Keyword: customer satisfaction

There has been quite a bit of hubbub lately over the end-of-year bonuses paid by Goldman Sachs.  It even provoked an op-ed piece in the venerable New York Times.  Totaling some $16.5 billion, and averaging $623,000 per employee, the payouts have set off a firestorm of shock, awe, envy, and more than a few cries of “That’s obscene!”  It’s really funny to see how people react when things not only work as intended, but work perhaps too well.

The more serious people question whether the pay was justified, or was prudent for the company.  With the average employee getting more than $200 an hour, and some reaching into the tens of thousands an hour, it seems inevitable that there would be sour grapes but the real question should be: is it right?

In a word: yes.  It’s fine, and even exemplary.  I think there are three key measures by which to judge a compensation system:

• Is it based on, and does it reinforce, the organization’s goals and objectives?
• Is it applied according to some reasonable, and preferably transparent, methodology?
• Is it fiscally prudent for the organization?

That’s it.  Forget about providing a living wage, or some sense of social fairness, or even public perceptions of the system.  If it meets these three measures, I think it is great.  Let’s look at each of these measurements, and reflect on Goldman’s application of them.

Reinforcing goals and objectives

This is number one for a reason: it is by far the most important.  I’ve said it here on these pages a hundred times, but the key to success in an organization is defining a clear vision followed by consistent daily application of that vision.  There are many ways to apply the vision, but few are more effective than to base compensation on it.  I have built compensation systems that are directly based on the company vision, and the results are astounding. [ed: more on this later]

Does the system at Goldman Sachs meet this test?  Well, from a distance it’s hard to tell.  But I can say that, from what I know of the company, the goal is to make deals and trades that benefit the buyers, the sellers, and Goldman Sachs.  And by all reasonable measures, they hit a home run there.  Pre-tax profit (that’s net, not gross) even with these salaries included was over a half-million per head.  That’s twice the Wall Street average, and 5 times what we so proudly got when I was at Microsoft.

So, even without knowledge of the specific goals and objectives that Goldman set for itself, it’s clear that from a strictly financial perspective, they scored big.  And the compensation system should reward those who exceeded those objectives so dramatically.

Reasonable and transparent methodology

This is the point that catches up so many companies.  Many firms have their compensation set extremely top-heavy, with those who control the purse strings, taking the most out of the purse.  I like to see a compensation system that is based on some simple, clear, and preferably public, metrics.  Typically it’s something like gross sales, or gross profit, or even something like regularly measured customer satisfaction.  Whatever it is, it should be simple, directly correlated to things people actual have some influence over, and difficult to “game”.

Another key component of this is that the compensation system should be very broadly based.  Not just a perk for those at the top, but dipping deep down into the organization, so that all people who have a part in creating the success can share in it.  When I was at Microsoft, virtually all full-time employees were eligible for stock options.  That’s the kind of example I’m stressing here.

From what I can see, Goldman’s scheme meets these objectives.  There are stories of most employees seeing twice to three times their peers at other firms, and this is in line with their company performance against their competition.  Yes there are reports of some secretaries complaining they only got $120k when others saw millions, but that melts when you point out that’s 2x the going rate.  So what this all means is that the system is implicitly broad-based and relatively effective.

Fiscally prudent

This is where Goldman has me completely won over.  You see, they pay compensation in arrears.  They wait until the end of the year, and then, once all the numbers are in, they divvy up the spoils.  This has many great effects, a key one being that they never have to worry about paying for performance they might achieve.  They know both how well the person has performed, and how much they can afford to reward them.  How clean is that?

In addition, they have the benefit of drawing the bonuses not from pending revenue, but from cash on hand.  And they’ve had the better part of a year to invest that money wisely, before they have to pay it out.  I think every small firm that has had to scrape to make bonus payments would do well to consider a scheme like this.

So, in summary, I think Goldman has it just about right.  They pay people from their profits, they do it in a manner that rewards for definitive past performance, and in line with their corporate objectives.  The fact that the company was enormously profitable isn’t something people should resent.  Envy, maybe.  Emulate, probably.

I had the privilege joy chore of taking the flight from Seoul to Seattle a couple of days ago.  If you haven’t had this fortune, it’s a 10 hour flight through 16 time zones where you arrive 6 hours before you left.  I’m not a good sleeper on planes so any of these long-haul, multi-timezone flights are hard.  This one was especially noteworthy, however.

We flew on Asiana Airlines, a Seoul based carrier that was a special treat.  Unlike their state-owned competitor, Korean Air Lines, they focus on the long-haul traveller and do it very well.  It is a formula that includes the latest planes (ours was a new Boeing 777-200), all the best amenities (like 110v and 220v outlets in each business-class seat), and very impressive service.  There were 13 attendants, plus a flight crew, on a flight I’m sure a US carrier would have had 6 people working.  At the start of the flight, the entire staff stands at the head of the aisle and bows to the passengers.  In business-class, they pampered us constantly with two three course meals, constant checking on our welfare, and genuine smiles.  You really got the impression they cared about you.

