Organizational design. If we want performance, we want to reward people for performance. If we want performance in our organizational design, we want promotion, not just pay, to go with the performance that we're expecting. And arguably, the pay and promotion policies at this company: glass ceiling, that 10% quota, were not the kind of design elements that led to optimum action on behalf of this Florida sales team for their company as a whole. With that being said, we now run into a new problem, something we also have to manage. And to get to the problem, I'm going to have you all think for a moment. Even if you've never seen a National Basketball Association game, I'm going to have you think about what happens on a floor of the NBA or maybe a college or high school team that you've seen. But let's focus on the National Basketball Association and the fact that now focusing on pay and not promotion for performance, that NBA players are relatively, we would all say, well compensated. In recent years, a floor has been $500,000. If you're in uniform, you never see playing time, but you're there at the bench, your compensation is half a million dollars a year. Nobody's going to shed a tear if we say some players are underpaid. But some players feel underpaid because of a contract they've been locked into, or maybe an agent that wasn't very good. That is now compared to the metrics we would use to appraise their performance, the metric an NBA player would use to perform his own performance. Think about the Women's League as well. The ''underpaid players'' are looking at other players, say, on the team or elsewhere, and they're paid quite a bit more. But the key statistics: points scored, rebounds taken, assist provided, would say, just statistically, look at the numbers. I'm underpaid compared to Fred Jones over here who had a better agent. So, here's my question with that felt sense of inequity. And by felt, I mean, we look at others that we respect to maybe compare ourselves to and not a whole lot of other possibilities,like your average person out there, like myself, when it comes to knowing if you're under or even overpaid for that matter. Question, let's think now about behavior. The topic here is how organizational architecture can drive behavior or misdirect it. If you're an underpaid NBA player and you get on the court, what are you going to do that's maybe a little bit different from the NBA player whose statistics from the last season map pretty well into the pay for this season? My guess is, you're thinking, in some cases, oh, the player who is underpaid is going to get out there and want to show, certainly the team management, the people upstairs that they're actually worth more than they're getting paid. Others might think, and it's a completely legitimate argument as well, I get drawn to them both, look if they're going to underpay me, I'm going to under perform. So, if I'm not getting paid, what I'm able to do, I'm going to do less. Either way that goes, we got a problem. The evidence, as well as nice research questions where the answer is not necessarily easy to forecast, the evidence goes this way that ''underpaid NBA players" on the court do tend, statistically speaking, to want to prove to the team management that they are worthy of better compensation. How do they do that? They take the ball more often. They shoot more frequently. Unfortunately, because they've taken the ball more often than statistically might be appropriate, they shoot more often for the same reason. With that same downside, they shave about a point off the team score in a given game. They cost the team about a point. That's a way of saying, as we move to pay and promotion as a design feature of the organization that we run, we want people, regardless of background, gender, racial identity, anything you can think of that doesn't relate directly to performance. Once we move in that direction, lots of evidence says it's a great way to go. Companies all over the world are moving in that direction as well. We open up a kind of Pandora's box of the demotivation that can come with inequity. And just to now reflect on the fact that this is a two-sided problem, in the NBA, it has one side. A wonderful study that looked at what happened temporarily when insurance underwriters at a specific company had to move out of their offices which were allocated according to their performance and seniority into temporary offices while their original offices were being remodeled. It's that simple as a rationale for what's happening. Some of those underwriters ended up in a very big office, just they had to go somewhere. Some ended up in a very small office. And then, the question was, overtime, do the underwriters change their underwriting? Do they become more or less successful? Well, an amazing product, you can see it right in front of you right there, of the now inequity in the positive sense or in a negative sense, those who are suddenly over rewarded start performing better, and those who are under rewarded start performing less well. My guess is, most people never thought about that, never said anything about, I'm going to just hold back, or I'm going to be really good because I've got a large office. But going back to behavioral psychology, behavioral economics, and Daniel Kahneman and his great book that sums a lot of this up, one more example of how we need to be, in our organizational design, mindful of the shortcomings and the assets. On the positive side, of how people will behave according to our pay for performance, promotion for performance, or, in this case, literally, the size of the office.
