On Wall Street, big paychecks do not replace corporate culture
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.