our van with baseball cards, World Series programs, and autographs and set up a table at a sports card show in Nashville.
I was first bitten by the baseball card bug in high school. I started buying cases of cards, pulling out the cards I wanted, and selling the leftovers to dealers. When I was a sophomore in college, I got my very own table at a card show and was hooked.
That was the point when I changed my major from chemistry to psychology. I became convinced that I could make a career out of buying and selling baseball cards. I changed my major from something hard to something interesting so that I could concentrate on my emerging card business.
Thankfully, the baseball card market took a sharp turn for the worse just before I graduated. That downturn gave me just enough time to come up with a Plan B that turned out to provide a slightly more stable career path.
Over the years, I’ve held on to a few cards and will occasionally set up at a show. Ebay, however, has largely made card shows obsolete. I decided to do the show in Nashville because I wanted to expose my 9-year-old son to the joy of entrepreneurship.
T.J. helped prepare everything leading up to the show. At the show, he decided how to set up his half of the table. He handled his own sales and did his own negotiating.
Just like I preach in my classes, I offered him a profit-sharing deal. At the end of the day, we counted up our revenue, deducted our expenses, and split the profit 50-50. I asked if he wanted to stop at Outback for dinner on the way home. He asked if it would count as an expense. When I told him that it would, he opted for Chick-fil-A instead.
Entrepreneurship is not only fun; it’s also one of the most important things parents need to teach their children. I honestly believe that my children will see completely different employment relationships twenty years from now. I believe more people will be self-employed and entrepreneurial skills will be critical.
FedEx provides a good example of what companies are likely to move toward. Did you know that the FedEx Ground deliveries to your house are made by self-employed independent contractors?
They look like FedEx employees, but they buy their own trucks, pay their own expenses, and don’t get paid overtime. FedEx likes this arrangement because it provides them with endless flexibility. If there’s a downturn in business, they don’t have trucks or employee benefits to pay for.
About 15,000 drivers apparently find this arrangement attractive. They have the freedom to buy multiple routes and hire employees to help them with deliveries. They’re free to take a vacation as long as they find someone to cover their routes.
FedEx, like many other organizations, is asking the question: Do we really need employees?
I’m not sure if this is a great long-term strategy, but companies that are driven by short-term results will certainly ask the same question and make a similar decision.
Even if he doesn’t end up self-employed, T.J. will definitely know how to increase profit for his employer. And he’ll actually do it if he gets to share the profit.
Two weeks ago I had more fun than I’ve had in a long time. My son and I packed our van with baseball cards, World Series programs, and autographs and set up a table at a sports card show in Nashville.
I was first bitten by the baseball card bug in high school. I started buying cases of cards, pulling out the cards I wanted, and selling the leftovers to dealers. When I was a sophomore in college, I got my very own table at a card show and was hooked.
That was the point when I changed my major from chemistry to psychology. I became convinced that I could make a career out of buying and selling baseball cards. I changed my major from something hard to something interesting so that I could concentrate on my emerging card business.
Thankfully, the baseball card market took a sharp turn for the worse just before I graduated. That downturn gave me just enough time to come up with a Plan B that turned out to provide a slightly more stable career path.
Over the years, I’ve held on to a few cards and will occasionally set up at a show. Ebay, however, has largely made card shows obsolete. I decided to do the show in Nashville because I wanted to expose my 9-year-old son to the joy of entrepreneurship.
T.J. helped prepare everything leading up to the show. At the show, he decided how to set up his half of the table. He handled his own sales and did his own negotiating.
Just like I preach in my classes, I offered him a profit-sharing deal. At the end of the day, we counted up our revenue, deducted our expenses, and split the profit 50-50. I asked if he wanted to stop at Outback for dinner on the way home. He asked if it would count as an expense. When I told him that it would, he opted for Chick-fil-A instead.
Entrepreneurship is not only fun; it’s also one of the most important things parents need to teach their children. I honestly believe that my children will see completely different employment relationships twenty years from now. I believe more people will be self-employed and entrepreneurial skills will be critical.
FedEx provides a good example of what companies are likely to move toward. Did you know that the FedEx Ground deliveries to your house are made by self-employed independent contractors?
