Compensation, Talent and Culture

Compensation, Talent and Culture

​Recently, on three different days, I was in three different buildings riding the elevator. On the video screen in the elevator was the following: "Happy employees are 20% more productive than unhappy employees". Three different days, the same message when I stepped in. It prompted me to think. What makes an employee happy? I’ve worked in the alternative asset world for a long time so the first politically incorrect response that came to mind was “who cares?” Not the right response, because I do agree with the statement. I think some CEOs would say, “I need my employees to be happy enough not to leave. Which means paying them enough to stay and tolerate whatever pain they’re bearing.” I then thought what makes the CEO or founder of a fund happy? Is it paying less? Clearly, you can't please all the people all the time. And there is a direct correlation between the compensation of employees and the profit margin of the firm.

But is it just about compensation? While in our industry cash is king, there are two other components that are not typically considered when thinking about the overall compensation proposition. Talent and culture are typically second tier topics in most firms.
Let’s talk about talent first. There’s a common assumption that if you’re willing to pay for it you can get the best talent. I would suggest that is not necessarily an accurate assumption. I believe what you’ll get is the best talent who’s primary motivation is compensation. Which leads to a number of observations in our current hiring market:

• “Mercenaries” (they do exist) may start out as great hires but can quickly impact the attitudes of those around them in a non-constructive way. They also tend to be self focused and not worried about the rest of the firm.
• Millennials, defined as 22 – 37 years old, are our current work force. Studies have identified that money is not their primary motivation.
• Talented employees want to work with other talented employees and will see that as a key criterion when choosing a new firm.
• Firms that have a talent agenda, which takes planning and time to develop, tend to retain employees longer because they’re appropriately challenged.

Now let’s talk about culture. Some believe a culture forms on its own, organically. Indeed this is the case in many firms; the culture is allowed to develop over time. The truth is, either by default or design a culture will exist. Here are some basic facts about culture:

• Culture is a collection of norms typically interpreted as behaviors that guide people in how to act within an organization.
• Culture is derived from an individual in authority who has someone subordinate to them. In other words, all you need are two to tango. 
• If you have a CEO or individual in charge that has a strong personality coupled with specific ways and expectations of how things will work, the culture is typically shaped by and reflective of that individual.
• You can also have sub-cultures within a firm. It develops from managers that have specific beliefs about how people should behave that differs from the most senior authority.
• Cultures can be designed. However, they can’t be designed successfully without understanding the gap between what the employees’ experience and what the leaders believe the culture to be. This is called a cultural gap analysis and you’d be surprised at how big that gap can be.
• Cultures when defined are usually defined by identifying values. The biggest mistake is stopping there. Translating the values into actionable behaviors that employees understand is critical.

Interestingly, while culture is usually thought of last it influences directly how a firm operates. For example, if the culture of a firm has a general practice of not communicating you can pretty much expect them not to talk to employees about career paths or future opportunities. And, how compensation is derived will be a “black box”. While many firms can survive with this approach, the negative impact is longer term. Employees not seeing a path will often seek another place that can show them one. Compensation black boxes only last as long as employees trust you are paying them fairly. One crack in the box and trust in the leadership of the organization starts to erode.
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There is no question when talent, compensation and culture are integrated a more positive outcome will result. An organization that is known for having a great culture, managing and challenging its talent well, and is relatively transparent regarding their compensation will develop a reputation as an employer of choice. The end result: happy employees and you may not have to spend top dollar to acquire top talent.