Keyword: Steve Ballmer

The New York Times Magazine had a wonderful cover story yesterday about Toyota and their path to world dominance.  This is a great read for most of corporate America, a modern day tale of the tortoise and the hare.

There are many interesting parts of this wonderful article, from the discussion about the creation of the new Tundra full-sized pickup to the parade of companies that try to learn from Toyota’s methods.  But to me the most interesting part is the discussion of the company culture and how their consistent drive for improvement (kaizen) is pervasive.

It seems to me that most of the truly great stories of organizational success are not ones of meteoric rise, they are the result of long slow burns that finally pay off.  As in the world of Hollywood, it seems to me that most “overnight successes” really have decades long histories of pain, tribulation, and persistence.

Even in the rocket-ship ride of the .com era, where most rockets tumbled into the sea, or exploded on the pad, and yet a few hung on to achieve greatness, I can’t think of a truly successful example that didn’t have a long, painful gestation.  The two most oft cited examples of Amazon and Google in fact had their rough childhoods, and painful adolescences, and neither has yet existed long enough to know whether adulthood will suit them well.

In my own experience at Microsoft, the best and most venerable products were ones that were definitively not successes in their first iterations.  Be it Windows, Excel, Word, Internet Explorer, or SQL Server, virtually all Microsoft products of any note were born of a desire to patiently chase down the competition and do what they did better.  The dogged and relentless pursuit of the competition was a key aspect of the company culture, and resulted in version 3 (or 4, or 6…) eventually overtaking the rival.  This happened so much that we used to refer to ourselves as the world’s best “tail-light chasers”.

Which gets me back to Toyota.  The company recognizes, like few do, that developing and nurturing a culture is a key part of making an organization hum.  I talk a lot about mission statements, and how valuable they (and visions) are to organizational success.  Toyota sees that almost instinctively.  To wit:

Toyota’s overarching principle, Press told me, is “to enrich society through the building of cars and trucks.” This phrase should be cause for skepticism, especially coming from a company so adept at marketing and public relations.  I lost count of how many times Toyota executives, during the course of my reporting, repeated it and how often I had to keep from recoiling at its hollow peculiarity.  And yet, the catch phrase — to enrich and serve society — was not intended, at least originally, to function as a P.R. motto.  Historically the idea has meant offering car customers reliability and mobility while investing profits in new plants, technologies and employees.  It has also captured an obsessive obligation to build better cars, which reflects the Toyota belief in kaizen, or continuous improvement.  Finally, the phrase carries with it the responsibility to plan for the long term — financially, technically, imaginatively. “The company thinks in years and decades,” Michael Robinet, a vice president at CSM Worldwide, a consulting firm that focuses on the global auto industry, told me. “They don’t think in months or quarters.”

I love their mission statement (“to enrich society through the building of cars and trucks.”), and will discuss that more soon, but what strikes me most is that last part: “they don’t think in months or quarters”.  Neither do most successful organizations.  They think in terms of what’s right in the long term, and let the current quarter and stock price fall where it may.

When Microsoft was most successful (under Bill Gates and Frank Gaudette’s leadership) it did too, offering essentially no “guidance” to the market.  It seems they may have strayed lately from this view, when a comment from Steve Ballmer sends the stock reeling, and that’s a shame.

The point here is that Toyota and most other great companies, didn’t get there overnight but over decades, don’t plan for tomorrow but forever, and don’t try to justify their actions but rather their philosophies.  This seems to be an anachronism in this go-go, always rushing, instant gratification world.  Bummer.

Want to make the minimum wage yet still gross almost $100,000 a year?  Be a dealer in casino in Las Vegas.  Want to make a little more than half that amount?  Be their supervisor.

Wynn Las Vegas Resort

That’s right, even though the minimum wage in Nevada is just $6.15 an hour, because of tips many dealers make nearly six figures.  Their supervisors, the pit bosses, however are salaried and make around $60,000 a year, with no tip sharing.  This inequity makes it hard to convince talented people to leave the table and become a supervisor, with all the challenges that position entails.

Recently, Steve Wynn decided to make a change at his Las Vegas Resort.  Experiencing trouble getting supervisors for his 580 dealers, he added he pit bosses to the tip pool.  This earned him the ire of the dealers, who worried about dilution of the tips and the honesty of the tip counting process which they had long controlled.  It was bad enough that, years ago, the tip process had been formalized so that it was taxable income.  But it came to a head when a generous winner spread out almost $500,000 in tips in a single flurry.  Adding the bosses to the pool diluted the shares by more than 10% and created quite a fuss.

