Community Style Business – Rewarding Performance

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The core problem with any reward system is the question as to how to ensure the reward is representative of the effectiveness. Wether it is a paycheck/compensation, a bonus or results based compensation, companies find ways to reward their employees. These rewards are not an exact science, see Corporate Scarcity – The manager’s mindset, and can contain quite a bit of disparity from effectiveness.

Community Style Business approaches the problem around rewards preferably through the use of non-loss obverse point systems, leveraging lead measure tasks and gates to ensure high quality services are performed. This blog post will cover various theories around CSB reward systems, along with references which I found useful.

Results Based Rewards

The core concept in community style business is that its members are rewarded proportionally to to what they contribute. This creates a problem when trying to define what and how much a contribution is. How do you identify what is or is not valuable?

There are various guidelines, and examples, on how this can be done. None of these guidelines are absolute, as it is up to the community, ultimately, to correct deficiencies when they occur.

Defining a measurement

The first step in creating a value based reward system is to define a way to measure both effort, risk & need/desirability. Typically the points should be based off of effort relative to a baseline which everyone can understand. One example of how to evaluate tasks for points is a practice known as planning poker, which will be discussed later. This point system is re-evaluated as needed every iteration by the community.

Planning Poker

Planning poker is a means by which all members have the ability to vote as to how many points a task is worth. Each time there is a large disparity in the voting the a representative from the high and low point group can voice their arguments to the group.

The site below provides a good overview and guidelines for planning poker.
http://agile.dzone.com/articles/introduction-planning-poker

Setting the bar

If planning happens on a team level or there is a disparity based on the type of knowledge someone has to have, it is often a good idea to set a bar for a baseline for each discipline. This is meant to normalize the disciplines, while still allowing for adjustments based on need/desirability. The one I’d recommend is, what could an average individual skilled in the craft get done in a set duration. This allows for both normalization across disciplines as well as eliminating a notion of inflation causing disparity.

As the organizations cash reserves build it is best practice to get a third, non-invested party to do these evaluations. This is to ensure that there are no biases toward a discipline or career lifecycle. It also helps reduce the potential for political infighting.

Need / Desirability

I’ve stated multiple times this notion of need / desirability, but I want to take a moment to really define what that means.

In a community system, we start off by assuming all normalized efforts are equivalent, no matter what the discipline. This creates a problem right off the bat. Some work requires specialization, is not something people tend to enjoy or require more end entices to get the right level of talent to do the job well. Alternatively, other jobs it’s easy to find people to work on, these are the “sexy” jobs.

The goal here is not to reduce the value of the “sexy” jobs, but to find an equilibrium with those tasks which are less so. An example of this might be someone working the night shift might get more points than someone working a day shift, if the night shift isn’t attracting enough high caliber people.

This isn’t really a new concept for business, as worker salary is a reflection of this calculation. When applied to a CSB it is expected to manifest differently. Since things like schedules and efforts are ultimately influenced by a community of individuals working, more variation is expected to occur over time, as individuals find the niche which best fits their life. Rather than a stick approach, CSB tends to be best with a carrot.

Defining results not method

While lead measures are useful, they shouldn’t be the only mechanism which is used. Often times when looking at an objectives there is the work done which directly contribute and those which correct deficiencies along the way. A good example of this is a software developer & a software tester. In these types of scenarios there are two approaches which can be used: distribution of existing value or value created for the corrective action.

Understanding the impact of imperfection

The example of a software developer is a good example of missed potential. The reason for this is that if the software developer wrote perfect code, the effort needed by the software tester is minimal. Their job is to just verify the expected results. The problem is that perfect code is very hard to write for many various reasons. As the flaws in the software are discovered, the amount of effort given by both the software developer and tester multiply.

Distribution of existing points

The above scenario lays out a real life scenario, of which happens every day. With a distribution of existing points philosophy, the completion of the goal is seen as the value. There for efficiency is rewarded, but higher efforts will not be recognized. Points are distributed after the work is done based on the amount of effort and lead measures completed.

If applied to the scenario above, the more the tester has to work the fewer points the developer receives. The danger here is that points can reduce in value for effort pretty easily, causing the goal to become less compelling. The positive aspect here is that it rewards quality with more points regardless of time spent. This allows an individual to spend more time to produce higher quality upfront and have that behavior re-enforced.

Value created for the corrective actions

This philosophy states that those efforts directly inline with the goal will be rewarded statically. The corrective efforts will be rewarded without the scarcity of the initial goal.

The example above would be handled by the developer getting a static set of points, while the tester would be rewarded more for anything extra beyond the initial verification effort.

This method plays more nicely when looking at objectives which run longer than expected. The problem is that this method increases the value a goal is worth artificially based on how much correction is needed. The positive aspect is that important goals don’t become meaningless. The developer in the example would have to spend longer to fix the issues before his points would be realized, which also balances out the effort to reward ratio for lower quality work.

Dividing up the spoils

As I stated in the overview, the gross profit is first used to pay for all materials and expenses the community is required to pay. Once that is done, any community initiatives are taken out, things such as a rainy day fund or saving for a consultant to normalize efforts across disciplines. After those two are completed, the points from all contributors are added up, and each member’s percentage of points are calculated. The remaining money is distributed accordingly.

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Community Style Business – An introduction

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I first started asking the question two years ago.

How do I work in an environment where all my contributions are valued?