They look like FedEx employees, but they buy their own trucks, pay their own expenses, and don’t get paid overtime. FedEx likes this arrangement because it provides them with endless flexibility. If there’s a downturn in business, they don’t have trucks or employee benefits to pay for.
About 15,000 drivers apparently find this arrangement attractive. They have the freedom to buy multiple routes and hire employees to help them with deliveries. They’re free to take a vacation as long as they find someone to cover their routes.
FedEx, like many other organizations, is asking the question: Do we really need employees?
I’m not sure if this is a great long-term strategy, but companies that are driven by short-term results will certainly ask the same question and make a similar decision.
Even if he doesn’t end up self-employed, T.J. will definitely know how to increase profit for his employer. And he’ll actually do it if he gets to share the profit.
Old Managers' Tales
Originally published June 1, 2008
Over the last few weeks, Jennie Ivey was courageous enough to discuss old wives’ tales in her column. This takes courage because one person’s old wives’ tale is another person’s parenting wisdom. People don’t really like having their wisdom challenged.
I’ve never really liked the term “old wives’ tale.” It seems to imply that old husbands are immune from false beliefs. But I’m pretty sure husbands have a few of these as well.
One of my favorite tales is that more babies are born during a full moon. One of my children was born during a full moon and I remember the nurse commenting about how busy the maternity ward was that night. My other two children were born during other moon phases. Those were busy nights too, but I guess it was because of something other than the moon.
This tale is pretty easy to test. All we have to do is count the number of babies born during each moon phase and we get the right answer. Most recently, a group of researchers examined the moon phase of every birth in Austria over 30 years. What was their conclusion? There is absolutely no evidence that more babies are born during a full moon (or any other moon phase).
Beyond babies, at least 100 other studies have confirmed that the full moon has no effect on homicides, traffic accidents, suicides, psychiatric admissions, or any other human behavior.
So what does this have to do with business management? Last summer, England’s Sussex Police Department announced that they would increase patrols during full moons. One of their inspectors looked at the data from 2006 and found that more crime occurred around full moons.
Apparently he didn’t notice that, during 2006, five of the twelve full moons just happened to fall on weekends. Full moon or not, more crime occurs on weekends for reasons that have nothing to do with the moon. So the police force in Sussex is being managed by myth.
But the inspector’s study is backed up by his 19 years of experience. And that’s exactly why the full moon myth has implications far beyond police staffing practices.
Among the general population, about half of us believe that human behavior changes during a full moon. Among doctors, it’s over sixty percent and among nurses it’s over eighty percent.
In other words, the people with the most experience in this area are actually more likely to believe something that isn’t true. Experience is supposed to make us more accurate.
But this myth (like most myths) persists because of two things that are more powerful than evidence. First, we tend to notice things that confirm what we already believe. A busy night in the maternity ward during a full moon proves we’re right. Other busy nights are just dumb luck and we ignore the slow nights.
Second, these beliefs are passed down by people we respect like more experienced nurses, police officers, and old wives.
So what’s your managerial myth? Are happy workers really more productive? Is money really the best way to motivate employees? Are layoffs the best way to cut costs? Are women incapable of being good leaders?
The first step in avoiding management-by-myth is being willing to admit that your deeply held beliefs could be wrong.
I should also thank Jennie for an inspiration. I finished this column a full day before my deadline by putting a bar of soap under my keyboard.
Over the last few weeks, Jennie Ivey was courageous enough to discuss old wives’ tales in her column. This takes courage because one person’s old wives’ tale is another person’s parenting wisdom. People don’t really like having their wisdom challenged.
I’ve never really liked the term “old wives’ tale.” It seems to imply that old husbands are immune from false beliefs. But I’m pretty sure husbands have a few of these as well.
One of my favorite tales is that more babies are born during a full moon. One of my children was born during a full moon and I remember the nurse commenting about how busy the maternity ward was that night. My other two children were born during other moon phases. Those were busy nights too, but I guess it was because of something other than the moon.
This tale is pretty easy to test. All we have to do is count the number of babies born during each moon phase and we get the right answer. Most recently, a group of researchers examined the moon phase of every birth in Austria over 30 years. What was their conclusion? There is absolutely no evidence that more babies are born during a full moon (or any other moon phase).
