On Wall Street, big paychecks do not replace corporate culture

June 14, 2012

Goldman Sachs can’t seem to stay out of the wrong spotlight these days. With reports about executive layoffs and high numbers of senior people leaving, Goldman is losing its once-untouchable luster as analysts scrutinize its performance through a new lens.

The oceanic rift between average Wall Street salaries and those of everybody else has been measured by both public and private facilities. The New York State Comptroller’s office released a report last October showing that while total profits at Wall Street’s major brokerage houses declined during the first half of 2011, employee compensation, which accounts for about 60 percent of expenses for the firms, increased by 18.7 percent compared with the same period the year before.

The report showed the average salary in the securities industry was $361,330 in 2010. The national average wage that year was $45,230, according to the Bureau of Labor Statistics. A big difference was that while many suffered unemployment and pay freezes during the recessionary years, finance firms rewarded employees with raises. According to a survey by eFinancialCareers.com that polled 2,860 financial professionals, 54 percent were offered higher salaries in 2011.

All this points to executives on Wall Street, who have been conditioned to dangle a carrot on a stick, believing they can motivate employees with more money, more incentives and skills training to achieve great results. These elements cannot be ignored, but neither are they sufficient in and of themselves to lead these massive institutions. Managers who lead with bottom-line accountability alone are leading wrong.

A view of accountability that concentrates just on the end results should not be the only focus of leadership. In some cases, focusing only on results can have an adverse effect. To truly have an impact on employee performance, leaders need look no further than their company culture.

Greg Smith, who staged a highly public resignation from Goldman Sachs in March with a letter in the New York Times opinion section, said that employees like him need more than fat paychecks – they need leaders who provide meaning and purpose to their work.

It isn’t just at Goldman. In a recent survey conducted by Insigniam, close to half of the 250 executives from large-cap companies who were polled said their biggest frustrations are employee complacency, cynicism and cultural issues.

In fact, performance isn’t about money, or about hiring or training the most skilled workers. It’s not even about accountability.

Daniel Pink, the author of Drive: The Surprising Truth About What Motivates Us, said that when making money is the only goal, the results can actually be detrimental to the organization. When the game is merely money, your employees can easily be poached – which is already happening at Goldman, with several managing directors leaving for new deals. One of them is Ed Eason, formerly co-head of Goldman’s Financial Institutions Group, who will move to the Commonwealth Bank of Australia.

At its core, performance is about how people view their work. Employees become jaded, frustrated and complacent if they perceive their leaders as concerned with profits at the expense of integrity, values and purpose.

Chief executives often confide in me that they are frustrated about stagnant growth and stale results. I’ve seen many large companies struggle with creating an inspiring culture, while focusing on accountability, control and predictable outcomes.

In 2010, a North Carolina-based healthcare system with five hospitals and more than 100 facilities sought to flip its performance with a renewed outlook on culture. When an assessment revealed that the majority of operational practices were focused on the budget, they created a new set of values that focus on the patient. As service, quality of care and problem-solving all became part of the culture within these hospitals, employee engagement scores and patient satisfaction rapidly increased, and infection rates dropped by 25 percent. The healthcare system went from mediocre results to being on track for top-tier performance within 18 months.

When leaders deride or openly manipulate customers, how else will employees respond? If you don’t care about your customers, employees believe you don’t care about them either. People want meaning, Smith says. They want to belong. They take their cues from their leaders’ behavior and conversations.

At one European fast-moving consumer food company, a two-year return to company values starting in 2009 did more than allow managers to retain their autonomy. The company trained 15,000 managers and executives on how to tie their daily management and leadership to behaviors that would empower them to take bold action and help them build authentic relationships and create a vision for the future. The company experienced 8 percent growth in 2011, and it is predicting an additional 5 to 7 percent growth this year.

Leading with accountability that puts the focus on “getting the numbers” over culture generates complacency. Goldman Sachs may have already started down that road. When employees believe the bottom line is more important than they are, performance suffers. To generate sustainable growth and extraordinary results, develop a culture that is worthy of employees’ personal commitment. Performance will follow.

Illustration: Elsa Jenna.


