Empowerment – Semco style

September 13, 2010 at 8:58 am | Posted in Blogroll, Organizational culture, Systems Improvement | Leave a comment

This is the last of the three part post about some unusual but useful ideas from the book “Maverick!” by Ricardo Semler, the owner of Semco Brazil. The first part covered the challenges of creating and sustaining self-organizing teams and we saw some parallels between Semco’s approach and that of Scrum. In the next part, we saw how Semler came up with an idea of creating three concentric circles of the organization in place usual pyramid structure and how it helped Semco to become much more agile and lean. In this concluding part, I would like cover some ideas related to compensation and appraisal management and how it helped them to truly empower their employees and create a robust organization which could weather the storms created by Brazil’s runaway inflation.

Employees are told to set their own salaries keeping the following criteria in mind. “What they thought they could make elsewhere; what others with similar responsibilities and skills made at Semco; what friends with similar background made; and how much money they needed to live.” There was initial worry that people may ask too much, but “We needn’t have worried. Except for half a dozen people, everyone set salaries that were in line with our expectations. In five of the six exceptions, people set salaries lower than we had projected. it wasn’t always easy to get them to raise their figure either.”¬† There are three reasons why reasonable prevails. “First, everyone knows what everyone else is paid. Second, we try to keep our top salaries within ten times our entry level pay. The third reason is to do with self-preservation. Our people know salaries account for most of our operating costs. It’s easy to solve a budget problem by eliminating a salary that seems to high, and no one wants to stick out.”

As regards profit sharing, “We begin with Semco’s total profits, the revenue minus expenses. Then 40% would be deducted for taxes, 25% for dividends to shareholders, and another 12% for reinvestment – the minimum the company needed to prosper. That left 23% per cent.” As regards the distribution, “Each quarter, the profit made by each autonomous unit is calculated and 23% of that sum is delivered to the employees of that unit. (If we don’t have any profit to share, we don’t give any consolation prizes.) What happens to the money after that is up to them. They can divide it up by head count or they can consider years of service, salary or other criteria. They can decide that rather than distribute the money, they will use it for other purpose, such as loans so workers can buy the houses. But whatever they decide, it applies to that quarter only. Three months later, they have to decide all over again”. Management doesn’t get into any of these details.

“We just wanted to know why some people hadn’t become the successes we thought they would be when we promoted them, and naturally asked those who worked for them. That led us to draw up a form subordinates now use to evaluate their managers twice a year. It has about three dozen multiple choice questions designed to measure technical ability, competence, leadership and other aspects of being a boss. The questionnaire is filled out anonymously, so no one is afraid to be honest. We calculate a grade which is posted, so everyone knows where everyone stands. 70% is passing, but most managers get between 80% and 85%. Managers who score below 70% are not automatically dismissed, but a low grade usually creates intense pressure on an individual change. What we want to see is improvement from one year to next. Supervisors meet with their subordinates to discuss their grades, so the process of change starts very quickly.”

“We developed the questionnaire to find out why some managers were failing. But we also had cases in which managers we admired – and repeatedly promoted – got such low marks that it made us wonder how we could be so wrong. But such cases are rare. Far more often the evaluation process helps people change. For promotions and new hires, we added one more step – group interviews – or interviews, since candidates are often asked to return for four or five meetings. I am sure it tries their patience, but it gives them and us a chance to be really sure.”

The above quotes from Semler are self-explanatory for what real empowerment is and why Semco was voted the best place to work for in Brazil.


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