Most companies are short-sighted, stingy, and stupid. Trillions of dollars are lost every year to the simple fact that people wielding corporate power become vicious, petty, and, in some cases, sadistic, operating in ways that are ultimately against the company’s long-term interests. In a typical private-sector organization, you have the checked-out minimum-effort players (MacLeod Losers) and the hapless “true believers” (MacLeod Clueless) who work hard, but lack the strategic insight necessary to truly lead. Most interesting are the moral outcasts (MacLeod Sociopaths) who are either too good, too evil, too lawful, or too chaotic to fall into the “well-adjusted” central category of humanity that organizations have become very good, over the centuries, at making basically happy with subordinate positions. They tend to have an “up or out” dynamic: they take risks that either end their jobs, or bring their promotion. In this set, you have the decent self-advancers (like me) and the indecent self-advancers. Don Draper, in Mad Men, is a decent self-advancer; he’s a deeply flawed man, but his career didn’t come at anyone else’s loss. Pete Campbell is an indecent self-advancer, attempting to use extortion to become Head of Accounts. There are two other sub-categories of the MacLeod Sociopaths worth mentioned. Of those, there are the sadists and the denial players.
Sadists don’t often make it beyond middle management (contrary to the MacLeod Sociopath’s tendency to fail out or skip that rung for upper management). They inspire terror below them and will usually appear to be star performers at their level, because they can easily get people to work hard on their behalf and transfer the credit over to them, but they don’t have the vision to get any further. They also, usually, don’t care to advance any further. Exerting power, watching people squirm, and causing good people to fail out of their jobs is what they enjoy. Making money is not especially important to them.
The fourth category is that of the denial players. Denial players are thus named not in the sense of being in denial (i.e. willfully misled) but because they like denying benefits and permissions to others. They’re “no-men”. Like the MacLeod Clueless, they have a lack of vision and tend to be “true believers”. Unlike them, they understand how the corporate game works. Like the sadists, they enjoy shutting people down and saying “no”, and ruthless cost cutting is something they’re good at. Unlike the sadists, they don’t seem to enjoy causing emotional harm or financial ruin. I don’t even think that they’re bad people. They tend toward the lawful neutral alignment. What makes them dangerous, in fact, is that they honestly believe that they’re doing what is best for the company. Worse yet, they can usually make an objective case for what they’re doing. The reason corporations tend to have absolutely no vision is that there’s no way to form consensus around which vision to support. Get 10 executives in a room, and you’ll have 17 and a half divergent visions for how the company should be using its resources, reputation, and opportunities. One thing they can all agree on, however, is cutting inefficiencies. It’s much easier to build consensus around cutting 15% of the IT department than around establishing a scholarship for a disadvantaged minority (again, which disadvantaged group should the company decide to care about?)
Denial players often break the mold of the Gervais Principle model of the corporate office. The classical MacLeod-Gervais-Rao-Church model says that the disengaged, bare-minimum players (Losers) stick to the bottom, the self-flagellating true believers (Clueless) are destined for middle management, and the constitutionally ill-adjusted (Sociopaths) either end up in upper management or are fired. (Another useful lens for this is D&D’s alignment system. Civil-neutral tend toward Loser status, lawful become Clueless, and chaotic are Sociopaths.) Denial players, on the other hand, can cross the chasm from middle management to the executive suite. Unlike the Sociopaths, they don’t do it quickly and they rarely take risks to get there. They lack the strategic vision to lead, but they have the tactical skill to perform an ugly set of tasks (cutting costs) well, and this is often enough to propel them into decision-making ranks of a corporation.
Typical MacLeod Sociopaths, if they aren’t tapped for better things, will be fired within their first two years. Denial players, on the other hand, don’t have the visible need to self-advancement that makes enemies, and they tend to have the unconditional work ethic of the Clueless, which keeps them from getting flushed out for low performance. Denial players, when they don’t make it into the upper ranks, don’t get flushed out of the organization. They end up in a ghetto for also-ran denial players known as… Human Resources.
I’m not going to come out against or in favor of denial players. Sometimes they’re necessary, but often they’re destructive. They’re not sadistic, but they can be mean-spirited. The difference, as I’m using the terms, between sadism and mean-spiritedness is the motivation of the assailant. A sadist usually operates alone and tries to avoid detection. He knows that his behaviors (such as torturing animals, bullying his peers, or using phony performance issues to tease out subordinates’ health problems in order to fuck with them) are socially unacceptable and he’s happy to perform them alone. People who torture animals don’t do it to gain social status, but because it gives them an innate, perverse, and usually sexual thrill. Mean-spirited people, on the other hand, don’t get an intrinsic joy out of hurting people, but will gladly do it to enhance their social status. They operate in groups, and often justify their nastiness as being for the group’s benefit. Groups are defined by who (and what) they include and exclude, and mean-spirited people tend to push for more exclusion. In companies, they impose and exploit artificial scarcities to the same effect. “We can’t afford to have 5 engineers.”