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Great article. The truth is that much of corporate America still has a “carrot and stick” mentality when it comes to motivating employees. There is hyperfocus on achieving the quarterly numbers promised to Wall Street. Senior executive bonuses often are tied to exceeding those targets. The complacency you mention is spurred on by leadership that demands inwardly-focused activity, rather than focus on the needs of clients (from whom the revenues are derived). As a corporate senior executive, I have changed jobs several times over the last six years because my employers have valued profits over core values like integrity, people, employee care, and client satisfaction. Long-term, this will spell the demise of American business.

Posted by SrCorpExec | Report as abusive

There’s plenty of hard evidence to back this up… Edward Deci and Richard Ryan at the University of Rochester have done decades of research on self-determination and shown that extrinsic rewards and controls often backfire by doing damage to one’s intrinsic drive. (As one example, children who were paid for solving puzzles were less likely to continue doing them “just for fun” once the pay stopped.) Deci and Ryan concluded that contingent reward systems (IF you accomplish x, THEN you’ll receive y) are inherently flawed. Such reward systems — such as pay for performance and other monetary bonuses — that are based on meeting specific performance targets encourage a narrow, short-term focus and sometimes unethical shortcuts. (Sound familiar?)

Contingent rewards discourage expansive thinking, flexible problem-solving, and collaborative cooperation. Worst of all, such rewards undermine long-term intrinsic motivation. As a result, says Deci: “The proper question is not ‘how can people motivate others?’ but rather, ‘how can people create the conditions within which others will motivate themselves?’” That sounds like culture to me.

Posted by Joleary | Report as abusive

This insightful article clarifies the need to make work mean something. The strongest bond that exists among employees is the accomplishment of something worthwhile. I agree that most incentive plans diminish performance by making everything about an individual. Few things in business can be accomplished by loners with money as the only incentive.


Posted by fitz4 | Report as abusive

Excellent insights. Personal accountability is a neglected lifestyle, one whose resurgence would benefit many.

Posted by CFitzTyler | Report as abusive

It’s true. Managers treat the issue of culture as though it’s some kind of black box. The best they can do to motivate and engage people is offer more money, but there is only so far that approach can take you.

Posted by Zorami | Report as abusive

“When employees believe the bottom line is more important than they are, performance suffers.” That is SO TRUE. People need to be valued and have a reason to work as hard as they do.

Posted by moguice13 | Report as abusive

This an excellent and so true a commentary. I am afraid it is not only endemic to Wall Street, our world society seems to be following a very parallel if not identical path. There is not a single mandatory class in ethics, integrity & values in any of our public school systems as far as I know. The obsession of greed, fraud & selfishness apparently is very desirable in today’s culture. The global marketing success of items named ‘iPad’ & ‘iEverything’ is a good indication of this obsession.

Posted by GMavros | Report as abusive

Very interesting… Imagine what the performance of the financial industry could be if Wall Street started to seriously take on looking into integrity, values and purpose. These brilliant people could generate so more value if money what not the beginning and the end of their game.

Posted by Gup | Report as abusive

So well written!

Not everyone in an organization is after money. Some want personal fulfillment from a job well done, others from supporting their colleagues “behind the scenes”. Organizations MUST be able to foster the contribution of a wide variety of people, each with different personal interests and agendas. Otherwise, the pool of talent shrinks immensely, since it would only include those who are after money.

But if an organization only values the bottom line, then those non-monetary interests are dishonored. People know this, even if they don’t or can’t articulate it. They then become jaded, complacent and resigned. The end result is lackluster performance.

The best organizations need to honor, foster and reward all types of personal interests, so as to get the best out of everyone.

Posted by akmangalick | Report as abusive

Should be must-reading for anyone who believes that profitability is an end in itself; in fact, as this post shows, treating people well is not only humanistic and ethical but sound business. Some who claim to carry the mantle of capitalism are in fact distorting what is good about market-driven decision-making by reducing it to that which is easily measurable in the short term…to the detriment of the real health of the organization (and, it could be argued, of capitalism itself).

Bethany Maclean and Joe Nocera’s book “All the Devils Are Here” showed how dangerous an orientation toward short-term results was in the run-up to the 2007 crash and recession. Shideh’s column looks to me like a healthy reinforcement of the need for decision-makers to be alert to the dangers of perverse incentives, not to mention the (eventually) measurable value of moderation and decency within any organization.

