Monday, April 4, 2011

Putting people management systems in place as we grow

The Shoes of Prey team continues to grow. We're now a team of 11 and we're looking to hire another 3-4 team members over the next month. With this growth comes a need for people management systems and processes.

If you count part-time / casual roles I've worked for more than a year at 6 different companies prior to starting Shoes of Prey. Out of those different companies Google was definitely the stand out in terms of how they manage their people. They had an excellent review process that for the most part did a great job of identifying the best and worst performers and while their system certainly wasn't perfect, the imperfections were more a result of the systems struggling to scale to 20,000 people, a challenge we shouldn't face at Shoes of Prey in the near future. ;)

The goal of any good people management system should be to motivate employees so that:
1. They enjoy coming to work. Work makes a huge part of people's lives so why not help make that enjoyable for them!
2. They perform at their full potential.

We plan to take a lot of what we learned from Google and apply it to Shoes of Prey.

Goal Setting
We plan to work with a quarterly goal setting and review process. At the start of each new quarter, the employee and manager will individually plan out the top 4-6 goals for that employee over the next quarter. They'll then come together and agree on what those goals will be.

Weekly Meetings
We have started and will continue to have weekly 30 minute meetings between each manager and each of their reports. When things get busy this is something that can be very easy to cancel. I was initially sceptical of this time investment when I started at Google as I hadn't worked for a company who had formal weekly meetings like this, but these sessions proved hugely valuable. Just taking the time to sit down with my manager or my reports lead to so many new ideas, more efficient ways of doing things being developed or introductions from my manager to other people within the business who would assist me with what I was working on. Weekly meetings also lead to a much better performance review process as feedback is given regularly throughout the quarter.

Performance Reviews
The majority of the performance review process will informally happen during the weekly meetings. If an employee is doing something well, or not performing in a particular area then the weekly meetings are where those issues will come out and plans can be made to maximise the good work, or improve the poor work.

The formal performance review happens at the end of each quarter. Both the employee and manager will individually review the employee's performance against the goals that were set at the start of the quarter. They will then come together and discuss the employee's performance, and their worked given a formal rating for the quarter. This rating is then used to calculate the employee's bonus for that quarter, together with the sales performance of the company.

Remuneration
Remuneration for each employee will be made up of a combination of base pay, bonus and stock options. When I was at Google the majority of my pay was base pay. My standard bonus was 10% of my base and the value of my stock options was less than 10% of my base. I was pretty motivated when I was at Google, but after working on Shoes of Prey for nearly 2 years I realise I definitely wasn't performing at my peak at Google, and I think a key reason for that was the low proportion of my pay that was performance based and that I could influence. The company was so large that I had 0 chance of influencing the value of Google's stock. And it was a similar story with the company revenue proportion of my bonus. What this resulted in was that if I performed really well I might move the needle enough to get an extra 5% on top of my base compared with if I was an average performer. Money is not the only motivator for me but I do need more than a few thousand dollars a year to encourage me to work on my weekends or late at night when the workload requires it! Google actually changed this for the team I was on shortly after I left which I think was an excellent move.

The great thing about a startup is that working in such a small team, employees can influence the value of the company's stock options, and the company's revenue. We also plan to make the bonus and stock option components of our employee's pay higher than mine was at Google. That said, different employees have different goals and motivators, so we'll speak with new hires during the hiring process to determine what motivates them and we'll do our best to structure their packages appropriately for them. For example, we plan for our stock options to vest annually over 4 years. This will encourage employees to stick with us for that 4 year period, and work hard to help increase the value of our company in that time. Some employees may want to take a much lower base in exchange for a higher stock options component of their salary and if they want to do this it's certainly something we would encourage as it more closely aligns the employees interests with the company's.

I'd love to hear your thoughts on people management systems that you've worked in at other businesses, or used for your startup.

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12 comments:

  1. One of my fave topics. The key observation I'd like to put forward, would be that sooooo often organisations see this as a point in time thing, or a one way process. The crucial benefit of performance management is engagement, and finding a way to motivate, orientate and reward an individual for having congruent goals to you. From a technology system standpoint, I've never seen one that was better or worse. The differentiator tends to be in the application of the guiding principles, and how evangelical you become in embedding it as part of the way "shoes of prey does it".