Having explained the above, it’s time to relate this to the slew of new, sloppily constructed companies often called “startups”, especially if they involve technology. I’ll focus on three terrible HR practices, and why they are so harmful.
1. Pooled leave (“PTO”).
I had a job, at one point in my career, where I was constantly getting colds and stomach viruses. The work was fine, and the environment not especially stressful, but between November and April that winter, I must have had eight serious colds. I’d typically work through it, only to crash hard on Saturday, and sleep for 16 hours. It was pretty dismal to lose half a weekend to that sort of mild, but obnoxiously recurrent, illness.
That company was probably the sickliest place I’ve ever worked. It wasn’t work stress or low morale or long hours that did it. In fact, people were generally happy to work there, and hours expectations were more than reasonable. So what was causing it? A stupid HR policy, euphemistically named “paid time off” (or PTO). In a PTO system, vacation days and sick leave are pooled together, which is another way of saying that sick days are deducted from vacation time. I had a good manager who also disliked the policy, so if I got sick, I could “work from home” and he’d back me. We were allowed to differentiate between “actually working” WFH (you can expect me to pick up the phone) and sick WFH. Others in the company either weren’t as lucky, or weren’t willing to stay at home when they were sick. After all, if a sick day costs you a day of vacation, the reasonable thing to do is to come in to work, even if you feel lousy and won’t be able to do anything.
The result of these mean-spirited “PTO” systems is that people come to work when they should be staying home, and everyone in the fucking office gets sick three times as often! It may be that fewer calendar days are “lost” to absenteeism, but the cost to productivity is immense. In the month of January and February, almost nothing gets done because even the relatively healthy people have developed what is effectively a chronic cold, as one respiratory virus rolls into another. It can’t be good for the company.
Why do HR offices come up with these shitty systems? This theme will recur all over the place. Externalized costs. First, it allows companies to lie about their vacation policies. They can claim to offer “15 days”, the standard, when they’re actually offering a pathetic 11-12 (on the assumption of a person losing 3-4 days annually to colds, flus, and stomach bugs). It’s also a great mechanism for backdoor age (and family status!) discrimination. If the only people you want are 25-year-old males without children, “PTO” policies are a great way to encourage everyone else to leave.
If you’re a cost-cutting denial player in HR, PTO policies look like a great deal. One can have the benefits (in recruiting) of a generous vacation policy, while those who get sick enough that they really can’t go to work get screwed, because they can’t take any vacation. HR departments don’t really care whether people show up to work or not, but they do care about payouts of unused vacation time when employees leave the company. A mean-spirited PTO policy is, in the aggregate, going to reduce that payout by a few days per departing employee. Let’s say that we’re talking about a 1000-person company with 50% annual turnover (if the company pools vacation and sick time, that’s not an unreasonable estimate). On average, departing employees redeem 1.5 fewer days because of the PTO policy. Thus, 750 person-days are saved, or three full-time employees, justifying a substantial bonus for the VP of HR. Is that worth the cost, which is making an entire company substantially sicker? No, it’s not. Again, this is how denial players work. They cut costs on paper, externalize the negatives of doing so (typically, in a subtle and silent way that is hard to attribute to them) to the rest of the company, and thereby justify their bonuses.
2. PIPs over severances.
There are a number of shitty tech companies (I love technology but I fucking hate the tech industry) out there that will claim to have never had a layoff. On paper, this might be true. Dig deeper, and one finds that during economically difficult times there were “low performer initiatives” that conveniently happened while other companies were laying people off. Another way to say it is that they’ve only had dishonest layoffs.
Investment banks, for example, lay people off honestly. They’re in a cyclical business, and no one hesitates in saying, “This industry had a bad year, and had to let some good people go.” In most of the private sector, it’s well-understood that economic forces will cause jobs to end, and that it’s nobody’s fault. Technology companies, on the other hand, are often so deeply steeped in exceptionalist thinking that a mythology of constant expansion is necessary. Tech companies will post job ads when they have no intention of hiring, to present the image of growth. Every stupid blog post will end with, “We have a rock star team and if you’re a rock star, we’re hiring.” (Economic forces determine whether most applicants, or no applicants, are “rock stars”). The same applies to letting people go. As opposed to layoffs, tech companies claim to be running performance-based cuts. In other words, they’re trashing the reputations of departing employees in order to save their own. How anyone can have faith in these Silicon Valley assholes, given the extreme commonality of this practice, is beyond me.
