Learnings from W.L. Gore: Compensate for Contribution

In 1995 I was invited to join a design team, charged with 1) examining how the Ken Blanchard Cos. operates and 2) facilitating large company meetings to build consensus and inspire action to make agreed to refinements. The project took 14 months of hard work. It was a tremendous learning experience with my five design team colleagues, and absolutely made me a better consultant!

One of the companies we studied was W.L. Gore, widely regarded as one of the best companies on the planet to work for. Best known for Gore-Tex – though most of their revenue comes from medical devices and medical clean room technology – today Gore is a $2.4billion global business with just over 8,000 associates.

Design team members were fascinated with many of the aspects of Gore’s culture and business (it was hard to differentiate between them, which is a big reason why the company is so highly regarded). Three of their approaches stand out to me, now 15 years later:

  1. They have a very flat organization, with no hierarchy or formal bosses. Founder Bill Gore called it a “lattice organization,” where committed, competent people worked with each other to create products that solve customer problems. They didn’t need a “boss” to direct their work.
  2. They keep facilities small to enable employee connections and employee influence of decisions and actions. Typically when a facility (which usually combines sales, R&D, and manufacturing) reaches 300 associates, they begin planning to split the facility into two smaller facilities. Why? Bill Gore said that once you reach 300 people on a site, you lose personal connections. The Gore culture highly values employee involvement, and smaller facilities helps that happen.
  3. They separate compensation from contribution. Associates are ranked by their peers for their contributions, and compensation is based upon the company’s success that fiscal year and on the associate’s ranking.

To learn more about the W.L. Gore company, please read WSJ’s Gary Hamel’s excellent two-part interview with Gore CEO Terri Kelly and the Great Place to Work Institute‘s overview of Gore, a 2009 “Great Place to Work” award winner.

A recent conversation with a client refreshed my memory of Gore’s unique compensation approach. The client’s organization had a classic performance appraisal structure, where employees were placed in a normal distribution of performance rankings. She has five exceptional performers across her 10-person team, yet because of the normal distribution, only ONE of those exceptional performers would be granted a “five out of five” rating. The “5 star” ranked players receive the greatest pay increase. “It’s so frustrating,” she related. “Why should four of my five great performers have their contribution capped because of this stupid system?!?”

I shared Gore’s successful approach of separating compensation from contribution. I explained that every associate at Gore is expected to commit to projects and goals, and to contribute to the company’s success by delivering on their commitments. Annually, their contribution is ranked by associates and compensation decreed by a cross-functional committee. My client loved the idea – but wasn’t sure if her company would consider such a significant shift in their compensation plan.

Many companies are tied to this antiquated approach that ties compensation to a normal distribution. But consider this: can you imagine how much greater performance and higher employee work passion would result if you had a team of all “A+” performers? You can – by separating compensation from contribution.

Evaluate employee contribution FIRST – let them know where they stand compared to benchmark performers. Give them a contribution ranking on a 1-10 or 1-5 scale. THEN explain, given the company’s recent fiscal year performance, how their contribution ranking translates into the upcoming year’s compensation plan.

You know, this just might work!

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