Which gets me around to the point of all this.  I really needed caring for on this flight.  Everything that could go wrong did.

While in Korea, I found I really enjoyed the food.  For some, kimchi and other native tastes require getting used to.  For me, I took to them immediately.  And Asiana offers two meal services: western and Korean.  So on the way back I tried the Korean fare.  Well my bibambop (sort of a rice and vegetable version of the Cold Stone “mix ins”) was stone cold.  Normally it is served quite hot, and my most recent experience at a fine Seoul eatery was served in an iron bowl that had to be 1100 degrees.  In this case it was not even warm.  But did I care?  How could I?  The service was so good, the attendants were there with more champagne, taking away empties, adding treats, etc. that I forgot it wasn’t perfect.

Then, within an hour of the start of the flight, my fancy 777 “wonder-chair”, the seat with a half-dozen motors, lumbar adjustments, and a “bed mode” simply stopped working.  Wouldn’t budge.  It had worked for a while, but suddenly there I was in my full upright and locked position.  Not the best way to spend 10 hours.  So I inquired of some assistance.

I was swarmed with help.  The head of cabin service eventually took my seat apart.  She was unable to get it to work as intended, but found all the manual controls, and adjusted it to my liking.  Throughout the balance of the flight I was checked on to be sure the seat was where I wanted it, and to apologize profusely for the failure.  At one point the assistant purser insisted that I get a nap, and graciously turned it into “bed mode”.  I actually slept on an airplane — a true feat for me.

My point in all this is that service really does matter.  And more to the point, outstanding service can make up for any number of problems in the product.  I’m sure that on a US carrier, I would have had someone who would have done something about my issues with the flight.  But I’m also sure they would have done it grudgingly, with a tone of “oh, great, now what’s your problem?”  On this flight, it was clear they really wanted to make me happy.  And it made all the difference.

Think about it.  Here I am, in a quite public forum, raving about an airline’s service.  But I had a terrible flight: cold food, a broken seat, and a video system that couldn’t have been more jumpy/flaky/noisy.  What do I remember?  The service.  The genuine kindness and concern of the employees.

I’m a customer of Asiana’s for life.  Next time I’m headed to Korea, or anywhere in Asia, I’m going to see if they fly there.

What does this say about your organization?  It says that service not only matters, is not only a good thing to have, but it may save you from a whole lot of other faults.  It may be the thing that makes that missed deadline, that faulty part, that little mistake go away.

And great service is about the only thing that makes customers-for-life.  People don’t become customers-for-life because of low prices.  If someone comes along with a lower price, they’re gone.  They don’t become customers-for-life because of a good product.  As soon as someone offers that same product, they’re vulnerable to switching.

People become customers-for-life because of other people.  They feel a connection, a relationship.  And they want to continue that relationship.  So do whatever it takes to make your organization care about its customers.  You may keep them forever.

While on a plane for hours a few days ago, I found myself drawn into the inflight “entertainment”.  Among some interesting fare (a classic Everybody Loves Raymond among other things) was the usual self-serving drivel from the airline, and a strange infomercial about a Marriott hotel in Florida.

It was a weird piece, several minutes long, devoid of any real information and filled with cliches.  I had seen it on the outbound flight, and it struck me as unusually sappy.  On the return I was overwhelmed.

As with any hotel propaganda, there were the required panning shots of the lobby, the pretty girl diving into the swimming pool, the enchanted couple gazing into each other’s eyes over plates of tiny morsels of food, and the family happier than any other you’ve ever seen after a long plane flight.  And the interview with the manager was insipid, with so much for me to love: “our outstanding personnel” and other ridiculous HR miscues.  But the thing that struck me the most was:

We pride ourselves in exceeding our customers’ expectations every day.

I’ve always had trouble with this whole concept of “exceeding your expectations”.  It was obviously created by marketing people from words that seem to sound good, but what does it mean?  Let’s examine it…

What are my expectations?  When I go to a nice hotel, I expect a clean room, a nice bed, no bedbugs, and quiet.  Hard to exceed those…  Hermedically clean?  Anechoically quiet?  Less than zero bedbugs?  OK, that’s simply being petty and splitting semantic hairs.

But, really, how do you consistently “exceed my expectations”?  Only by me expecting to be disappointed in the first place, or by having your market placement so far off base that you trick people.  Either of these are failures on the part of the company.

If I go to a Motel 6, I don’t expect Four Seasons level service.  So if I get it at a Motel 6, something’s wrong.  The Motel 6 is wasting money providing services to people who aren’t looking for them, and probably losing a boatload doing it.  And it’s impossible for the Four Seasons to exceed my expectations, because I expect them to be the best.  Anything less is a failure.

All of this plays hell with the employees.  It’s like saying: “set a really low bar for our customers then surprise the heck out of them by being competent.”  Expecting your employees to do daily slight of hand with their level service isn’t a good thing for business, it’s a sure path to frustrated and disgruntled people.