The psychotic, mean-spirited practice of stack ranking (also known as top-grading) ties into this behavior. The purpose of stack ranking is to turn a layoff (if one is needed) into a SQL query. If there is a total ordering imposed on employees, then it’s easy to cut staff without having to actually think about it. The problem is that stack ranking has chronic negative effects on morale and basic decency within the organization. Layoffs happen even to good organizations, but structuring a company around laying people off is a terrible idea.
Someone who is laid off typically receives a severance, is eligible for unemployment, and will be given a good reference. On the other hand, if a “performance” case is manufactured, that typically implies that there will be no severance (or, at least, the company will try hard to avoid giving one) and no eligibility to collect unemployment. Additionally, the person’s reputation must be damaged, within and possibly outside the company. When you lay someone off, you typically deliver the news and the package on the same day. Running someone through a “performance improvement plan” (PIP) requires isolating and humiliating that person over a period of months. He must be made to fail, visibly, so that transfer elsewhere within the company is impossible. He must be given negative performance reviews that are untrue and, if he appeals the claims, can then be fired for “insubordination”. Almost all PIPs contain factual inaccuracies, and that’s intentional because about 1 person out of 10 people PIP’d will become so angry that they’ll fire themselves on the spot (saving the company a few months’ worth of salary) by insulting their managers, threatening violence, or actually committing it. (This puts the manager in harm’s way, but that’s not HR’s problem.)
Most managers aren’t dicks and, consequently, hate PIPs. Even when they agree that the person needs to be fired (and may have initiated the process) they dislike the effect of the PIP on them and the team. The purpose of a PIP isn’t to improve performance. It’s to grind a person down so that he either quits or can be fired without a fight, saving the cost of a severance. The decision of an ex-employee on whether to litigate or disparage typically comes down to whether he perceives moral superiority over the company. A fair severance and positive reference will leave him feeling good about the company, and unlikely to act against its interests. The purpose of the PIP is to make the employee feel bad about himself. Sometimes, it works and he shrivels up and dies quietly. Sometimes he explodes and does grave harm to the company. It’s a kangaroo court in which the verdict is already decided, but it requires the manager to pretend there is a possibility of improving performance. Meanwhile, the team and manager are forced to deal with a “walking dead” employee who is destroying morale at every opportunity.
The cost of a one-month PIP, to the company, is typically 8-to-1 (and possibly more) when morale factors, expense of management time, and risks are considered. That is, a 3-month severance would be cheaper than the PIP, and an 8-month severance would break even. Not only is that the case, but PIPs don’t often work. If HR doesn’t believe the employee can be safely terminated, the PIP will be ruled “inconclusive” and the manager will have to launch another one. Severance contracts typically include non-litigation and non-disparagement, and leave the employee happy enough to keep the agreement in good faith. PIPs, for a contrast, are paper armor, in a lawsuit. They rarely provide much defense. Wrongful PIPs are just as possible as wrongful termination, so they do little to ameliorate the company’s risk of a lawsuit. In fact, they typically increase the manager’s risk of being sued, because they damage the employee’s internal reputation and, arguably, constitute tortious interference. The theory is that PIP’d employees are less likely to litigate. As I said above, the purpose of a severance is to leave the employee feeling good about the company, and the purpose of the PIP is to leave him feeling bad about himself. I’m not sure how well that holds in practice. My guess is that PIPs slightly reduce the rate at which departing employees sue former employers (because those employees feel defeated and humiliated) but increase, dramatically, the rate at which they win. It’s not hard for a company to fuck up a PIP, and a savvy employee, if PIP’d, can virtually guarantee that the company damages itself in the fight.
Given that PIPs are, in fact, astronomically expensive in comparison to severance payments, why does HR prefer them? Yet again, the theme is externalized costs. The manager and team have to deal with a toxic employee for months. If a termination lawsuit occurs (and they’re actually very rare) the PIP does little to protect the company. Laying someone off with a reasonable severance (enough to cover a typical job search) entails almost no risk. PIPs, on the other hand, increase bulk risk. Even if the PIP might decrease the risk of losing a wrongful termination suit, it increases the risk of the company losing a tortious interference suit. The dollar amounts to the latter are smaller, but the PR risks are no different. PIPs are, in sum, terrible for the company. But they’re great for an HR office that wants to claim that its “low performer initiative” was executed with almost no severance expense.
