Is The Farmer The Turkey's Best Friend?
Intro: Sometimes, there are specialties outside your realm of expertise (like us as Total Rewards Managers) that can have a profound impact on the way you approach strategy. And rightfully so.
Once when working nonstop on an intensive deal, a consultant gave me a book.
The reason she gave me the book ‘Antifragile – Things that Gain from Disorder,’ by Nassim Nicholas Taleb, was that she knew it would give me a kind of science (relief) for my intensive management style of asking ‘what if this happens?’. In other words, to give a reason to my doubting and constant hunting for as many things that can go wrong - and then proactively trying to address them. One by one.
The premise of the book is that:
If you rest in a well-established strategy with the idea of continuing normalcy
– like a solid Total Rewards strategy - you will be screwed.
Eventually. Why? Because of randomness and the unknown.
I remember 20 years ago, as a budding futurist, writing a paper to myself that the only thing of value in time would be our ability to adapt to random and dramatic changes and that the only strategy of any worth would be the ability, the preparedness and the capacity to manage the unknown (chaos). Mr. Taleb says:
"To domesticate, even dominate, even conquer, the unseen, the opaque and the inexplicable’ you ‘need to love randomness, and uncertainty, which also means – crucially – a love of errors, a certain class of error. Antifragility has a singular property of allowing us to deal with the unknown, to do things without understanding them – and to do them well should be to seek out what is fragile and move it to anti fragile."
He clarifies how, from a scientific perspective, that we need to move from Theory to Evidence based phenomenology; from a knowledge perspective: that we need to move from Academia to Erudition; and from a decision perspective: that we need to move from acts of commission to acts of omission (taking out overcompensation and over reaction). And these are just a few of many antifragile approaches he elucidates.
Why is this so important for us as Total Rewards Managers who are in charge (hopefully) of 50-60% of their company’s people costs amounting to millions if not billions of dollars?
Because the world is random, and there can be events that can catch
us completely off guard. Like now with the COVID -19 Pandemic.
Never in my lifetime have I seen such questions of:
“What do we do now?!! Should we pay the bonus?!! Should we still have a fixed base salary increase?!! What about a shortage of cash?!! What about other incentives?!! What are others doing?!! Would it not be better to copy them, so we don’t have to risk now knowing what to do about it?!! Run for your lives!!!... We need advice! We need help!”
There is clear evidence that many of us, as Total Rewards Managers, did not jump in and say to our CEO “Right, let's implement the plan we agreed upon,” where our CEO replies “Roger that, let's proceed and thanks for thinking ahead of the game.”
Taleb, in a previous book called the Black Swan, talks of Black Swans as: ‘large-scale unpredictable and irregular events of massive consequence unpredicted by a certain observer, and that such an unpredictor is generally called the “Turkey.” He calls them turkeys because the turkey thinks of the farmer as his best friend, if not family, until Thanksgiving Day.
If you're not building a capacity to adapt to sudden and dramatic unknowns as part of your Total Rewards strategy, you are moving, respectfully, towards the dimension of being unneeded.
The plan is not meant to be specific to each and every disaster, but on fundamental business measurements (how much water is left in the well before it runs bone dry), before plans must go into effect.
So what is an example? Ok, let us pretend you are a non-turkey person, and because you know ‘something might go terribly wrong one day’, you put a plan together. Let’s evaluate one dimension of salary cost in a very simplistic way, and look at the beginning analysis of what you, as a wise person, did:
1. You spoke to your CEO and Total Rewards Governance team
and told them that “we need to create a transparent and approved plan for what happens to base salaries if business is shut for longer than ____ weeks" (the time period after which your plan kicks into action).
2. You told them the plan is to consist of:
a. a transparent dimension, what you are to communicate to employees proactively before any unforeseen event occurs, so they are not shocked with drastic and overreacting management decisions based on panic, versus decisions based on a strategic plan that management agrees to and employees know.
b. A non-transparent dimension, what you possibly do not communicate to employees (depending on the company) which more pertains to the prioritization of key talent across the organization and how they are to be managed in order to ensure the business can continue to survive.
You (well done!) worked with talent management and line managers to determine what skeleton crews look like in all dimensions and functions up and down the organization (Finance, Sales, Production, Supply chain, HR, Marketing Finance etc.). Crews called into action when a ‘certain degree of need’ is triggered within your contingency plan and who are chosen based on expertise / value / performance. Crews that already in the day to day, apart from any disaster yet having occurred, are markedly better paid than others.
You have well insisted upon it because you are that smart.
3. You confidentially agreed with management on the fixed amount of cash,
that can go out to pay all salary costs (salaries, taxes, deductions… the whole works), without further incoming revenue, and before the contingency plan goes into effect. A formula, which should be equal to an agreed percentage of available cash reserves.
You would call the resulting amount of the applied percentage, the Emergency Salary Reserve (ESR). It would only be a percentage of the available cash reserves because other cash would be needed to manage ongoing fixed overheads apart from total salary costs. But this number would be known and proactively agreed upon. With this ESR amount, you would accurately, based on a daily ESR rate, be able to calculate how much time you had.
If some revenues were still able to come in (i.e. some inflow of water into the well is helping to prevent the well from going bone dry), you would take this into account to adjust the allowable time.
4. From the outset of the ‘emergency’ you would have the senior management reduce their salaries by a %
(or agreed formula) to contribute to the cash flow fund of the ESR and to show solidarity in ‘sharing the pain’ as an example of responsible leadership that would be part of your Total Rewards Governance. All senior management would legally sign off on this plan as part of their contract. They would, to be fair, be repaid in spades by increasing values of LTI in their successful saving of the business as the business returned to normalcy.
You are a businessperson, after all.
I am missing whole bunches of stuff. This is just the tip of the iceberg, but you get the point.
There is much to do. Much to figure out. Because more and more ‘turkey emergencies’ will occur. Our speed of change is guaranteeing that they will.
So, if this element is not there in your current Total Rewards Strategy, I say ditch a good part of it - and remodel.
A chaotic change might be called for.
Michael is a senior Total Rewards leader with 26+ years in the field. He comes to us from Nestlé, where over the course of his career he held leadership roles on both the compensation and benefits side in their global Total Rewards organization in Switzerland, China and the USA.
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