So, please, stop “exceeding my expectations”.  Just set a really high bar, and meet it every time.  Consistency is what matters, not the occasional random overshot.

The Ubiquitous Stanley Steemer Truck

Stanley Steemer is running ads (at least in the Seattle area) that are the first I’ve ever seen where a company is using their employee drug policy as a marketing tool.

In the ads, a pretty woman (housewife?) is shown with concern over letting strangers into her house, and with obvious relief that, because she called Stanley Steemer, there aren’t stoners invading her space.  The line is that not only do they get your carpet clean, but their employees are clean too.  I’ve got a FAQ that deals with the whole issue of employee testing, but this ad campaign raises a lot of questions for me.

First, although I’m not a marketing expert, I wonder about all the standard marketing questions: is this a real concern for potential customers, is this a differentiator (do their competitors have an obvious problem with this), and do people believe the message?  Even further, isn’t this making people who wouldn’t have otherwise thought about the issue of drug-impaired carpet cleaners now wonder about it and want to avoid it altogther (rent a machine and do it themselves)?  I certainly didn’t think of the carpet cleaning business as a particular hot spot for the drug crowd…  until this ad…

Then there’s the whole host of procedural questions:

• What do they test for?  Illegal drugs only?  How about alcohol?  What about prescription drugs?  Performance enhancing drugs?
• How often do they test?  Only on hire?  What if the person changes?  So do they test every month?
• What kind of a test is it?  Urine, which misses a lot of drugs, or blood which is invasive?
• Who do they test?  Just the people who clean the carpets?  How about sales people?  The people on the phone?  The managers?  The CEO?
• Are there exceptions?  Can I get out of it on religous grounds?
• What do they do with the long-time employee who suddenly goes dirty?  Fire them?  Keep them in the office?  Rehab?
• How much does this whole testing effort cost?  Could it ever be worth the expense?

Of course there are the many privacy questions.  What right does my employer have to know what I do in my off time?  And who sees the results?  Just HR?  My manager?  The health insurance provider?  The police?

Then there’s the issue of their relationship with their employees. “That’s right Sally, you have to pee in the cup before you can go to work.”  That sure builds a wonderful trusting relationship between employer and employee. “Yep, Bob, you have to be more sober to clean carpets than to play major league baseball.”  Please don’t get me started there…

But perhaps the most stunning part of all of this is that they don’t tell potential hires about this.  That’s right, nowhere on their web site is this drug policy mentioned.  I scoured their entire site, and especially their employment section, and there’s not a word about drug testing.  There are lots of flowery words about how wonderful it is to work there, plenty of encouragement for you to apply, but not a word about peeing in a cup when you do.  The first sign you see when you walk into many stores is “we drug test all applicants”.  But at Stanley Steemer, they apparently keep that a surprise for the potential employee while touting it to potential customers.

All in all this seems like a really bad move, and shows remarkably poor judgement on the part of the Stanley Steemer leadership team.  I’m sure it will be short-lived, quickly forgotten in the market, but long remembered in the company.

Back in March Home Depot unleashed what could only be called a PR offensive [ed: pun intended].  There was this great BusinessWeek cover story, a couple of other minor articles and mentions, and then a Harvard Business Review piece, all about how Bob Nardelli was wonderful.  Heck, the BusinessWeek article was even titled:

Renovating Home Depot
Skip the touchy-feely stuff.  The big-box store is thriving under CEP Bob Nardelli’s military-style rule.

But the problem is, it’s a PR crock.  By any measure Home Depot is not thriving, the people there hate it, and it shows — all the way through to the check-out line.

Sure the article(s) talk all big about ex-marines, and “tough under fire”, and all that junk.  But the point of fact is the retailer is not the military, people don’t like being treated like that, and the stuff doesn’t work.

Walked into a Home Depot lately?  Tried to find help?  Tried to find someone who cared?  Tried to find something you went in wanting to buy?  It’s a nightmare.

Just for fun, pull an orange apron aside and ask them what they think of the place.  But only if you have an hour to spare.  They will rant all over you, and endlessly — like they have nothing better to do.  Ouch.  And the BW article even alludes to this: “Some describe a demoralized staff and say a “culture of fear” is causing customer service to wane.”  Executive turnover is rampant.  And Bob’s pay package can’t help (see this entry).

Customers see it too:

The University of Michigan’s annual American Customer Satisfaction Index, released on Feb. 21, shows Home Depot slipped to dead last among major U.S. retailers.  With a score of 67, down from 73 in 2004, Home Depot scored 11 points behind Lowe’s and three points lower than much-maligned Kmart.

And perhaps just as importantly, it doesn’t work in the market, either.  HD’s results are pitiful: Since the day before Nardelli’s arrival on Dec. 14, 2000, Lowe’s split-adjusted share price has soared 210%.  Home Depot’s is down 7%

So, tell me again how great this military stuff is, Bob?