This experience points out one of my most important rules: never make your compensation system dependent on variables that you do not control.  I have learned this one the hard way, and spent one of the most challenging years of my career trying to fix just such a system.

Microsoft was one of the first tech companies to spread stock options well down into the organization, essentially to all employees.  This had the wonderful effect of letting a very broad range of people share in the ride when the stock was on its incessant rise to the stratosphere, and minted numerous millionaires.  The excitement at the company in the late 1990s was palpable.  There is little doubt that the company benefited by paying low base wages and letting this “free” compensation provide the rest.

But of course, there were downsides.  The signs were there, even when the stock was on the rise.  People paid constant attention to the stock price.  There were people spending their evenings writing desktop stock tickers, and mounting led stock tickers in the hallways.  And the pressure to constantly split the stock (which seemed to spur further rises) was enormous.  It was all people talked about for weeks at a time approaching a split.

And obviously, the ride was destined to end.  The company simply couldn’t double in market capitalization every few months without eventually being the equivalent of the GNP of an entire continent.  It just had to stop.  Steve Ballmer (Microsoft’s CEO) was well aware of this, and that when it did stop, it was going to be ugly.  Without a constantly rising stock price, the entire compensation scheme would collapse.

As VP of HR for the company, I used to say that our compensation plan was at the mercy of NASDAQ.  I spent the entire last year of my tenure at Microsoft reconstructing the compensation plan for all 35,000 employees to be less dependent on stock options.  And my successors (there have been three) have spent their tenures furthering the effort.  Given the exodus of key people over the last several years, their job is not complete.

Back to Las Vegas, you can see that having the casino workers’ pay being largely based on tips is dangerous.  Not only do you run into the inequity issues, but the compensation plan is in control of others whose motives may not match those of the organization.  Yes, people tip when they are happy customers, but they also only tip when they win (which doesn’t help the organization), or when they are drunk, or simply when they feel like it.  And if their economic prospects go down, so do their tips.  Is this variability good for the employees?

Clearly, Mr. Wynn swung the pendulum in the wrong direction.  Rather than adding the bosses to the tip plan, he should have crafted a compensation plan for the bosses that derived less from the tips, but on broader organizational objectives.  Some ideas may be to base it on measured customer satisfaction, personal job performance, or even profitability at some level.  Most likely a simple combination of a few measures would be effective.  It’s hard to say without direct input into the process.  Perhaps Mr. Wynn is reading and would like me to look into it…

In any case, this is yet another example of why compensation plans must be thought through carefully.  As I have said repeatedly, you get what you deserve.  If you measure and reward some narrow behaviors, you will get people who respond, and even overreact, to those rewards.  Be careful what you wish for, you will undoubtedly get it.

Bill Gates

With the announcement today that he’s going to step aside, a load of my Bill Gates memories have flooded back for me.  Forgive me while I share those with you.

I’m a fortunate man; I’m among a very small group of people who’ve had the priviledge of working closely with Bill Gates.  When I was VP of HR, he and I had a number of private and quite frank conversations about key members of the Microsoft leadership team.  We worked together to set compensation, decide assignments, and make tough corrective choices.

I’ll never forget the time we worked on his own salary together — it was almost comical.  I had to implore him to take a reasonable number that even vaguely reflected his peers at the top of the Fortune 500.  There I was, trying to convince the world’s richest man to take a reasonable salary.  The company was moving to deemphasize stock and put more weight on salary; I wanted him to lead by example.  To his credit, he pushed back relentlessly and I ended up recommending to the board’s compensation committee a number about 33% lower than what I thought was right.

Bill is a very special person, with legendary business insight to be sure, but it is coupled with a remarkable sensitivty and concern for his key associates.  He treats them much like family-members, with all the good and bad that goes with that.  Yes, his blow-ups are legendary, and he can carve new orifaces with the best of them.  But more often than not, he is concerned about their welfare, about their family, about their mood and attitude.  He values loyalty above most other things, and does not handle defection well at all.

I can think of no one in the world for whom I have more respect, and I know his presence at Microsoft will be sorely missed.  Although well divorced from the day-to-day in recent years, he always served as a settling and humanizing force in the company.  In the face of Steve Ballmer, a legendarily gruff and difficult manager (which I can personally confirm), this influence should not be underestimated.

I will have much to say about the future of the company in the hands of the new management team, but that will have to wait.  Now I’m just too busy enjoying reliving the time I had working with one of the most special people in the world.