Beyond babies, at least 100 other studies have confirmed that the full moon has no effect on homicides, traffic accidents, suicides, psychiatric admissions, or any other human behavior.
So what does this have to do with business management? Last summer, England’s Sussex Police Department announced that they would increase patrols during full moons. One of their inspectors looked at the data from 2006 and found that more crime occurred around full moons.
Apparently he didn’t notice that, during 2006, five of the twelve full moons just happened to fall on weekends. Full moon or not, more crime occurs on weekends for reasons that have nothing to do with the moon. So the police force in Sussex is being managed by myth.
But the inspector’s study is backed up by his 19 years of experience. And that’s exactly why the full moon myth has implications far beyond police staffing practices.
Among the general population, about half of us believe that human behavior changes during a full moon. Among doctors, it’s over sixty percent and among nurses it’s over eighty percent.
In other words, the people with the most experience in this area are actually more likely to believe something that isn’t true. Experience is supposed to make us more accurate.
But this myth (like most myths) persists because of two things that are more powerful than evidence. First, we tend to notice things that confirm what we already believe. A busy night in the maternity ward during a full moon proves we’re right. Other busy nights are just dumb luck and we ignore the slow nights.
Second, these beliefs are passed down by people we respect like more experienced nurses, police officers, and old wives.
So what’s your managerial myth? Are happy workers really more productive? Is money really the best way to motivate employees? Are layoffs the best way to cut costs? Are women incapable of being good leaders?
The first step in avoiding management-by-myth is being willing to admit that your deeply held beliefs could be wrong.
I should also thank Jennie for an inspiration. I finished this column a full day before my deadline by putting a bar of soap under my keyboard.
Please Buy More Stuff
Originally published May 18, 2008
Please Buy More Stuff
Well it’s looking more and more like my TTU colleagues and I will be receiving pay cuts this year. Our salaries aren’t decreasing, but the cost of living is going up and our salaries are staying the same. The net effect is that we lose buying power and we effectively receive a cut in pay.
So why are we receiving pay cuts? Did we do our jobs poorly last year? I don’t think so. We manufactured more student credit hours than ever before. We produced more degrees than ever before. And we attracted the largest freshman class ever.
We’re receiving pay cuts because the citizens of Tennessee aren’t buying enough stuff.
At TTU, we mainly receive raises when the state’s elected officials find enough extra money in the budget for us. In Tennessee, of course, the state’s revenue comes primarily from the sales tax. So I receive a raise when Tennesseans buy more stuff.
I’m not going to propose a solution to the state’s budget problems, but I think this is a pretty good example of the difficulty organizations have when it comes to compensation. Most organizations are not very good at using compensation to pursue organizational goals.
The problem is not limited to state governments. The news is full of companies where pay is not aligned with organizational performance.
In 2007, for example, Citigroup’s stock lost about half of its value and the company’s losses from the credit mess are approaching $40 billion.
Citigroup’s CEO, Charles Prince, “retired” in November of 2007 when the losses began piling up. He left with a severance package worth $40 million. He will also receive an office, secretary, car and driver for the next five years. Perhaps Prince will hire one of the 30,000 Citigroup employees who are being laid off because of his “leadership.”
Countrywide’s CEO, Angelo Mozilo, cashed out $400 million in stock options when the stock was doing well between 2003 and 2007. Mozilo’s options were awarded based on the company’s earnings. The company’s earnings, of course, were built on selling increasingly risky loans.
Now that the house of cards has collapsed and the stock price has fallen by 90 percent, Mozilo is doing pretty well while stockholders, employees, and customers are suffering.
Oddly enough, Mozilo was on the board of directors at Home Depot when their CEO, Bob Nardelli, was ousted because of the company’s poor performance. Nardelli left with a package worth $210 million.
And therein lies the problem with CEO compensation. CEO pay is determined by the board of directors. The board is supposed to act in the best interest of the shareholders. But most board members are selected in ways that guarantee CEO-friendly boards.
Most boards have adopted some form of performance-based pay for the CEOs, but their performance goals are either too easy to meet or actually counterproductive to the long-term health of the organization.