The problem I faced at the time was that I was working for a professional services software company and had just secured a multi-million dollar contract. After working with the customer and rebuilding ties I had my review, where I was given a small increase in pay, and no promotion, even though I was being billed as multiple titles above my current pay grade.

At first I thought it would be enough to step up in the corporate ladder. That’s when it was driven home to me about how much of “middle” management was corporate politics and posturing. That was definitely not what I enjoy.

I then tried both joining a couple of startups as well as creating a business of my own. It was surprising to me how different organizations varied, both in skill sets as well as personal philosophies. But there was an underlying trend of scarcity and in some cases wild financial bets where one wrong step would mean I would lose my house and my finances would be shot.

The one good thing during that whole duration was that I was continually studying. Business, people management and even psychology books became part of my daily routine. Eventually I started working out what I really was looking for in a workplace environment, and titled it Community Style Business.

What is CSB (Community Style Business)

The simplest definition of CSB is:

A group of individuals working together as peers to create value, with the rewards of that value distributed to the community members based on the extent of the individual’s contributions.

This style of business borrows heavily from the organizational structure of agile, in which the members executing define how work gets done, and the inception members (product owners and researchers) work to identify what customers value and how much.

I personally come from a software background, and so the following will be heavily focused on the definition as it pertains to software, but that doesn’t mean a variation can’t be applied to other domains.

Distribution of rewards

Members of this system are rewarded based off of efficiency and completion of work. These pieces of work are given point values based off of risk, complexity and effort in relation to what it would take a competent individual skilled in the craft. This value is then voted on by the community of individuals on the team, much like agile’s planning poker.

Once a unit of work is finished, it is reviewed by the team and at least one member of the inception team. If the work is approved then the points associated with the work are rewarded to the individuals who worked on it.

It is generally considered a good practice to define lead measures as part of a unit of work. Lead measures are measurable behaviors which when done tend to ensure high quality results.

As the product is purchased, and value is transformed, all non-contributor based expenses are paid first. Items such as rented servers, or the power bill and Internet, at face value. After that any community agreed finances are taken care of, such as putting together a rainy day fund. Finally the remaining is distributed based on the percentage of points an individual has as part of the whole.

Leadership

This is one of the main differences from this style of organization to others. The way leadership works in this style is through evangelizing ideas, and gaining community buy in, although depending on the size this could be as simple as convincing a team to consolidate around the idea.

Often times this will come from the inception team, but any member of the community has the ability to become part of inception, even stepping outside of their current role to do so, although it’s important to note that they shouldn’t do it in a way which will cause their current team to fail on the current iteration.

A fundamental principle here is that an idea or vision by itself is worthless, and shouldn’t be directly rewarded. The true value of the idea comes through the researching, flushing out and implementation of the idea. Usually this means many people are involved, from the high level vision all the way down to the details. To that extent those who want to lead with vision become part of an inception team, and are given the opportunity to gain support from others.

People management

Since value is created by each person which should be directly relational to that created, there isn’t a need for the typical oversight of individuals. A member who doesn’t want to work that much will be rewarded with little, and the more workers creating value leads to more value created. If there is limited value which can be obtained, more value created leads to a faster realization of that value, allowing the team to move more rapidly towards more valuable goals.

Those who do not feel they receive enough value for their lifestyle will tend to leave a group on their own. These individuals are often referred to as dead weight in other organizations. In this regard reviews, performance management and classic hiring/firing practices do not apply to the CSB. If a member is not performing enough value, others can be added without detracting from the community.

Pay scale and peer to peer pay comparisons also becomes a moot point in the CSB. Since the system rewards based purely on value contributed, individuals can achieve any pay amount they’re capable of, either through efficiency, talent or brute effort.

Individual responsibilities

In the community model the individual is given a lot of leeway as to how they want to work. The only requirement of this model is that individuals are required to self educate and take part in community obligations. It is up to the community to decide what these obligations are. Examples of items which should be discussed are: insurance, time off, office space, etc.

Individual Community Obligations

A good rule of thumb should be that obligations directly benefit all members of the community equally, if that’s not the case then it’s a good idea to ask if that’s an individual’s responsibility.

An example might be offices of different sizes. If one individual prefers a larger office to himself but others double up on office space then the office space doesn’t directly benefit whole community. In this case, it might be a good idea to allow individuals determine how much of their own distributions they’re willing to give for their working environment. This would allow those that need larger offices the ability to get them, but does not create a pecking order as there is no downside for those who it doesn’t directly benefit.

Self education

In this style of business it is up to the individual to stay informed in order to create the most value possible. This can be done through self education, team discussions, and a suggested high level cross training which gives the individual a concept of other areas of responsibilities and research which is ongoing.

This high level training of research and concepts will allow the community to better understand how to help each other out. Due to this nature there should be an increase in the volume of applicable value across the community.

Community iterations

When I was a manager one of my direct reports told me something to the effect of, “In agile you should be okay if we fail”. While this can sound bad, what he was trying to imply was that in an environment where the group is expected to self improve, harsh accountability regardless of the circumstance will drive away the willingness to try new things.

In the community model, mistakes are expected to happen, people aren’t perfect. The community should pick durations by which it can review and change the way it functions, even trying out new ideas to see if they will work. This iterative process allows for course correction as the community evolves and the business evolves or individuals in the community’s priorities change.