Sunday, November 28, 2010


Jan is a Rastafarian. I’m not sure whether he embraced the faith because of its easy approach to pot or whether the dreadlock hairstyle drew him in. It’s a puzzling thing though with Rasta’s: after spending days on cultivating their braids, they cover them with a tea-cosy.


Jan is the best lawn manicurist I have come across. We travel 30 kilometres a fortnight to pick him up in town, and then pay him at least 50% more than the going rate for a local part-time gardener. His favourite equipment is the petrol trimmer. This infernal buzzer makes my blood boil and also disturbs and angers all the distant bee hives. But Jan persists in its use even against my instruction that he deploy the 4hp monster mower to cover most of the thousand or more square meters of open space. He cares little too about the need to have the trimmer’s driving shaft rings replaced regularly at nearly the cost of a new machine.

Perhaps it is because the grass is too delicate. It’s an indigenous species that, unlike kikuyu, would leave a small quarry in the wake of a rugby scrum. But I think it is more the mysterious union that happens between Jan and the trimmer. Strapped to his side, man and machine are locked in a magnetic merger that sees them float as one in a ballroom waltz across the lawn. The big mower is simply too crude and by Jan’s reckoning too slow. After his floating like a butterfly and threatening the world with bee stings, he has left behind a carpet that could rival the best bowling green.


We call them virtuosos. They are masters of their craft. These are folk that are, to say the least, totally captivated by the task. They do not need and often don’t have a lofty “transcendent” purpose such as contribution to mankind, and even less so a material reward as a driver. That’s not to deny the latter’s need for sustenance. But to them it is a simple matter of recognition, courtesy and respect for a fair deal. Virtuosos can be found everywhere, from Jan the lawn trimmer and Santiago the fisherman to Beethoven and Von Gogh. They exist in their thousands in all fields. We tend to recognise them and give them credit only when we are intimidated and in awe of the task itself – like in the creative and performing arts, or when they have excelled in an important field to the point of uniqueness. But in essence they are all the same – possessing a passionate love for the task.

We all have virtuosity in us – too often buried beneath six feet of soil that has been heaped upon it by the seduction of a material reward or money. So often the “workplace” is little more than a corporate mausoleum where we spend the best one third of our lives, finding some solace in cadaver camaraderie and of course that extremely important pint of pure blood at the end of the month. Some mausoleums even have trendy “fun things” like snooker tables and massage rooms to occasionally distract the corpses from the drudgery of their job description caskets.

clip_image006But to be fair, precious virtuosos exist in business too. Indeed without them not only would many businesses fold, but some of the greats would simply never have started. Like Apple’s Steve Jobs, the Google guys Larry Page and Sergey Brin; or baby FaceBook co-founder Mark Zuckerberg. These are the John Galt’s of the world – not the profit driven rogues that Friedman favoured and that many still insist are the engines of innovation and prosperity.

To borrow a sketch from Dan Pink: a fellow applies for a small business loan from his bank and explains to the “suited” bureaucrat that his business model is to give his product away for free and get people to supply the product for free.

“Not today, Mr Zuckerberg - not today!”

And to irritate profit theorists even further, these folk join the likes of Kellogg, Johnson, Ford, Gates and Ackerman in denying that they were profit driven at the outset. They all claimed to have had a transcendent purpose, wanting to make a difference, adding value to people’s lives, and doing something meaningful with their virtuosity. We call them liars or hypocrites simply because those statements don’t fit into our ideological paradigm and because, as one of the consequences, a large reward deservedly came their way. And even here, many of them want to give most of it away.

What is sad is that in so many cases, the passing on of the founding virtuosos leaves a large “public corporation” guided by narrow “investor” interests in turn driven by the metrics of EVA, EBIT, HEPS, RONA, ROTA, ROI and NOI – Warren Buffet disciples perhaps excluded. In fairness again, I can think of a good number of “successors” heading these giants that are virtuosos in their own right. But I can think of just as many, if not more, who have allowed money to muddy motive.

