
Cost per Unit of Productivity (Employees) - joelx
http://www.blog.joelx.com/cost-per-unit-of-productivity/11505/
======
p4wnc6
The recipe list lost all credibility with

> Find the most productive employee you have

which the author admitted you can't accurately do.

This is a recipe for disaster, not because reducing people to cold, heartless
quantitative metrics is necessarily bad, but because this is totally
subjective, and will ultimately devolve into simply rating the people you
happen to like as "more productive" or giving them free passes with the
"special skills/circumstances" column (for example, imagine if that column
came to simply represent diversity criteria).

Someone considered for termination due to being low in the CPUP ordering is
probably more likely just someone that people don't like, or someone who does
a great job but within a business unit that some other political rival wants
to defeat, disband, or re-org in order to consolidate internal political
control.

Also, it's _very_ reasonable for people to discount profit sharing pay. Such
pay is generally less specifically defined in employment agreements, easier
for an employer to omit for arbitrary reasons, affected not just by one's own
performance but also performance of others.

These are wage risks that a given employee largely cannot diversify away.
Whereas with salary, there are many legal protections preventing an employer
from omitting salary without documented cause.

The more of your pay that is arbitrarily discretionary and at the whim of your
employer's choice, the more variance there is in your overall wage outcomes,
and if you're risk averse (as many people are when it comes to wages) you'll
very rationally discount the value of that kind of wage stream compared to a
wage stream with far lower risk.

I also wonder if this employer does basic things, like giving all knowledge
workers private offices. If the employer doesn't do that, but then _does_
judge the workers on their productivity, it's exceedingly hypocritical, and a
red flag of a bad employer.

I liked the way this was stated in the classic software productivity book
_Peopleware_ (paraphrasing ...)

> If the employer did not care enough about protecting everyone's productivity
> [e.g. by using obviously cost effective technology like private offices in
> the first place], then I'm not going to kill myself to make up that
> productivity lag.

An employer who actually cares about productivity will provide workers with
all the things they need to actually be productive: state of the art tools,
adequate access to privacy and quiet space, adequate vacation and rest time,
adequate work/life balance, positive and collegial atmosphere, transparency
about performance expectations and appraisals, etc.

They will make the office (and the non-physical workflow structures of the
organization) into a place that _facilitates getting work done_ instead of
being something that you get work done _in spite of_.

Obviously, I can't say how it plays out for this particular employer, but most
often all you ever see is that the employer points fingers at employees and
makes arbitrary and erratic and politically motivated decisions about who to
promote, fire, or give a raise. Rarely will they ever point the finger at
themselves and say, "How is it that I am failing as a manager to provide the
right sort of workplace that would help this worker reach a higher CPUP [or
whatever]."

Given all of this, it's a very reasonable heuristic to simply call bullshit on
employers who say this crap. Yes, _maybe_ this is the one-in-a-million
employer who actually takes a humanity-affirming perspective to it. But you're
probably better off just assuming this employer is not such a rare case, and
just avoiding them because of all the red flags this emits.

~~~
joelx
Thank you for this response, I am the author / employer. I am looking for
feedback on if my method is effective at achieving the goal it has.

You raise some reasonable concerns about the fairness of the system and
especially if workplace politics could unfairly influence which individuals
are laid off. For my business specifically, I am the owner so playing any
games with politics would only damage the business and my equity in it.

In general, isn't this how managers determine which employees to promote /
keep / fire anyways? They try to identify the worst performers and let them
go, and identify the best performers and give them raises or promotions?

My thought is my system just takes that subjective methodology and simply
makes the manager think about it consciously rather than subconsciously.

Is there a better method?

~~~
p4wnc6
Not that it applies to you, but in my experience, small companies with a
single owner or a small group of founders are sometimes the very worst in
regards to politics. They will always _say_ (and may even _believe_ ) they are
doing things out of a pragmatic interest in the business's success, and often
will definitely say something like "at _my_ company we don't have politics
issues" ... but it's just not true. Either they are openly duplicitous and
only say those things because they believe it creates an outward message of
stability that positively affects workers (generally it doesn't), or they
really believe that whatever their particular actions are, they are not
motivated by politics even when in truth they are overwhelmingly motivated by
politics.

If owners enter 'dictator mode' it can be very hard to separate out what is
cognitive dissonance vs. what is a genuine attempt to manage a business
without politics.

As far as your question goes, I think it begins with a fundamentally different
outlook. You write about it in terms of who to promote / keep / fire as if
that is the right menu of options to orient your thoughts around.

Instead, I'd say you should think more about how best to develop the workers
you have. Firing people ought to be a distant thought that is only brought up
under serious conditions, like overt misconduct, extreme underperformance over
time or incompetence (that can't be corrected with training and investment).

You strike me as someone who is not thinking in terms of employees as
investments that payoff over time, but rather you are using some kind of
hyperbolic discount function that only looks at some short window of recent
productivity or some short forward-looking window of possible future
productivity -- classic short-term thinking that leads to a lot of bad
outcomes.

If you just want some kind of cookbook style management process, you can find
books endorsed by millionaires, billionaires, political leaders, athletes,
coaches, etc. etc. and just pick whichever one tickles your personal
confirmation bias fancy. (I'm not speaking just to you specifically, we _all_
do this, certainly me included). So you can always justify pretty much
anything you choose by saying, "isn't this how other people do it?" or
"Wealthy Person X said to do it like this..." \-- it doesn't actually mean
you're making the right choice for your business.

The other thing is that you conceive of your employees as falling on a linear
ranking, which I feel is misguided. I think it is not possible to put a useful
ordering on employees like that, because they are individuals and you can't
discount their potential, drives, passions, personal circumstances, etc., all
of which are changing often.