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  2. Hi Michael,

    Off topic but perhaps an idea for a future blog post - what are your views on kickstarter.com and are they of any use to online retailers that are not offering a novel product but a novel service?

    Cheers,

    Saf.

    Ps Love the fact that you guys are willing to give equity to your employees - it is fantastic to see. Not to get too pointy but what are your views on dilution issues etc or are you planning on the pie getting bigger? Obviously, happy for you to ignore this if need be.

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  3. Dom - Great thoughts around ensuring this is not a 'point in time' thing. We're very conscious of ensuring that doesn't happen, so hopefully we can execute on it!

    Saf - Interesting thought. I've not looked into Kickstarter in great detail but my first thought is I'm not sure whether or not an online retailer would fit within their terms of use given it's more a business and less a creative concept. Even if it was within their terms it might be difficult to get the project funded for the same reason... that said perhaps it's doable if what you were planning was creative and novel.

    Re: dilution of stock, it really depends on how the business grows and what path we take. We would only take funding if it was going to help us grow much faster and to do so would dilute Mike, Jodie and my share as well as our employees - so we're incentivised to do this only if it's going to make the overall pie and the value of ours and our employee's shares in it larger.

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  4. Hi Michael,

    Good post however what are your thoughts in regard to competitors and their remuneration strategies during their early stages? Do you think this early in the game companies like Mimco, Peeptoe and so forth were giving away equity? It is a great strategy to keep key employees but customer service staff, administration staff, some developers and so forth are quite easy to come by. Many of them are reactive, reacting to YOUR vision, not driving new ideas and growth, which in my opinion is what is worthy of ownership/equity opportunities. Furthermore,, nobody is irreplaceable. Large companies like Google HAVE to pay bonuses and give away stock to get the best talent because competitors like Facebook are competing for the same human resource base and offering similar incentives. You are small and nimble and don't have to do this yet. Also every dollar given to an employee is one less you can spend on growing the business by advertising or by building new verticals.

    Is it smart to give equity to everyone at this stage, or perhaps just those who are supporting the roof from falling in (who probably already have equity)? Also is this a risk you are willing take before the three of you are drawing a market related salary? Can you build culture that does not question ownership, but values the workplace, environment, fun and friendship, and free shoes!! Maybe that is short sighted but its shore cheaper than diluting your hard earned valuation.

    I would imagine an MBA management textbook might suggest this concept to keep staff but is it the right play at this stage of the game?

    Would like to hear your thoughts...

    Cheers,

    Jeremy

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  5. You've probably already seen Dan Pink's talk, beautifully illustrated by RSA - http://www.youtube.com/watch?v=u6XAPnuFjJc

    Once you've covered the base salary someone needs to have a comfortable life, incremental monetary gains plateau dramatically. Daniel Kahneman's research recently showed that in the US, this amount is $60K

    http://www.youtube.com/watch?v=XgRlrBl-7Yg

    I think much more important - for non highly structured roles - is to reward them with a clear sense of status amongst their peers. I think people use money as a proxy for status and respect - and this can be quite dangerous. It's possible for an organisation to formalise a process where it celebrates people who do things that re-enforce its values and principles - without resorting to bonuses.

    Perhaps gaining a share of the company also gives you more of say in how its run.

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  6. This is a bit of an aside to your post, but it is a growing pain for many businesses is how you manage your processes, which define how people do their work. At the begining you would have been quite well able to manage with adhoc processes, based on communication and a vested interest in the outcomes. As you grow it becomes increasingly important to make sure your processes are clearly defined, in a way that people understand, to ensure that you don't have gaps appearing as orders move along the value chain (which at the highest level would be something like attract, order>>manufacture>> deliver>> closeout), it allows for clear handoffs, and expectation about those handoff points. Once you have this clearly defined it allows you to be clear about your expectation with people, and then performance manage them appropriately. Once you have the process defined then you need to tie your reward mechanisms into the process outcomes that people are responsible for and for work they do to improve the process, i.e. rewarding those employees that make your business work better. It might not be time to focus on this yet, but it sounds like it won't be too long before you, Mike and Jodie won't be able to be on top of the minor details, due to the growth :)

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  7. Ian - Those YouTube videos look great, will check them out. The psychology of what factors motivate people is fascinating stuff and I'd agree that money is often just a proxy for status and respect. If you look at raw numbers the minimum wage in Australia is very high compared to what people have earned historically - with that you can have a good roof over your head, eat well and have access to incredible medical care compared with what humans have had throughout our history, yet there would be few people who aspire to earn the minimum wage - just the term 'minimum' isn't ideal for what it means status wise.