Jan the lawn trimmer is a case in point. Prompted by his spouse, he left his full time gardening service job based on flexible pay for one with more security and status at the local “Korporasie”. It did not take Jan long to discover his mistake, only to find his previous job taken. So Jan’s floating with a beloved trimmer is now restricted to a few times a month, although he does have other ways of finding a state of Zen.

Monday, November 22, 2010


If it were a group of South African bakers meeting in Seoul to discuss the price of bread, they would have faced some very hefty fines from the Competition Tribunal. But no, these were the revered heads of the Group of 20 most influential economies in the world. And they were not discussing fixing the price of bread, but rather their exchange rates and the entire range of products on their export catalogue. Let’s put it this way: if the Americans and some others had their way, you would be paying at least 30% more for that Chinese bakkie or motor scooter.

clip_image002To add to the irony, the world is lamenting the fact that they were by all accounts not too successful in drafting a practical action plan for this collusion, while still (and this is the extreme irony, if not hypocrisy) swearing allegiance to “free and floating exchange rates.” Cliché’s like “you can’t have your cake and eat it” come to mind.

By now every Joe Soap has become foreign exchange literate – indeed many of them “traders”. We all know that a strong currency makes imports cheaper but plays havoc with jobs. A weak currency does the opposite but has a threat of inflation.

It was not all that long ago (as old men often say when they mean a generation past) that our small pioneering team of economic journalists at the SABC was struggling to convince the controllers of news to allocate a few minutes for “economic indicators”. We swung it with the entire monetary and fiscal establishments and organised commerce backing us. But those same controllers were so petrified that the standard anchors would get it wrong that they insisted that we present them ourselves. And so we gained our 15-seconds of fame – more like 5 seconds if you take the graphics into account.

One of our problems was in presenting the Rand exchange rate. Before the mid-70’s the Rand was pegged to the dollar and quoted in dollars per one Rand. At that time you could buy $1.30 for R1 which would be expressed today as $1 = R0.75c. Shortly after the last formal 15% devaluation in 1975 South Africa joined the floating exchange rate regime, first in what was called a “managed float” pegged to the dollar and then onto a free float. But of course, we all know that monetary authorities across the world try and “manage” the exchange rate, while avoiding the loaded term “manipulating” their currencies to suit a political agenda.

These off the cuff reflections are not mere nostalgic ramblings. The point is that the then new Minister of Finance, Owen Horwood, had a severe time of it in championing a politically unpopular devaluation. Later we and our print colleagues were sternly lectured by Dr Gerhard de Kock, former SARB Governor on avoiding terms like “weak” and “strong” when referring to currencies, but rather to say “cheap” and “expensive”. And to ensure that any reports on exchange rate movements reflected the cause which was often dollar strength.

I went on the air explaining this one night, and a few days later a daily newspaper had a cartoon depicting a puny Rand in a boxing ring with a well built Dollar as his opponent. I was shown whispering into the wimp’s ear”: “Don’t worry. It’s not you that is so weak; it’s only he that is so strong!”

The bottom line is that a consistently strong currency reflects economic health, and a weak currency the opposite. This axiom is rooted not only in classical theory but also in common sense.

clip_image004De Kock’s lecture on semantics has clearly fallen on deaf ears. Perversely, the term he baulked at – “a weak currency” is now a desired state. Even workers are toyi-toying to trash the Rand. What would really make him turn in his grave, I suspect, is the view that a “strong” currency is undesirable. He was a huge admirer of Switzerland and its monetary management. This stemmed from his passion for the Central Bank’s task of protecting the integrity of the Rand domestically and internationally. If a free exchange rate is allowed to do its job, he would have argued, it should do nothing more than reflect the strengths and weaknesses of an economy and then move to correct imbalances especially in trade and capital flows. It’s a bit like a thermostat – cuts the heat when the temperature is too high, and switches it on when it is too low.