Posted by carlrosin | Report as abusive

While it’s clear that individuals need more from their company than compensation, I believe the above under estimates the economic dynamics that are driving the discontent. The gap between the “haves” and “have nots” grows larger and as such there is only so much integrity, value and purpose that can bridge that discontent. The general work force has witnessed wage freezes, and low bonuses for those eligible. We are in a period of workforce unrest, in which the leadership dynamic needs to shift to leading by example in addition to words. The cynic in me cannot help but note that, Mr Smith’s letter while powerful did not include a returning of the bonuses he accrued, even his most recent. As well I cannot help but think that those jumping ship, are doing so for a more stable economic environment, as well as a happy place to work. Leadership would be staying and creating change and possibility at GS.

Posted by financialguru | Report as abusive

Unless and until corporate America abandons the flawed “Shareholder Value” model there will be no change in the workplace dynamic, and little hope for the US economy.

Posted by arbitus | Report as abusive

[…] When leaders deride or openly manipulate customers, how else will employees respond? If you don’t care about your customers, employees believe you don’t care about them either. People want meaning, Smith says. They want to belong. They take their cues from their leaders’ behavior and conversations. Read full article via blogs.reuters.com […]

Posted by CommDigest » On Wall Street, big paychecks do not replace corporate culture | Report as abusive

I think the premise under which Ms. Bina writes is true, although I think the trending and realization of companies that accomplish this differs by city/region and industry. I believe many companies who have legacy cultures and people who presume to be entitled … are afraid of risk and innovation in many cases, and money becomes the retention. In companies that have a more diverse employee bases, remain fresh and understand that a better carrot is always — enjoying the work and feeling the reward from it — they sustain string middle management that mirror the value of the senior leadership. Meritocracy takes a shift. Rewarding for creativity, change and positive directional influence is worthwhile – not just the bonus from bottom-line results. They could simply be results that are typical and standard not extraordinary. In fact we see some companies reward people when the bottom line is way off kilter – and nothing innovative has happened. They spend months of time doing spreadsheets and power points to convince the board to understand why bonuses for poor performance are needed at senior levels – because no other carrot exists other than personal extravagant spending and lifestyles that rely on money, not longterm organizational excellence.

Posted by mktmaker | Report as abusive

Imagine going to work everyday at a place where you regularly experience contributing to some common goals bigger than merely your self interests that are challenging and yet inspiring? On top of it, you know that the company policies and procedures actually take into account your all around well-beings. As long as the salary and compensations package is fair and sufficient, chances are you’d want to focus on doing good work and thinking of ways to do even a better job each day, just because… (you may or may not want to say it out loud) the good feelings that come with overcoming the challenges and living with the inspirations, especially when it’s with teammates, working under, above, and with you… even when some of them exhibit such talents that provoke embarrassing jealousies in you! Money? What money? Ah, Yes! the figures used to keep the scores.
Would you be looking around to go somewhere else? And at the end of the day/week/month/quarter/year, do you think the company financial statements would look pretty or ugly?

Posted by janeww | Report as abusive

My experience as an executive and entrepreneur are fully consistent with the views expressed by the author. This seems to be true across cultures – I have operated in 20 countries on 3 continents. The challenge is how to effective engage and motivate one’s team. The challenge is greater in markets and industries that are largely populated by “carrot & stick” corporate cultures. I find that people need a sense of meaning, a sense of belonging, and a sense that they can influence outcomes. There is an important interplay between feeling valued by the organization and the feeling of self-value.

Posted by DanielBhutan | Report as abusive

How do you balance the employee’s need to belong and feel at home in the organization with the equally real need on the part of the organization for the employee to perform and deliver results? How do you accomplish both of those things?

It also seems to me that organizational leaders and managers face a challenge in that this need to belong and be at home may be more important than ever, and yet the days of the 30-year company man are nearly over. More and more often, “this job” is just a stepping stone to the “next job” which is a step or more away from the “dream job”. Are career mobility and the need to belong antithetical?

Posted by PeterAG | Report as abusive

I agree with the basic premise of this article. Smart firms make it be about more than just money. If they show they stand for something, they are far more likely to attract talent, especially at the lower levels.

That said, I wonder if the 18.7% pay raise that Wall Street employees have seen over the last year could be considered hazard pay for all the abuse these employees have had to put up with from the general public who doesn’t understand their jobs, think banking and trading are the same thing, and don’t comprehend what a 70-hour workweek feels like.

Posted by davidarnaud | Report as abusive

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