There are all kinds of dimensions in which a person can be good or bad in
their job for you, and there is almost surely no coherent "norm" you can
define on that high-dimensional space that adequately orders employees ... and
certainly not something entirely subjective like "who do I happen to think is
most productive modulo special circumstances". Even if Person A is "more
productive" than Person B, you don't know that will always be true. Maybe
Person B is a faster learner, a more creative thinker, or has other latent
talents that you have not properly tapped into yet.

What you propose almost sounds like a proto form of stack ranking [0], which
is a notoriously horrible way of doing things. But at least with stack
ranking, you tended to receive scores from multiple people who function in
mostly uncorrelated ways in the firm, so as to (mostly) remove dictator
effects or sabotage effects. I don't think you could easily get that in a very
small company where everyone knows everyone else and where the founder/owner
is highly visible in day-to-day actions.

Overall, I'd just generally recommend a totally different mindset. Stop trying
to apportion wage to micro measurements of productivity. Just admit you (and
everyone else) can't measure productivity well enough for that to be accurate
and robust to social biases.

Don't conceive of your lowest performers as candidates for termination.
Rather, spend lots of time first seeing them as examples where your management
style, workplace offerings, equip/tools/etc., have not been good enough to
coax good performance out of them, and invest in them. View their payoff as
something that happens over time, yes still with some discount rate more like
bond pricing, but not so extreme that their short-term productivity counts for
so much that it could lead to them being fired. If their productivity is low
for a long time, after you have implemented many strategies for helping them
improve, then you can be more confident that you're making a fair and correct
decision to let them go.

[0] <
[https://en.wikipedia.org/wiki/Vitality_curve](https://en.wikipedia.org/wiki/Vitality_curve)
>

~~~
joelx
I really enjoyed reading your very thoughtful response. I understand that you
are making a recommendation that instead of using some form of stack ranking
of employees that I should instead look to keep every single person until I am
100% sure that it is a fair decision to let them go?

I am not sure that what you recommend would work for the type of business I
have. Perhaps it makes sense for a product based business where you can invest
in someone for a year because they may create a revolutionary change to your
product after that. My business is a service business - we operate on very
tight margins.

I like everyone I hire and generally wish I could keep all of them. I don't
have that luxury. I am forced by the economics of my industry to let people
go... so I have to pick using some method. Stack ranking based on productivity
seems to be the most fair way to do it. Is there a better method than stank
ranking for selecting who to let go?

~~~
p4wnc6
There seem to continue to be some fallacious ways of thinking in your reply.
It is very common for people to always think that more humanity-affirming ways
will apply to "someone else" but never to them. I have actually heard people
claim exactly the opposite of what you have said -- that non-stack-ranking may
work in a service business, but not a product business! The grass is always
greener I guess.

The brass tacks economics always matter, of course. Your situation suggests to
me that you have over-hired, or hired incorrectly. Rather than creating a
company culture whereby people are pruned, it would create a better workplace
to simply not hire too many people to begin with. Operate in a leaner fashion,
even scaling back revenue opportunities and saying "no" to new business when
you have to, so as to disallow the company to grow in unsustainable ways that
then lead to a hard requirement for layoffs. This won't be possible 100% of
the time, but going for a stack ranking approach instead is like you are just
giving up on intelligent, sustainable growth and instead saying you will grow
randomly and unsustainably, and then simply fire people when you have to pare
back.

There is also the question of how much of a financial cushion you leave
yourself. Instead of being "forced by the economics of [your] industry to let
people go" you should use your knowledge of those industry economics to build
a safety cushion that allows you to continue supporting everyone's payroll
through the lean times. Yes, sometimes the lean times go on so long that you
can't do this indefinitely, but the more you budget for it, the better.

Basically, I do not see anything about your situation that makes it special in
these regards. I've worked in statistics consulting firms before, where the
work is highly variable and where the business really needs a high level of
productivity from everyone. Even in that situation, the company was able to
avoid layoffs by planning ahead, hiring conservatively and hiring for
versatile workers with broad skill sets, and budgeting for safety payroll
cushion to express the company's value that avoiding layoffs until the
absolute last minute (and communicating very transparently about it all the
time) was deeply important.

If you read more from the Wiki article that I linked, you'll also see some of
Deming's well-known criticisms of stack ranking -- and Deming was a well-known
productivity expert [0] who helped many Japanese firms gain international
reputations for efficiency and quality (firms that faced tough brass tack
market economics just like you do, but without resorting to stack ranking).

Many of the negative sides of stack ranking could have deleterious effects on
your business even during times when you do not need to fire anyone. It is
known to affect morale and productivity very badly. It is known to be highly
susceptible to office politics and cronyism, especially when times are tough
and employees scramble to secure their position. This in turn often leads to a
combative and overtly zero-sum / competitive workplace, which is well-known to
be bad for productivity (I imagine _especially_ in a service business).

At any rate, it seems like the specifics of your situation which you are using
to justify stack ranking don't actually indicate that stack ranking would be
useful or productive for you, and in fact suggest that it might even be
counter-productive.

The best recommendation I can give is for you to deeply question and re-
evaluate some of the assumptions you seem to be working on (for example, that
there's no way to address both the market economic constraints on your
business and also the need for company values which preclude frequent layoffs
and promote longer-term investment in employees). Without re-thinking some of
these assumptions, I think it's doubtful that _any_ method of determining who
to layoff is going to be constructive for you.

[0] <
[https://en.wikipedia.org/wiki/W._Edwards_Deming#Seven_Deadly...](https://en.wikipedia.org/wiki/W._Edwards_Deming#Seven_Deadly_Diseases)
>