What we are witnessing is severe interference in that mechanism. The thermostat settings are simply being tampered with to turn up the heat without checking its efficacy – like whether the doors and windows of the room being heated are closed or whether the heater itself is working.

Simplicity is the essence of broadcasting. I quickly learned that if you cannot explain something to a 14 year old, it is because you don’t understand it yourself. In broadcasting you cannot be the “king with no clothes”, hiding behind complexities and jargon. If you don’t understand it, don’t say it! Few things amuse me more than when you break things down to their fundamental basics, you get the defensive response: “but things aren’t that simple.” It’s the same as that famous infidelity line: “It’s not what you think!” Invariably it is what you think, and invariably it is that simple!

That’s the beauty of behavioural economics. While it is not an exact science, it is closer to our economic essence and valid intuition. You will get as much of an insight into economic fundamentals if you understand your own and others’ behaviour as you will from books. After all, “economics” in ancient Greek means nothing more than “good housekeeping”; something they have clearly forgotten.

In this context we may ask: what’s so wrong with a currency war? For those who do not get involved, a stronger currency means cheaper imports including the all important capital imports such as plant and machinery and it puts a lid on inflation. But more importantly, it forces you to be super competitive, super efficient and super productive.

I accept that there’s a point at which a currency can be severely overvalued given its domestic circumstances. At the same time, currency depreciation can be used to hide all kinds of sins such as low competitiveness, low productivity, waste, inappropriate wage pressure, and government inefficiencies. Few things work better in denying a spoilt brat his way than the response of “I don’t have it!” Mind you, you should not have promised it in the first place. Of course, if every country gets involved in the war, then it is back to square one only with the prospect of rampant global inflation.

We can also ask whether the floating exchange rate system has not become so contaminated with speculation, derivatives and national interest manipulation that it has become dysfunctional and needs some or other Bretton Woods type of anchor again. World Bank President Robert Zoellick seems to think so and has even suggested gold as part of that package. National interest and principles seldom make good bedfellows.

The real and many imbalances in the world cannot be addressed by currency fiddling. Exchange rates fluctuate quicker than you can say “j-curve” and I am yet to be convinced that anyone can do long term planning or large job creating investments on exchange rate expectations. There’s no quick fix for years of succumbing to rampant expectations way beyond affordable reality, and a global cappuccino economy creating froth liquidity without tangible added value.

These are the doors and windows that remain open while we fiddle with the thermostat.

Monday, November 15, 2010


I know it’s a bit of a charged title, especially in South Africa. My vague belief in the mystical powers of Karma restrains me from wishing the most horrific of tragedies on anyone who puts an ethnic connotation to it. For the title is informed by the largest part of the human condition throughout the world.

clip_image002Monkeys, you see, can be taught to do just about any task. They do so willingly when rewarded with peanuts and get better at it and do it more often the more peanuts they get. Sound familiar? It should, because that is how we have set up most of our working environment. The more I pay you, the more I can expect from you. I sometimes wonder whether it does not start with parents paying their children incentives to get some odd jobs done around the home. I am reminded of a news photograph of the recent strikes which showed a striker holding a placard proclaiming “pay peanuts and get monkeys”. Only, this striker had the placard upside down. Perhaps he was not lamenting the peanuts, just the amount of them; because the analogy is apt, whether payment is in peanuts or money.

Yes, this is going to be one of those many articles on money as a motivator. Motivation must be one of the most written about subjects of all, certainly in organisational theory. If you want to make a lot of money by just talking, get onto the “motivational speaker” circuit. All you need are some marginal speaking skills, a lot of rehearsed quotes, or to have made your name in one or other field, including acting, sports or sometimes even crime. Yet, one of the world’s great motivational gurus, Peter Drucker, once remarked: “We know nothing about motivation. All we can do is write books about it.”

So I am wondering if money is the great motivator, why the mystery? Why all these books, videos, talks, and multi-media paraphernalia if the answer is so simple – just give more peanuts. Because we know it is not. And the only people who don’t seem to get it are those in business who structure the employee environment. It’s mostly based on monetary incentives, from the top to the bottom.

