Jurgen Appelo: leaders should manage the system, not the people

Jurgen Appelo: leaders should manage the system, not the people

My guest in this special episode of the podcast “Leadership is the Competitive Advantage” is Jurgen Appelo – a successful entrepreneur, top 100 leadership speaker, top 50 management expert, author of 4 leadership books on the subject of Management 3.0, along with an upcoming book called ‘Startup, Scaleup, Screwup’. He is experimenting with various innovative management tools and practices in order to support organisations in surviving and thriving in the 21st century. Jurgen is the CEO of the business network called Happy Melly, and co-founder of the Agile Lean Europe network . He is also a sought-after speaker who is regularly invited to talk at business seminars and conferences around the world. I am glad that the Estonian Training and Conference Centre invited Jurgen to share his thoughts also with the Estonian audience, and I am thankful for the opportunity to chat with him.

“The standard approach to employee bonuses is that a manager on a higher hierarchical level – who usually has far too little information to know what’s really going on in the company – decides who gets how much money. One thing you know for sure with this approach is that everyone will blame the manager for not doing a good job. Except, perhaps, for the person who received the largest bonus. Let me explain how the peer-to-peer bonus system works in our company. There are seven people on that particular team and they all have 100 points at the start of the month to give to other team members for any behavior that they think supports the collaboration and performance of the team. For example, helping each other out, finishing a task earlier than expected, etcetera – whatever helps the team towards its goals. It is like kudos but with points reflecting its actual value. And there are only limited amount of points you can spread around, only 100 points per month. Basically you have 100 votes to distribute among the peers based upon their contributions. And the points you have received from others during the month are subsequently used to calculate your bonus amount. CEO takes care of the overall bonus pot and sets aside a certain amount of bonus money depending on the profits, but not the individual distributions. This practice basically delegates the performance evaluations and bonus allocations to the wisdom of the team. And now comes the most fun part of it: every month the team gathers together in excitement and rolls a dice to let the fortune decide whether the bonus will be paid out this month or not. Only if the team rolls a six will the bonus paid out in that particular month. No six means no bonus this time and the whole pot rolls over to the next month. The aim here is that the team can’t predict when the payout will actually take place and this helps to prevent the situation where predictable bonuses become like entitlements. If it is expected, then it is not really a bonus anymore, and that is why we keep it random. And also this injects into the whole seriousness of the bonus game a dash of playfulness. It is like a Las Vegas casino every month, there is a chance to win in a way! And it gets bigger and bigger every month! The transition from a traditional bonus system to a peer-to-peer bonus system is like replacing a dictatorship with a democracy. There is no guarantee that it will make everyone happy. About democracy, Winston Churchill famously said it is the worst kind of system, except for all the others. With a peer-to-peer bonus system, I think the success rate is similar. That means it is the system with the best chance to result in more than just one happy face in the company. For me, as the manager of the system, not having to think about the money distribution saves me a lot of headaches as well.” – Jurgen Appelo

Enjoy!