Minding My Own Business

Fire in the hole

May 11, 2006

A portfolio company of ours, facing a significant expansion, recently invested in an executive search for a general manager for one of its overseas operations. After $50,000 and several months, we succeeded in hiring a legitimately qualified, experienced and forward-thinking executive. Basking in this achievement, and anticipating some sort of short-term impact, our president traveled with the new GM to introduce him to the staff at the foreign office. Within 30 minutes of the very first meeting with the local managers, the incoming executive, through a surreal combination of condescension and cultural insensitivity, had so thoroughly insulted his entire workforce that the president immediately fired him. Never before, remarked the chief to the board in his report, had he seen someone of that stature and in that position so oblivious and obnoxious.

This incident has been on my mind of late as our organization has grappled with a seemingly inordinate number of personnel issues. Those who know me understand that I place a premium on human resources - and on effective human resource management. Over the years, through successes and failures and from some of my most respected peers and advisors, I have learned a great many lessons and formulas to aid in the day-to-day navigation through this most challenging minefield. As I work to encapsulate these thoughts, it strikes me that I am merely providing reminders to most businesspeople, who are no doubt quite familiar with much of this material.

In any event, let's begin by addressing the issue of employee turnover. The simple fact is that no matter how strong a manager you are and how wonderful a company you run, you will face having to replace employees. It's usually just questions of timing and choice: yours or the employee's. What a strong manager needs to realize is that regardless of whether you are firing or an employee is quitting, what you have in front of you is an opportunity to upgrade. I've stressed this so often that it feels like a rehearsed speech: Since employee turnover is inevitable, turn it into a competitive advantage by continually upgrading. Regardless of level within the company, from president to part-time maintenance worker, every position can be filled by someone better than the vacating employee. Not only is no individual indispensable or irreplaceable - no individual is so perfect that they cannot be improved upon.

That's not to say that you shouldn't properly appreciate top performers. Every company has its stars, and the best companies make sure those stars are kept happy and remain hungry. Every company also has its core, that cross-functional cadre of individuals around and through whom the entire operation revolves. The best companies continually assess the composition of that core, provide support for the core as needed, and make sure that those within the core understand their importance and recognize management's appreciation for them.

Compensation is an HR topic that could fill a thousand columns. For now I will merely offer these few thoughts:

First, I suggest applying the methodology of Warren Buffett, investor extraordinaire, who advises that it is far better to purchase a great company for a fair price than to purchase a fair company for a great price. My interpretation? When it comes to your top performers, don't try to save a few bucks.

Second, insist that all compensation details be kept strictly confidential between employer and employee. When employees compare pay stubs, trouble inevitably arises.

Third, when negotiating compensation, be sure to accurately assess the cost-benefit analysis of the employee. Calculate the total costs of the employee to the company, which include not just salary and bonus, but payroll taxes, benefits, automobile, and other expenses. The criteria must be to hire only those who provide the company with a good value for the total cost. It serves neither the company nor the employee to overcompensate to the point that the company is worse off for his or her employ.

Fourth, when it comes to compensation, don't get caught up trying to treat everyone the same. Be fair, not equal. Everyone is not equal. Stronger performers or those with more valuable skills are worth more. If experience matters, seniority can be a factor. In many positions, though, talent, creativity and communication skills are key factors, and experience is rendered essentially irrelevant. Being fair means compensation should be commensurate with the value to the company.

The real difficulty in effectively managing a workforce is deciding the borderline cases. Firing employees is arguably the most unpleasant feature of being a manager (although rarely as unpleasant for the firer as for the firee). So in the absence of blatant cause, managers all too frequently try to finesse untenable situations out of reluctance, sympathy or fear. Let's be blunt about it: Keeping an employee who can't cut it is a luxury you can't generally afford. It's not fair to the company shareholders. It's not fair to the other employees. And like it or not, its not fair to you, the manager. You are running a business, not a charity. If you want to be a manager but don't want to have to fire people, find a position in government.

Come to think of it, firing is such a critical element to succeeding in business that it is surprising how many managers are thrust into their positions without being provided instruction on how to properly let an employee go. Of course, companies have policies and procedures - that's not what I'm talking about. I mean the actual process, from evaluation and the decision to delivering the news. We've all seen training courses for sales, technical skills, customer service, etc. - but have you ever seen even a seminar offered on firing techniques?

Here is some advice that might be perceived as counterintuitive, but is fundamentally sound: Once you've made a decision to replace someone, resist the temptation to construct a transition period when both the outgoing and incoming individuals work together. Whether at the top of an organization or at the bottom, when you are making a change, cut swiftly, sharply, and leave no residue. You might think it would make the initial period harder for the new employee, but it usually won't. In most cases, keeping the outgoing employee around accomplishes little in a positive vein, but is rife with negative potential. Especially if you've upgraded, allow the new worker to come in without burdening him or her with the traits, perspectives, prejudices, and other baggage of the former employee.

For most managers, evaluating employees is an extremely subjective exercise. If you are serious about building a continuously improving workforce, I strongly urge you to develop the most detailed written job descriptions possible. If implemented correctly, these descriptions will become a critical management tool for you as well as a guide to your employees about your expectations of them. From the top of the company to the bottom, each individual should have an accurate description of his or her tasks, responsibilities, performance measures, reporting structure, and an explanation of how the position factors into the performance of their department and even company overall. Conduct regular reviews of each employee, using the job description as the basis for the discussion, and make certain to edit the description to reflect any changes that are made along the way.

A frequent source of tension in companies is the proclivity to fill vacancies by promoting from within as opposed to bringing in someone new from the outside. In my experience, when businesses are running well and succeeding, promoting from within is generally a better road to take, provided that you are not compromising on qualifications or likelihood of success. Your responsibility as a manager is to fill the position with the best individual for that position. Promoting from within may be preferred, but not for its own sake. Every position should always be filled with the very best option available.

Keep in mind that you usually can't completely divorce analysis of an individual employee from the workplace environment. In most companies, the workplace provides the context for the performance of the employee. This is where fit and culture play such a critical role. Sometimes, the top performers are not the most skilled but the most effective, and effectiveness is frequently tied to fit. The importance of teamwork cannot be overstressed - but for teamwork to take root and thrive, the environment must support it, and management must cultivate it. Hiring and firing decisions can't always be made in the vacuum of the individual's performance. Sometimes, rather than a change in personnel, it is a change in the workplace environment that is the more appropriate and effective response to poor performance.

There's more, but I'll have to call this the End of Part I. In the next issue I'll share some thoughts about careers versus jobs, types of experience, and the challenges of hiring managers.
Elisha Tropper is president of Prestige Label Co., headquartered in Burgaw, NC, USA.
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