“Why do you work?” I would routinely ask one of the more petulant participants in my workshops.

“For money,” would be the response.

I would then ask if they would be motivated more if I increased their pay by say 5-fold. Without thinking most would say “yes”. I would then sketch a scenario in which I would increase their pay 5-fold, while at the same time removing from them the burden to work at all. They would have to sit in an office and do absolutely nothing for 8 hours a day. After a joke or two about “so what’s different”, the respondents would quickly realise that the state would be totally intolerable for more than a week or so.

I know it was not a very scientific process, although I repeated it hundreds of times with the same effect. Maslow, it is said, structured his Hierarchy of needs on the basis of an interaction with a handful of college students. The point of my exercise was to show simply the disconnect between purpose and pay; between meaning and means.

No study or authoritative work will deny the importance of pay. Its importance is not as a motivator, but as a potential de-motivator. When people feel they are not being paid fairly, they will be de-motivated. Herein lies a huge problem. The perception of fairness, particularly in South Africa, is based on runaway unrealistic expectations, comparisons and huge pay discrepancies. To add incentives into this mix compounds the problem. A powerful counter to expectations is involvement through a fortune sharing system, rather than monetary incentives based on tasks and measurements.

clip_image004In refraining from referencing a huge volume of work from scripture and popular guru’s to the testimonies of ex-junkies, I’m going to refer to some recent work which was brought to my attention by colleague Mandy de Waal. The research was done by M.I.T. first in a student environment and then replicated in rural India with the same results. Popular motivational writer Dan Pink presented these results to the RSA and anyone remotely interested in motivating themselves and others is urged to follow this link.

This study confirms that money incentives work well as long as it involves only mechanical skills. Just like monkeys! But the moment the task calls for even rudimentary cognitive skills not only do incentives not work, but the larger the incentive the poorer the performance. Now there’s a thing - we pay more to get less! It’s an interesting take on executive bonuses.

What really motivates the thinking human being, Pink says, is:

autonomy or being self directed;

mastery or the capacity to get better at the task

and -my absolute favourite- a transcendent purpose or making a contribution.

It is easy to achieve these conditions, even only partly, at any level of task. A NASA sweeper can move from “pushing the broom for the boss” (mechanical) to “making the floor come clean” (autonomy and mastery) to “helping to put a man into space” (transcendent purpose.)

Pink concludes: “When the profit motive becomes unmoored from the purpose motive, bad things happen.”

Yet that is how many have structured their business world. They simply cannot get away from the profit purpose of business. So at the very top they have the corporate board of gorillas – fixated by money and measurements. They pass these goals on to the executive orangutans who receive tons of peanuts for achieving them…sometimes not even that. Next in line are the chimpanzees that get bucketfuls for getting the unruly monkeys below them to meet their given targets.

Truly a planet of apes!

In technology and knowledge humankind has made extraordinary leaps on the evolutionary chart. But in thinking and behaviour we are often not much further than that creature second from the left…perhaps only a bit more devious.

It only takes a different way of thinking to change it.

Wednesday, November 10, 2010


Cake in my pre-teens was a rare treat and restricted to special celebrations like birthdays…and then not always. Its cutting was in the formidable hands of my mother. No-one dared to interfere in or influence this process, even if one was the subject of the celebration. It was an intuition I learned in infancy when no pitch or consistency of howling would capture attention other than a harsh response or inflicted discipline. I was, after all, only one of four siblings in the confines of the modest home that was the place of my birth.

So I was exposed at a very early age to one of life’s most important lessons: we are seldom, if ever in control of outcomes – we never know with certainty what we can get out of life, only what we are capable of giving. But exposure to a lesson is one thing: understanding and following it are another. I went through at least part of my life with a Newtonian logic that I was in control; haggling with creation until I ended up reciting the serenity prayer at least three times a week.

