My Own Pirate Radio

At a dinner party last night I met a McGill med school grad who has worked for several years as a radiologist. He sits on a medical school admissions board, and we talked about how hard it is to calibrate applications from different universities. At University of Toronto’s med school, for instance, the top 30%* of the class gets an Honours rating. At McGill, only the top 10% earn Honours. How do you calibrate objectively? You can’t, really. That raises a debate: what do grades really mean, and how much should they matter within and outside of the school walls?

A similar problem occurs in evaluating university credentials once they’ve been granted. Some governments refuse outright to recognize medical school credentials from certain foreign countries. Others classify foreign doctors as second class citizens with restrictions on the work they can do. Some of this is warranted — medicine is certainly an area in which you ought to be conservative about credentials — but there’s also a healthy dose of protectionism at play.

International work aside, once you get out of med school marks don’t matter so much. You either graduated or you didn’t, and you are certified to practice medicine, or you’re not. When it comes to getting a job, according to my radiologist friend, hands-on experience (e.g. through locums) far outweigh the importance of marks. And that’s as it should be.

MBA students have it harder. Many MBA schools issue grades to their students, and some industry recruiters have become accustomed to using those as part of their screening process. That seems broken to me. It’s a Master’s degree, after all. The bar to get in is high. These are smart, experienced people. So why disclose grades? A simple pass/fail or honours/pass/fail should suffice. What matters more (to me, anyway) is on-the-job performance, and that’s where interviews, internships and apprenticeship periods should come in. If you’re leaning too heavily on marks as a pre-screening device you are missing potential future star hires.

There are tradeoffs within the learning environment too. If you don’t measure grades, you get more student collaboration, but also more free-riders. If you do measure, especially in a fine-grained manner, you flush out the free-riders at the risk of the environment becoming over-competitive. Students may grandstand and try to upstage each other in class, for instance, in an effort to earn participation marks. What’s worse, over time profs inflate grades and everyone loses faith in the system. The same exact effects play out in workplaces with respect to compensation measurement and employee behavior. Neither extreme is healthy.

Grades do matter and to a reasonable extent they should. A simple Pass/Fail/Honours system can add value when used with care, be it in a university or a workplace. But we must be prudent about what we measure and how much weight we place on it. Measurements are very much a double-edged sword.

* Update April 24, 4:05 PM: at U of T about 30% to 40% of the class is awarded Honours. This is anecdotal.

Seth Godin blogs, “One guy gets a $10 bonus. The person sitting next to him seethes for weeks, while the bonusee forgets it soon enough.”

Yep. But what’s the solution? No bonuses, Seth would argue. Probably works in a small business with fulfilling work and good baseline salaries. But with growth, watch out for free-riders.

I have yet to see a business setup that incents everyone to do great work, and cannot be gamed, and does not breed resentment in some part of the employee population. It is possible to do this in a small organization, but at larger scales all models I’ve seen fail on at least one of these counts.

I put forward some idealistic notions on this earlier, here. Feels to me like they’re headed in the right direction, but not yet ready for prime time.

I guess if the perfect model existed we’d all be using it.

Thanks for all the great comments on NewCo Compensation Principles, both public and private. Great food for thought.

Rob, I agree with your assertion: corporate feudalism is the norm today. Most companies have the equivalent of royalty, nobility, knights and serfs, both in terms of power structure and compensation allocation. Serfs are told they can climb the ladder to become royalty, but in reality that’s out of reach for most. If conditions are oppressive for long enough the serfs will revolt. And while a “revolt” these days won’t result in beheadings, it at least means poisonous morale, lower productivity, and unwanted employee attrition. (OK, we’re mainly talking about tech companies here, and tech compensation packages these days are hardly oppressive, even for serfs. But you get the point… it’s about perceived fairness.) Read the rest of this entry »

Thought experiment: if you were running a company of your own, starting from scratch, what principles would you adopt with respect to the employee compensation system? Here are mine:

* Simplicity. The compensation system must be easy to understand and implement, thus avoiding employee confusion and lengthy, error-prone decision-making processes.
* Fairness. Each employee should be compensated fairly and justly relative to all other employees and relative to the market as a whole.
* Meritocracy. Each employee should be compensated in proportion to their net contribution towards the key success drivers of the business. “Net” includes both direct individual contributions and collaborations with others, with a weighting appropriate to the business and nature of work.
>> read on…

While at Microsoft I spent a good deal of time thinking about the employee performance assessment and compensation system, both from the employee point of view (10 years) and management point of view (5 of those 10 years). These days I’ve got my entrepeneurial thinking cap on, and the compensation topic is on my mind again. I want to share some notes on what I learned and what I might do differently, both in Microsoft and in a green fields company of my own, were I to start one.

In this first note, compensation thoughts on Microsoft through the rear-view mirror.
>> read on…