3. Performance reviews as part of the transfer packet.
One common but destructive practice for a company is to make performance review history a factor in the transfer process. Enron was probably not the first company to make this a policy, but it’s the first one to have publicly admitted to the practice. Hence, performance reviews that are standardized across the company and included in an employee’s packet for internal transfer are known as “Enron-style”. Given the scandalous corporate meltdown for which Enron later became known, it’s hardly an endorsement of the practice, though it remains common in tech companies. What is the effect of this? It creates a general climate of immobility within the company.
Perversely, internal applicants are at a disadvantage to external applicants when they are forced to compete for the same jobs. Hiring an internal applicant means “poaching” from another team, and most managers are loathe to piss off another high-ranking person. External applicants come without those strings. All else being equal, the team lead would rather have the external hire.
Additionally, the most recent piece of data about the external hire is that he passed an interview. That, typically, means that he was in the top 1 to 15% of the applicant pool (depending on how that pool is defined). If performance reviews are available in making the transfer determination (and, though the practice is toxic, in most companies they are) then the internal candidate needs a top-15% performance history to compete with the shiny-new external hire.
A median performer (or, even, a 25th-percentile performer in a good company) isn’t a bad employee and probably should be able to transfer up to a more fitting project, where he might do better. Unfortunately, the issues above are political constants. If the lead of that employee’s target team has access to performance review history and sees median marks, the transfer will most likely not happen. Companies would rather use their best jobs to lure external, shiny-new, talent than to reward internal loyalty. Under the 80th percentile, employees become inflexibly immobile. They’ll only be allowed to transfer when their existing projects are cancelled, and typically they’ll end up on an equal or lesser project. What happens above the 80th percentile? Employees who are getting good marks don’t want to move. If you’re getting promoted quickly and clearly in good standing, why roll the dice?
Consequently, it is an invariable fact that making performance reviews part of an employee’s transfer packet will make internal mobility nearly impossible, except for those who have no incentive to move. The result is that team and group assignments become permanent. At that point, there’s no value in collaborating across the company and, instead, teams start fighting each other for resources and visibility. It gets ugly. It’s the “warring departments” phenomenon and it will quickly reduce a company to mediocrity.
I’ve shown why HR departments like PIPs and pooled time off (PTO) policies, and how these represent ways to “save money” while externalizing costs to the rest of the company, but it might be puzzling why they’d care about this issue. HR departments don’t give a shit about punishing low performers or rewarding high performers or what the hell is going on with internal mobility. It’s not of much interest to them, at least on paper. If we look at what happens above-board, HR shouldn’t have any reason to keep employees immobile. And that’s the correct conclusion. They don’t.
So why do HR offices like making performance reviews part of the transfer packet? Side money. It’s an empirical fact that, when a company makes performance reviews part of the transfer packet, salaries demanded by HR professionals go down by about 15 percent. Why? If an employee’s manager departs or his team is shuttered, the only record of his relationship to that manager is in the performance reviews, and HR can have them changed. A $10,000 payment to someone in the HR office can pay off tenfold, in the long run, if it helps an employee transfer to the “star team”, get better assignments, and be promoted faster. Performance reviews that are part of an employee’s transfer packet are called “Enron-style” for a reason. They generate a huge market for unethical side payments (typically estimated at $2,500 per employee). Just as public officials in corrupt countries can be unpaid and still want the job, on account of bribes, this enables HR professionals (and, really, anyone with access to the performance review database; engineers and DBAs are not innocent in this) to make tens of thousands of dollars off the books, but that also benefits the company (in the short term) because it can pay lower salaries for positions that are in access to the performance review record. In the long term, of course, it’s toxic. What is actually happening, when money is drawn away from the employees– who must pay side bribes to clean their typically not-bad-but-transfer-inhibiting performance histories– is extortion. What else should one call a mandatory “bribe”?
Conclusion
I’ve named just three mean-spirited, denial-focused HR policies that companies tend to develop as they become dysfunctional. These are especially bad in technology companies, because they go against what one needs to do, in the long run, to succeed in technology. These petty wins aren’t useful. No company is going to transform the world for the better, or generate billions of dollars in value, because it succumbs to the “innovation” of pooling vacation and sick time. That mean-spirited penny-shaving helps no one. It just shits on morale. What tech companies need to do, instead, is to forget about winning those petty, zero-sum squabbles of no consequence and, instead, to focus on a long-lost virtue of which I can say that the current tech industry seems to have forgotten that it ever existed: excellence.