The lack of control of outcomes applies equally to companies. They too are in control only of the contribution they make. The outcome, or reward, is not in their control … unless they can fall back on questionable practices such as lack of competition, collusion, fraud, coercion and other devious acts. History has shown that these are seldom sustainable. They can also be costly as Pioneer Foods has just learned. Of course, the outcome is not totally random and unpredictable either. It occurs within the natural economic laws of legitimate transaction. But if we have learned one thing in the past year or two, it is that these laws can also be fickle and our influence over them flimsy.

Who then, should divide wealth created by a company? Who decides what each of the three contributors: labour, state and capital, should get? Here too it is not arbitrary. There is an omnipotent matriarch in the form of natural economic laws which I dealt with at length in previous articles. In short, these guidelines are pretty clear and have to make sense not only in terms of the legitimate expectations of each stakeholder but more importantly, the sustainability and expansion of wealth creation itself. It is here that rigid individual pay structures break the rules and are not suited to an environment of excessive unemployment.

The latest proposal to create 5-million jobs in 10 years is a non starter without some serious efforts at job retention. In turn this is feasible only if the destructive impact of rigid and rising wages is fully recognised, as Pravin Gordon did in his MTBS last week. The partnership he spoke of has to happen not only in lofty meetings between organised business, labour and state, but more importantly at grassroots company level where wealth is created. This is the main aim of fortune sharing: recognising the inherent partnership between the contributors to the creation of wealth, the volatility of wealth creation itself, and the need for flexible rewards to accommodate its inconsistency.

clip_image002While fortune sharing is an inescapable fact in all wealth creation, it has to be converted into a viable system that simply shifts the emphasis from flexible jobs to flexible pay. This means shifting over time, individual pay based on guarantees and contracts to a larger proportion based on risk linked to the size of wealth created. This clearly cannot be an overnight event. It has to be phased in over a period. The graphic shows such a shift over four terms. Currently, very few companies have more than a very small proportion of pay at risk linked to the overall performance of the company. These tend to be ad hoc and focused mainly at a more senior level. They never imply a reduction in pay, only the absence or size of a “special” allocation. Many do have bonuses, or merit related pay structured into the payroll and allocated differently according to performance at individual or team level, irrespective of the company’s overall performance. Fortune sharing implies placing a large part (ultimately virtually the entire pay roll) at risk according to the size of the cake.

Of course the shift has to be accompanied with concerted efforts at enhancing comprehension and understanding, trust, communication and transparency. None of these is insurmountable and can be achieved either with collective bargaining or at individual company level. The latter are also not mutually exclusive. I am going to simplify a vast amount of research and work with various interest groups into one condensed picture. The full conclusions and treatise of this work can be found in my book Value through Values, chapters 31-33. This includes a practical scenario based on a real company.

In short, benefits to all parties are determined by wealth creation itself. Calculating the proportions is perhaps the most important of all and while there are clear guidelines informed by market forces, it may require a large degree of discussion and haggling. Even then, it should not be set firmly in concrete and may need revision according to changes in company structure – e.g. a substantial investment in plant and equipment demanding a greater share to the shareholders. Also the proportions have to address first any imbalances in distribution that fails to meet the legitimate expectations of each group, and encourages their continued involvement.

Clearly, the contribution account does not fit snugly on government services or N.G.O.’s. But the fact that their rewards are determined by the wealth creation of others puts on them an even stronger need for discipline and prudence in distribution and a clear task of promoting conditions for wealth creation in the private sector. Accounting for this will be shown in a separate article.

clip_image004For normal companies the graphic shows (again highly simplified) how a 5% increase in sales (income), accompanied by a 5% reduction in outside costs will lead to a 15% increase in wealth created. If its current distribution is well balanced, each contributor/beneficiary is entitled to its share of the 15%. In the case of labour, the predetermined fair share of 50% translates into a 15% increase in the overall payroll or R7.5m. There are several ways this can be treated. In its infancy, at least part should be placed in a contingency reserve to sustain basic pay. The need for this can fall away as people become used to dealing with variable pay in their personal finances. Part (or all) can be distributed to staff as a % of their gross pay; or part (or all) can be split equally on a Rx per employee basis.

