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Kerr: Yes, these apparently never-ending reward system “top” researchers at an end of the spring semester
mishaps are perfect examples of what we management awards ceremony. The primary criterion initially con-
scientists term as goal displacement. We continuously sidered for recognition was that you had to have pub-
lose sight of a simple truth. A “good” reward is one that lished research in the year in question. In the second
gets you what you want. Sometimes what you want is year of operation, to be seriously considered for an
greater efficiency, more money, more quality, or more award, you should have published in the then Financial
volume. Sometimes what you want is more equality, Times Top 45 Journals List classification. Finally, it
distribution. So fine, if you are getting what you want was rumored, but never formally announced, that the
then it is working. However, if you define it wrong, award would be $5,000. Well, what has happened is
you end up with a bad reward. If you measure it wrong, that one need not have published in the year in ques-
you end up with a bad reward. Finally, if the rewards tion to win an award. A “modified” Financial Times
themselves are unattractive, then you end up with a Top 45 (now 50) Journals List classification has been
bad reward. implemented. Finally, the award stipend is actually
When I was at GE, we used to tell people GE’s the kind of $500, not the rumored $5,000. Obviously, this has
place you could have a bad marriage and never know turned out to be a bad reward system. What can be
you’re having it because you won’t get to be home done to change this reward system?
long enough to find out. Nine out of 10 people say: Kerr: Over the years, I have worked with a large number
“Get away from me I am not interested in this type of of executives to address these types of problems. I
lifestyle.” The 10th person says, “That sounds good to have developed a simple but effective three-step pro-
me.” Now, you can’t populate a society like that, but cess to help one realign their reward system (Kerr,
we didn’t need a society at GE. We needed a relatively 2009). The first step is to define performance in action-
small number of people at GE who would respond able terms. The second step is to measure the right
positively to the notion that if you do well, you will get things and use the right measures. Finally, reward the
wealthy. Alternatively, if you do poorly, you’ll likely right things and use the right rewards. Based upon your
be fired, possibly in a humiliating manner. If you don’t question, it would appear that that this plan comes up
like this type of arrangement, don’t come. particularly short on Steps 2 and 3.
It was the same scenario at Goldman Sachs. Nobody Question: Yes, that would appear to be the case and cer-
should ever consider Goldman Sachs if they want to tainly highlights the importance of considering each of
work an easy 40-hr work week. I couldn’t tell you the the three steps in the process. One award recipient
number of times my father would call at work and commented on the fact that $500 was not a very attrac-
finding me still there in the evening, would remark: tive award amount. Obviously, the right measure (or
“You’re really keeping long days.” I would respond amount) was not used in this case.
that everyone’s days are the same—about 17 waking Question: Transitioning a little bit, GE and Goldman
hours per day. I’m working, I am certainly learning, Sachs have both been highly successful over the years.
I’m making money and meeting interesting people. So, What are the major corporate cultural differences?
I would tell my father that until he called, I didn’t real- Kerr: Good question. As it turns out, at least while I was
ize that it was dark outside. I was simply enjoying what there fulltime, Goldman Sachs was the most team-ori-
I was doing. And, a fact many people don’t know, the ented culture on Wall Street, to the point that every-
average retirement age at the professional, partner thing, even small decisions, had to be run by and
level while I was there was 46. Yes, 46! approved by numerous people. Whereas I averaged less
So, the fact of the matter is that many of these individuals than one meeting a day at GE, I had an average of six to
leave Goldman at 46 years of age and have a second eight meetings a day at Goldman. But one good thing at
(or third) career. A lot of them end up working for non- Goldman Sachs was that if we went into a deal, every-
profits. The point is that Goldman Sachs never misrep- body had agreed to it and we didn’t have the Lone
resented the work requirements to people. The job Ranger problem. And when a decision was bad, the
preview was clear to those interviewing: If you want boss wasn’t coming in to tell you that you made an
the potential to make a ton of money, work like hell error. Instead, the boss would tell the team that what we
and be retired at 46, come to Goldman Sachs. If not, all thought was a good idea was not a good idea. And
don’t come here. Whatever that is, it is not hypocrisy. this approach had serious implications for a reward and
Question: These examples are very helpful. Here is a punishment system. We didn’t punish the way other
recent example from one of the interviewer’s schools people did. We didn’t see everything in terms of indi-
on what can happen if you define it wrong, measure it vidual actions, so we didn’t tend to blame the individ-
wrong, or make the reward itself unattractive. The ual. In this respect, Goldman’s approach was similar to
administration recently decided to publicly reward the Japanese approach where nobody loses face.