It is striking to observe how asymmetrically set up reward systems can be. In spite of the deep impact they have on how management teams acknowledge risks and adjust for them, the remuneration systems seem to be only designed to capture the upside of business performance. Anything deviating from a full set of objectives will create winners and losers within the management team.
In a way, executives know that being in charge is a lonely and transient job. In the race to the top, people see each chapter of their corporate life as another opportunity to assert their claim for higher responsibilities. If personal interests are best served with decisions that favour their part of the organisation at the expenses of the whole, some might see such steps as a convenient option, even if it weakens the cohesion of the management team.
Yet, a lack of cohesion at the management team level will produce all sorts of strains across the organisation. Who has not seen a centralised procurement control identifying low-cost global outsourcing partners at the expense of operational flexibility at the plants, cost cutting in repair and maintenance driving high levels of customer dissatisfaction, finance keeping costs under control by starving product development initiatives, or sales contracts impossible to deliver at profit? Quite soon, these diverging agendas will clash and members of staff in the different functions will lose the goodwill towards colleagues from the opposite faction. Where processes worked through common sense approach, things will start to grip and productivity to drop.
Developing a team from a set of direct reports is therefore a stern challenge for a CEO. It entails managing the tensions between the different functions to avoid situations where zero-sum games are at play. For that purpose, the members of the management team must be aware of the impact their function has on others, what their interfaces and interdependencies are, and how these can be worked at together rather than in isolation. Risks linked to these interdependencies can then be factored into what the management team wants to focus on, and how it will achieve it. Only then will a reward system align agendas and better support a meritocracy across the organisation.
So, when you think about how your organisation deals with conflicting internal objectives, it might be worth asking yourself the following questions:
In a way, executives know that being in charge is a lonely and transient job. In the race to the top, people see each chapter of their corporate life as another opportunity to assert their claim for higher responsibilities. If personal interests are best served with decisions that favour their part of the organisation at the expenses of the whole, some might see such steps as a convenient option, even if it weakens the cohesion of the management team.
Yet, a lack of cohesion at the management team level will produce all sorts of strains across the organisation. Who has not seen a centralised procurement control identifying low-cost global outsourcing partners at the expense of operational flexibility at the plants, cost cutting in repair and maintenance driving high levels of customer dissatisfaction, finance keeping costs under control by starving product development initiatives, or sales contracts impossible to deliver at profit? Quite soon, these diverging agendas will clash and members of staff in the different functions will lose the goodwill towards colleagues from the opposite faction. Where processes worked through common sense approach, things will start to grip and productivity to drop.
Developing a team from a set of direct reports is therefore a stern challenge for a CEO. It entails managing the tensions between the different functions to avoid situations where zero-sum games are at play. For that purpose, the members of the management team must be aware of the impact their function has on others, what their interfaces and interdependencies are, and how these can be worked at together rather than in isolation. Risks linked to these interdependencies can then be factored into what the management team wants to focus on, and how it will achieve it. Only then will a reward system align agendas and better support a meritocracy across the organisation.
So, when you think about how your organisation deals with conflicting internal objectives, it might be worth asking yourself the following questions:
- Are friction points between functions discussed and resolved at the management team level?
- How well documented are the trade-offs behind decisions to follow a given direction?
- Are these trade-offs explained to staff as part of their objective setting?
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