    David - definitely good thoughts and that's yet another reason for establishing good processes around this sooner rather than later. Cheers.

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  8. Really fascinating stuff guys. Mike as a small business owner myself trying hard to actually hire staff we are forever debating various remuneration models and asking the question what will motivate people to join us. Personally I am very driven by personal reward so have tended to see that as the best way (eat what you kill), but clearly not everyone has the same drives and we have seen that no matter how much upside you offer people, if they don't believe they can make that much money they won't join you. The "bird in the hand" approach to remuneration is powerful. If I offered people the choice between 1.a package with no bonus but a high base,or 2.a package with a low base but the realistic expectation should they be successful to overall make 50%+ more than what they would make under package (1) , I find people go for package 1... Personally I find that perverse and counter intuative but it is true.

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  9. Hi Michael, people taking the more conservative option is something we've seen when putting different offers to potential hires too. I guess it comes down to the risk profile of the individual being hired. Given you and I are running small businesses we are probably less risk averse than most people which might explain why we would take the higher risk higher return option but others don't.

    It also comes down to how well we can sell the vision of the business to potential hires as well. We might be dreaming big and feel like there's a high chance of that dream coming true, but if we don't share that vision effectively others won't be able to see it in the same light.

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  10. Mate if they saw it as big as me there would not be an issue but even the watered down sell is too much for some people. It is a classic thing. We are looking for people who want to make at least twice as much money as they make now, for 2/3 of the hours. People are just stuck in paradigms that hours = $ and I am worth X. I have to say when I started out I did not grasp even 1/3 of the potential that was in the business, but what I did see was enough.. so I definitely understand where people are coming from but you risk blowing them out by telling them the real potential... also it is a balancing act when dealing with expectations because ultimately you want to set people up to exceed them and not be changing goal posts so keeping things nice and conservative makes sense on that front as well. I guess it is about tailoring the message at all stages.

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  11. Hi Mike
    I've got a few suggestions from my experience at a big blue chip financial services company...You really have to make people feel like they are an important contributor to the overall business and have serious input into it.
    1. Have regular offsites - perhaps six monthly if you can afford it. They don't have to be expensive. Make sure you address the important stuff that often gets lost on a daily basis, like understanding different communication styles, but work on team exercises too
    2. Every so often (and this may be part of the offsites, or maybe it's an afternoon in a conference room) set time aside for a strategy meeting - as a company. Look at what's working - why is it working. What's not working - why not? Ask each employee - if they ran the business for a day, what would they change? etc
    3. My CEO had a dedicated mailbox inviting comments, suggestions, etc. This guy was an incredibly busy man. But if you made a suggestion, you would get a response within 48 hours, saying whether he would adopt it or not - and if not, why not.

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  12. Michael - all good points there. The goal setting one is interesting in that it's important to find a balance between setting high goals but not setting people up to fail. I think there's another blog post in that one actually... :)

    PHM - I couldn't agree more. And we actually want/need all of our team to be important contributors to our business, so hopefully by actually doing that it's natural for everyone to feel very involved.

    1. I like your offsite suggestion, we actually discussed that on Friday and agree that it would be great to do.

    2. Agreed on the strategy sessions. We did a big one Friday afternoon and plan to have similar session each Friday afternoon which will then lead into Friday drinks. It will be interesting to see how this goes.

    3. A great idea. We're still small enough that we should need something formal like this, but definitely important to encourage this sort of feedback from the team. In addition we want to empower the team to be able to action some of these ideas, even without needing to ask us as long as they think it's a reasonable thing to do.

    Cheers.

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