The performance imperative: Tom Peters On excellence

WE ACT as if trade-offs between incommensurate goals are a big deal. Fact is, they're almost as routine as breathing.

Do I answer today's post? Or do I put in the extra hour working on my column? The former comes under the important heading of 'relationship management'; the latter is 'product development'. This evening, for example, shall I read a trash novel (because I'm pooped), a good novel (to build intellectual muscle) or a history of money (to prepare for a speech to bankers)?

Life is lived in real time, and progress (or regression) is the product of dozens of daily trade-offs like these. But in business life, it seems, people are undone by such choices. Managers tell me, time and again, that they must somehow 'craft pay systems that precisely reflect the weight of competing corporate objectives'.

Forget it. Just set reasonably high hurdles for your incentive pay system, then let folks figure out their own paths to salvation. They are adults, for heaven's sake.

For example, 3M, the sticky-tape and Post-it note company, says its top people must score well on both overall profitability and percentage of sales derived from new products. One computer company's sales people must rank in the top half for both billings and customer satisfaction to get a nickel's worth of bonus pay. And a home-delivery pizza company orders its teenage drivers to hustle like crazy, but will fire them if they get tickets for speeding.

When I was at McKinsey & Co, the consulting firm, employee evaluations unmistakably reflected how well you performed on your current project assignment. On the other hand, there was a long-term requirement to become a recognised expert at some aspect of banking, technology management, whatever.

No one told you how to divvy up your time to achieve both of these objectives. It was simply clear that, over the long haul, you were going to be graded for short-term service excellence as well as for long-term technical stature.

My advice: if you have got two overarching strategic goals, then directly tie the company's financial incentives (at least one-third of total compensation for managers, one-tenth at the front line) to above-average performance on both goals.

And don't fudge] Suppose a salesperson has really flogged the product and is up for a dollars 40,000 year-end bonus. Yet he's a bull in the china shop and has below-average customer satisfaction ratings. Tough] The deal is, good at both or no dough. Same story for the world-class schmooze who is adored by the customers (in the top 5 per cent in customer satisfaction) but just can't close a sale.

Sure, it would be nice if everyone could be a winner. And I strongly urge you to make the overall pot of incentives a big one, and to offer plenty of help to those who don't clear all the hurdles. But if we are serious about emphasising long-term and short-term strategic ends, there must be an ouch-level penalty for those who don't cut the mustard both ways.

This issue is racing up the corporate agenda. We are routinely asking people in the front line to do lots more than they have done in the past. Before, we said: 'Show up. We will tell you what to do.' And then you did it. Today they must: (1) become darn good at something, since expertise is the basis of value-added; (2) become pretty good at lots of things (everyone must be a well-rounded business person); (3) be first-rate team players; and (4) exercise initiative every day in solving customer problems.

Performance must take a front-row seat. Even though we have laid off workers by the thousands in the past and fired a few outright (almost always for malingering), we have hardly used merit as the universal basis for evaluation. In fact, genuine merit-based ratings seldom cover more than 5 per cent of the workforce. These days we must put every employee - for their good and the firm's - on something like the 'up-or-out' trajectory that marks most law firms.

If you are not constantly learning and taking initiatives, you are a demonstrable drag on your team's performance.

I can already hear the labour leaders and the politicians hooting. If we all embark on an 'up-or-out' path, what do we do with the 'outs'?

It's a darned good question. The Japanese have essentially assigned theirs, by the millions, to menial jobs in unproductive industries (one big reason for the huge US productivity edge in sectors like retail). But this is an ugly (and an ultimately counterproductive) way to run an economy.

It is clear we can't tolerate shoddy performance in our leading-edge firms, especially those engaged in global competition. But as the future unfolds, almost every industry will find itself competing globally (for instance, relatively lean US retailers such as Toys 'R Us are making hay in Japan).

In short, there is no place to hide. To survive economically, as individuals and a society, we have little choice but to apply the perform-or-else dogma to everyone and every enterprise.

Copyright TPG Communications