The permutations are endless. So are the possibilities for commitment, excitement, enthusiasm and involvement. Many of our established large companies may seem to be, or may even be beyond redemption. But following even to a limited degree the concept of partners in maximum wealth creation and optimum distribution can create a template for understanding and transparency that can extricate them from a conflict ridden environment. The opportunities are better for smaller companies and new ventures.

Fortune sharing is for the mature only. It can accommodate any motive, but ultimately it lives best with benevolent intent and a strong sense of ethics. It is best driven by a service motive rather than by profit maximisation.

And I have argued all along that the former ensures the latter. The latter does not necessarily ensure the former.

Thursday, November 4, 2010


Fortune sharing is not a system. It’s a reality based on the simple understanding that all companies create and share wealth. The method and proportions of distribution rely on systems, perceptions, expectations, and an array of internal and external forces, sometimes coerced. The primary function of distribution - encouraging continued contribution - is often flouted, leading to the demise of the wealth creation activity itself. The inescapable truth is that no share can be so rigid as to ignore the volatility of wealth creation.

Historically, the most rigid of all has been individual pay. For decades companies have tinkered with flexible or variably pay systems to solve this problem. Research has shown that variable-pay systems do as a rule enhance productivity and rewards both for the shareholders and some individual employees. That is not to say that all have been successful; some have been dismal failures. The cost in terms of lay-offs, low morale, and employee stress and discontent under variable pay based on incentive is simply not known.

Variable pay is a very old concept. Its modern complexities may be at least partly due to our fascination with measurements and measuring tools such as computers, spreadsheets, databases and other software programs. In this too, I suspect, much of “what is being counted does not count and much of what counts is not being counted”.

The doyen of gain-sharing experts in the United States, John Belcher, has put variable-pay systems into three categories, each with a different formula for arriving at the rewards.

The first is cash profit-sharing. It is clearly determined by shareholder expectations being met at company level, although not necessarily only according to the standard headline earnings.

The second category is gain-sharing. While this term is often applied to all forms of variable or flexible pay, Belcher defines it as a system where the payout represents a share of financial gains. These are associated with improvements in team, group or organisational performance.

Thirdly, there is goal-sharing. Here a predetermined amount is paid for the achievement of team or organisational goals. These goals can be anything from monetary values to production output. Historically, gain-sharing has been developed from four roots:

· profit-sharing

· the Scanlon Plan

· the Rucker Plan

· Improshare©

The biggest drawback of most flexi-pay systems is that they are seldom fully understood by employees, especially at general staff and worker level. In most cases it is difficult to achieve “line of sight” (where the effect of actions are understood) and “line of effect” (where the effect can be measured) at the final accounting level. The image of profit-sharing schemes is severely dented when company reporting reflects less than the truth about performance. Puzzling executive payouts add to the distrust. In addition, some favourite bonus triggers such as EVA (economic value-added), EBIT (earnings before interest and tax), or RONA (return on net assets) and ROCE (return on capital employed) are often complex to the average employee.

My own biggest problem with profit-sharing is that it’s unrelated to common fate. As long as labour is viewed as a cost in accounting, shedding employees is the easiest way to improve profits. And if the purpose of incentives is to raise profits, then labour becomes the scapegoat and the profit-sharing scheme in effect exacerbates the divide between labour and capital. Some remuneration and gain-sharing consultants suggest that profit incentives be confined to senior management and executive staff, and productivity incentives be applied at a lower level. This can lead to a complete disconnect in benefits between the two groups.

Most productivity incentive schemes ultimately have a bearing on the individual and tend to cause internal competition and “angst” among colleagues that very few favour over time: even those who run away with most of the accolades. This is particularly so in many South African working environments.