I’m the last one in the world that wants any sort of government regulation of CEO pay, but presidential candidates are proposing this very idea. The CEOs are bringing it on themselves.
All organizational leaders need to understand the kinds of things that foster the long-term health of the organization. Then they need to pay people for doing those things.
Until we learn that lesson, please buy more stuff.
Please Buy More Stuff
Well it’s looking more and more like my TTU colleagues and I will be receiving pay cuts this year. Our salaries aren’t decreasing, but the cost of living is going up and our salaries are staying the same. The net effect is that we lose buying power and we effectively receive a cut in pay.
So why are we receiving pay cuts? Did we do our jobs poorly last year? I don’t think so. We manufactured more student credit hours than ever before. We produced more degrees than ever before. And we attracted the largest freshman class ever.
We’re receiving pay cuts because the citizens of Tennessee aren’t buying enough stuff.
At TTU, we mainly receive raises when the state’s elected officials find enough extra money in the budget for us. In Tennessee, of course, the state’s revenue comes primarily from the sales tax. So I receive a raise when Tennesseans buy more stuff.
I’m not going to propose a solution to the state’s budget problems, but I think this is a pretty good example of the difficulty organizations have when it comes to compensation. Most organizations are not very good at using compensation to pursue organizational goals.
The problem is not limited to state governments. The news is full of companies where pay is not aligned with organizational performance.
In 2007, for example, Citigroup’s stock lost about half of its value and the company’s losses from the credit mess are approaching $40 billion.
Citigroup’s CEO, Charles Prince, “retired” in November of 2007 when the losses began piling up. He left with a severance package worth $40 million. He will also receive an office, secretary, car and driver for the next five years. Perhaps Prince will hire one of the 30,000 Citigroup employees who are being laid off because of his “leadership.”
Countrywide’s CEO, Angelo Mozilo, cashed out $400 million in stock options when the stock was doing well between 2003 and 2007. Mozilo’s options were awarded based on the company’s earnings. The company’s earnings, of course, were built on selling increasingly risky loans.
Now that the house of cards has collapsed and the stock price has fallen by 90 percent, Mozilo is doing pretty well while stockholders, employees, and customers are suffering.
Oddly enough, Mozilo was on the board of directors at Home Depot when their CEO, Bob Nardelli, was ousted because of the company’s poor performance. Nardelli left with a package worth $210 million.
And therein lies the problem with CEO compensation. CEO pay is determined by the board of directors. The board is supposed to act in the best interest of the shareholders. But most board members are selected in ways that guarantee CEO-friendly boards.
Most boards have adopted some form of performance-based pay for the CEOs, but their performance goals are either too easy to meet or actually counterproductive to the long-term health of the organization.
I’m the last one in the world that wants any sort of government regulation of CEO pay, but presidential candidates are proposing this very idea. The CEOs are bringing it on themselves.
All organizational leaders need to understand the kinds of things that foster the long-term health of the organization. Then they need to pay people for doing those things.
Until we learn that lesson, please buy more stuff.
Advice for Graduates
Originally published May 4, 2008
The week after I graduated from high school, I went to work at the underwear factory where my father worked. On my first day as a member of the labor force, I found a newspaper clipping next to my breakfast plate. I believe the clipping was a Dear Abby column. The column contained advice for graduates and I've always remembered one of the pearls of wisdom: If you don't like your job, quit. Otherwise shut up.
Yesterday, nearly 1200 students graduated from Tennessee Tech. I've attended many graduation ceremonies over the years. To be honest, I can't remember any of the advice given by the commencement speakers. But, for some reason, that newspaper column has stayed with me for over 20 years. Today I'd like to share some bits of wisdom I've picked up over the years. Feel free to share them with your favorite graduate tomorrow at breakfast.
On average, a college graduate will earn about one million dollars more than a high school graduate over the course of their career. Your degree doesn't make you worth a million dollars. It helps you produce value. Your employers will pay you according to your value, not your degree.
In college, you probably had teachers that allowed you to earn optional extra credit, drop your lowest quiz grade, and skip class the day before hunting season began.
