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Friday, April 16, 2010

Promotion Systems

When doing research for my book, I interviewed several Googler old-timers. What surprised me was that two ex-Googlers said the same thing pretty consistently: they felt that the Engineering Ladder was a very bad idea. At the time, I disagreed. I believed that in general, incentives systems worked and it was a good idea to spur everyone along with carrots. Since then, I've come around to agreeing with these two very smart people.

What changed my mind? The first was my reading of the book Drive. To a large extent, software engineering is a field full of ambiguity and complexity, and that makes compensation hard. So incentives tend to fail or backfire. Then I tried to invert the problem. What if I tried to design a promotion system to piss off as many employees as possible? What characteristics would it have?
  • No pleasant surprises. In other words, you can only be disappointed if you didn't get a promotion, you can't be pleasantly surprised by a promotion.
  • Create unhappiness by dependence on scarce resources. In other words, gate promotions based on scarce resources so that even people who would otherwise be qualified could become disgruntled through no fault of their own.
  • Eliminate accountability from people who make the promotion decisions (e.g., through a committee). That way, promotion decisions can seem arbitrary.
  • Ensure that promotions are competitive races between all qualified candidates. This ensures that people who manipulate that packet in such a way as to have the best looking packets will win over people who are trying to get feedback and improve, which is supposedly the point behind all these feedback systems.
When I looked at Google's promotion system through this lens, I was very impressed. It seemed as though the system was designed to create disgruntled employees out of people who might otherwise be perfectly happy. And note that the ex-Googlers I interviewed were people who benefited from the system, as in: they were very well respected and were hence ranked highly. They were people who couldn't care less what their ranking was, yet they disliked the system anyway, purely because they thought that having a ranking system actually had a deleterious effect on the exchange of ideas. Note that at one time the system did work: when the company was small enough that everyone knew what everyone else was working on (more or less), and hence felt accountable when making promotion decisions. The company also had so few managers that they didn't have time to put people up for promotion anyway, so putting the onus on the employee made sense. (Actually, at one point the promotion committees would consider everyone for a promotion, not just the ones who applied) Furthermore, if you tried to game your packet, chances were, someone on the promotion committee would know, so it was futile. This went away when the company got big, and got so many managers that there was no excuse for your manager not to say good things about you if he wanted to see you promoted. Someone did tell me that he thought that this evaluation of the system was biased: the alternative is the traditional management system, where everyone tries to suck up to the boss. When I discussed this with Reed Hastings, he said that he's still the biggest fan of the traditional management system executed well. When I thought about it, that makes sense, because of the following:
  • You have to select good managers anyway. Even in a peer based system, a bad manager can still sink good engineers by selecting bad goals, or blatantly playing favorites.
  • Managers are typically incentivized through business goals. If they deliberately promote poor engineers, good engineers tend to leave their teams and the business goals will be much harder to achieve. In general, most companies do a very good job of properly aligning managers with the corporate objectives. It's much harder to do so for rank and file employees.
  • A manager can be held accountable for her promotion decisions. It's much harder to hold a faceless committee accountable.
No matter what promotion system is in use, there'll be flaws. Worse, these flaws are insidious. Since superstars are those who get promoted frequently, they see nothing wrong with the system. In fact, they'll usually try to torpedo any changes that don't benefit them, and since they're the superstars, their opinions will carry more weight. Instead, it's the misfits who see the flaws of the system most often. Talented misfits will stick around for as long as compensation is adequate, and leave once it's not. And any manager will tell you that once compensation is the only thing holding employees to a company, you're in a very tenuous and dangerous situation. Silicon Valley has a history replete with companies who were stripped nearly bare of talent by smaller startups that had the ability to offer higher compensation (usually through stock options) to under-valued employees. Obviously, if you're one of the misfits, you should check your compensation package often and leave the moment it's inadequate.

Ultimately, having to have an engineering ladder at all is why I consider startups better places to work. If you've negotiated substantial stock compensation, then it doesn't matter whether or not you're a misfit or superstar under the promotion system. If the company does well, you're going to do very well. If the company does badly, even the superstars aren't going to be adequately compensated. That makes doing the right thing much easier for everyone, and explains why startups tend to have much less office politics than bigger companies.
[Update: Follow up Post]


Just a guy said...

I really hated the employee ranking section of the peer reviews. I actually would put that I felt this was a destructive system and left it otherwise blank.

My problem with it was that we all have different strengths and weaknesses. Sure, there are cases where it's clear one works better than the other, but I don't think that was always the case and definitely can create an inferiority complex.

Piaw Na said...

I agree. In fact, I wrote an entire article on the peer ranking system, in the guise of a book review.

Shalmanese said...

Piaw: I'm wondering what you think of the Second Life incentive structure?

Unknown said...

In your sample of "who couldn't care less what their ranking was", how many of them found that their salary, refresher grants, and bonus made up a significant fraction of their total compensation?

I would guess that for many ex-Googlers (aka, who were around pre-IPO) the majority of their compensation was their initial stock grant, which made them not care about other forms of compensation. It is easy to be egalitarian about an incentive system if the outcome doesn't have a large impact on your day-to-day life.

Two strengths of the existing system you don't discuss are: (a) uniformity: a promotion in one organization should be equivalent to one in another organization, which makes transfers between organizations for engineers easier, since it is harder for an org to have "grade inflation". (b) advocacy: when the manager doesn't have the final say in a promotion decision, the manager is more their advocate than opponent in the process. This encourages more open and frank performance discussions between manager and report.

Piaw Na said...

I think we need to separate compensation from the ranking/leveling system. Compensation is independent, and entirely determined by management. Those million dollar awards weren't handed out as a result of a peer driven system. I can only imagine how bad things would have been if they were. (And I'm not talking about those hypothetically: they exist, and human nature being what it is, they're not as secret as management believes they are)

I don't buy the argument about uniformity, since there are multiple promotion committees, and the committees are reformed at each promotion interval.

As for advocacy: again, that's not accountable. You don't really know how hard your manager fought for your promotion. There was at least one case where the manager fought really hard for an engineer's promotion, won a promotion for that person through a special process, and that engineer went and left his organization to join another one. You can bet that that manager would never fight so hard for the next engineer he was responsible again.

Piaw Na said...

Xianhang is referring to this incentive structure. It's basically a system where bonuses are handed out by peers. It's a novel system, and I would be interested to see how it could be gamed, or whether it is frequently gamed.

David desJardins said...

Piaw writes, "There was at least one case where the manager fought really hard for an engineer's promotion, won a promotion for that person through a special process, and that engineer went and left his organization to join another one. You can bet that that manager would never fight so hard for the next engineer he was responsible again."

I wouldn't bet that at all. Why would a decent manager be unhappy that someone who did good work for him got promoted and then found a better position? That sounds like the whole idea.