Many companies have introduced share-ownership options for staff. These have been given different names such as SIPs (share incentive programmes) or ESOPs (employee share option programmes). Experience has shown that they work better at the executive level and less well at general staff level. In South Africa they have also become dubious instruments of BEE. They are in a class of their own and I have difficulty in defining them as flexible pay schemes. I will defer a more detailed examination to a separate article.

The Scanlon Plan is closely focused on cost-saving. Any reduction in costs is shared with employees as a gain. The scheme could be quite unfair but what softens it is that the measurements usually apply only to those areas where employees are in direct control. This feature adds substantial benefits in terms of understanding, credibility, communication and perceived fairness. But again, as long as labour is accounted for as a cost, some employees could benefit by lay-offs among their colleagues. The reason for Scanlon’s survival to this day and indeed for being reinvented in various forms is that it has tried to address these issues. But I dare say job retention is less of an issue in the developed world. Apart from relatively low unemployment, employees there have social security to fall back on.

The Rucker Plan was designed by American economist Allen Rucker after the Scanlon Plan was born in the 1930s. Despite many references to it in organisational theory, I could not find a case study showing where Rucker’s plan has been successful. Nor did John Belcher provide any in his writing. It’s nevertheless worth examining because it’s triggered by value-added or wealth created and it comes closest to a labour-empowering fortune sharing system.

Rucker toyed with the idea of a value-added statement (VAS) long before it became part of traditional reporting. That his gain-share system and the subsequent accounting format did not merge is quite surprising. Rucker’s critics argue that it’s the difficulty of the reporting format that made the plan vulnerable. I think I have already demonstrated that nothing is further from the truth. Contribution accounting, which is a derivative of the Value-added statement, is the most logical of all accounting conventions, the easiest to communicate and the least susceptible to expedient bookkeeping. The real potential of Rucker was in relation to common fate, which he unfortunately failed to recognise. Under his method, although the bonus payout is calculated at an organisation level, it’s still quite feasible and likely for employees to be given bonuses as a result of lay-offs of colleagues. This immediately detracts from common fate. The difficulty is not insurmountable, however, and it may be time for a Rucker revival. I will show how this can be done next week in examining how to account for a fully fledged fortune sharing system.

Improshare© was developed some time after Scanlon and Rucker. Whereas Scanlon and Rucker are based on monetary measurements (although Scanlon can include other physical accountabilities), Improshare© is based for the most part on physical productivity measurements calculated at team and individual levels. This meets a key requirement of “line of sight” and “line of effect”, and again makes for credibility, understanding and perception of fairness. However, when things are not measured in terms of monetary value one has no indication of how useful they really are. The concept of value-added puts a monetary value on the contribution one has made to the good of a customer. If the customer stops buying a product, the contribution ends – no matter what “inputs” of time, effort and mind are present. Physical measurements therefore have their limitations. You could be measuring and rewarding things that are adding no value.

There is nothing so useless as doing efficiently that which should not be done at all. — Peter Drucker.

At a practical level, the overriding message of variable pay today is that there really isn’t a generic template or formula that fits all circumstances. Consultants working in the field should avoid and be prevented from imposing their pet projects on a company. The system must be home-grown and be constantly polished in every detail. While crucial, design and implementation are less important than policy and intention. As always the “why” far outweighs the “what” and the “how”.

Variable pay can act as an incentive, or encourage involvement, or both. The two are not the same thing, however. What is true is that involvement will act as an incentive. But incentive will not always promote involvement by all; indeed it very often has the opposite effect. Involvement is about being focused on the contribution, whereas incentive is about reward. Variable pay can be empowering, compassionate and generous, but it can also become just another tool in the “what’s-in-it-for-me” kit.

In South Africa, the key outcome of variable pay should be to enhance involvement and trust, soften wage rigidity and counter unemployment. Conventional schemes can do the opposite: foster distrust, inflate individual wages and reduce employment.



Rhynfield Benoni: January 22nd, 1944