In the real world, working extra hard is expected, your worst performance will count more than the others, and you might actually have to work on Saturday.
Your employer is your customer. They are buying labor from you. Keep your customer happy or they will shop elsewhere.
Your employer is not legally required to offer health insurance, a retirement plan, or paid vacation. Some employers offer these benefits to attract and retain great employees. If your employer offers these, they deserve greatness in return.
If you stop on the way to work and spend two dollars a day on coffee (or anything else), that's about five hundred dollars per year. If, instead, you invest five hundred dollars a year in a good mutual fund, you'll end up with over two hundred thousand dollars in forty years. Which would you rather have?
Want an investment with a guaranteed return of eighteen percent? Pay off your credit cards.
Do what you love. But if you love playing video games, don't expect to get paid the same as someone who loves doing brain surgery.
Just because you've finished college doesn't mean you've finished learning. You're just beginning.
Twenty years ago, Google's founders were in high school. Today their company is worth more than Boeing and McDonalds combined. Twenty years from now we'll be just as amazed by some other company. You can start it.
Finally, college graduates should know that Kenneth Lay, Andrew Fastow, and Jeffrey Skilling also graduated from college. Lay, Fastow, and Skilling were the brains behind the rise and fall of Enron. Lay died before he was sentenced, but Fastow and Skilling are in prison serving sentences for conspiracy, securities fraud, and insider trading. Thousands of employees and investors were hurt by the criminal behavior of these men.
Your education will allow you access to some great opportunities. But with opportunity comes great responsibility. So before you make a decision, ask yourself how it will look as a newspaper headline.
The week after I graduated from high school, I went to work at the underwear factory where my father worked. On my first day as a member of the labor force, I found a newspaper clipping next to my breakfast plate. I believe the clipping was a Dear Abby column. The column contained advice for graduates and I've always remembered one of the pearls of wisdom: If you don't like your job, quit. Otherwise shut up.
Yesterday, nearly 1200 students graduated from Tennessee Tech. I've attended many graduation ceremonies over the years. To be honest, I can't remember any of the advice given by the commencement speakers. But, for some reason, that newspaper column has stayed with me for over 20 years. Today I'd like to share some bits of wisdom I've picked up over the years. Feel free to share them with your favorite graduate tomorrow at breakfast.
On average, a college graduate will earn about one million dollars more than a high school graduate over the course of their career. Your degree doesn't make you worth a million dollars. It helps you produce value. Your employers will pay you according to your value, not your degree.
In college, you probably had teachers that allowed you to earn optional extra credit, drop your lowest quiz grade, and skip class the day before hunting season began.
In the real world, working extra hard is expected, your worst performance will count more than the others, and you might actually have to work on Saturday.
Your employer is your customer. They are buying labor from you. Keep your customer happy or they will shop elsewhere.
Your employer is not legally required to offer health insurance, a retirement plan, or paid vacation. Some employers offer these benefits to attract and retain great employees. If your employer offers these, they deserve greatness in return.
If you stop on the way to work and spend two dollars a day on coffee (or anything else), that's about five hundred dollars per year. If, instead, you invest five hundred dollars a year in a good mutual fund, you'll end up with over two hundred thousand dollars in forty years. Which would you rather have?
Want an investment with a guaranteed return of eighteen percent? Pay off your credit cards.
Do what you love. But if you love playing video games, don't expect to get paid the same as someone who loves doing brain surgery.
Just because you've finished college doesn't mean you've finished learning. You're just beginning.
Twenty years ago, Google's founders were in high school. Today their company is worth more than Boeing and McDonalds combined. Twenty years from now we'll be just as amazed by some other company. You can start it.
Finally, college graduates should know that Kenneth Lay, Andrew Fastow, and Jeffrey Skilling also graduated from college. Lay, Fastow, and Skilling were the brains behind the rise and fall of Enron. Lay died before he was sentenced, but Fastow and Skilling are in prison serving sentences for conspiracy, securities fraud, and insider trading. Thousands of employees and investors were hurt by the criminal behavior of these men.
Your education will allow you access to some great opportunities. But with opportunity comes great responsibility. So before you make a decision, ask yourself how it will look as a newspaper headline.
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