Example policy “short pay.” The bottom of every Granite Rock invoice reads, “If you are not satisfied for any reason, don’t pay us for it. Simply scratch out the line item, write a brief note about the problem, and return a copy of this invoice along with your check for the balance.”. Let me be clear about short pay. It is not a refund policy. Customers do not need to return the product. They do not need to call and complain. They have complete discretionary power to decide whether and how much to pay based on their satisfaction level.
Catalytic Mechanisms has 5 important characteristics:
Characteristic 1: A catalytic mechanism produces desired results in unpredictable ways. History shows us that organizations achieve greatness when people are allowed to do unexpected things—to show initiative and creativity, to step outside the scripted path. Take 3M. For decades, its executives have dreamed of having a constant flow of terrific new products. To achieve that end, in 1956, the company instituted a catalytic mechanism that is by now well known: scientists are urged to spend 15% of their time experimenting and inventing in the area of their own choice. What he and others missed was a great paradox: by giving up control and decreasing predictability, you increase the probability of attaining extraordinary results.
Characteristic 2: A catalytic mechanism distributes power for the benefit of the overall system, often to the great discomfort of those who traditionally hold power. Again we have a paradox: the more executives disperse power and responsibility, the more likely the organization is to reach its big, hairy, audacious goal.
Characteristic 3: A catalytic mechanism has teeth. Nucor has created a culture of intense productivity whereby five people do the work that ten do at other steel companies, and get paid like eight. The vision came to life through a series of powerful catalytic mechanisms with teeth, such as the way frontline workers get paid:
· Base hourly pay is 25% to 33% below the industry average.
· People work in teams of 20 to 40; team-productivity rankings are posted daily.
· A bonus of 80% to 200% of base pay, based on team productivity, is paid weekly to all teams that meet or exceed productivity goals.
· If you are five minutes late, you lose your bonus for the day.
· If you are 30 minutes late, you lose your bonus for the week.
· If a machine breaks down, thereby stopping production, there is no compensating adjustment in the bonus calculation.
· If a product is returned for poor quality, bonus pay declines accordingly.
Nucor’s catalytic mechanisms for managers, incidentally, have even sharper teeth. Its executive compensation system works very much like its worker compensation system, except that the “team” is the entire plant (for plant managers) or the entire company (for corporate officers). And, unlike most companies, when times are bad, Nucor’s executives assume greater pain than frontline workers: workers’ pay drops about 25%, plant managers’ pay drops about 40%, and corporate officers’ pay drops about 60%.
Characteristic 4: A catalytic mechanism ejects viruses. A lot of traditional controls are designed to get employees to act the “right” way and do the “right” things, even if they are not so inclined. Catalytic mechanisms, by contrast, help organizations to get the right people in the first place, keep them, and eject those who do not share the company’s core values.
The old adage “People are your most important asset” is wrong; the right people are your most important asset. The right people are those who would exhibit the desired behaviors anyway, as a natural extension of their character and attitude, regardless of any control and incentive system. The challenge is not to train all people to share your core values. The real challenge is to find people who already share your core values and to create catalytic mechanisms that so strongly reinforce those values that the people who don’t share them either never get hired or, if they do, they self-eject.
Nucor doesn’t try to make lazy people productive. Management usually doesn’t fire unproductive workers; workers do. Nucor sets up its mills not in traditional steel towns, but primarily in rural, agricultural areas. The thinking is simple: you can’t teach the work ethic—either a person has it or he doesn’t. But you can teach steel making.
You are a leader if and only if people choose to follow you. At W.L. Gore & Associates, employees have the authority to fire their bosses. Now, they can’t fire the person from the company but, if they feel their boss isn’t leading them effectively, they can simply bypass him or her and follow a different leader.
Characteristic 5: A catalytic mechanism produces an ongoing effect
· Don’t just add, remove
· Create, don’t copy : Executives spend huge sums of money on consultants, but money doesn’t equal commitment—if you have a big enough budget, invoices just don’t hurt. Yet all chief executives, no matter how large their budgets, have only 24 hours in a day. The most lasting impact comes by teaching people how to fish, not by fishing for them.
· Use money, but not only money. But to rely entirely on money reflects a shallow understanding of human behavior. Nucor, the effectiveness of its catalytic mechanisms lies as much in the peer pressure and the desire to not let teammates down as in the number of dollars in the weekly bonus envelope.
· Allow your mechanisms to evolve : In a great company, only the core values and purpose are sacred; everything else, including a catalytic mechanism, should be open for change.
· Build an integrated set : “Learn_____ so that I can contribute_____.” First, employees and their managers must both sign off on the final development plan, which forces a continual dialogue until they reach agreement. Second, compensation ties directly to learning and improvement, not just job performance: people who do not go out of their way to improve their skills receive lower than midpoint pay. Only those who do a good job and improve their skills and make a contribution to improving the overall Granite Rock system receive higher than midpoint pay.
· Catalytic mechanisms should be catalysts, not inhibitors.
Anatomy of a BHAG (Big Hairy Audacious Goals)
There are three key characteristics of a good BHAG:
· It has a long time frame—ten to 30 years or more.
· It is clear, compelling, and easy to grasp.
· It connects to the core values and purpose of the organization.
These are not for Companies Only..