By Joseph Lewis
Happy Summer!! Please pay attention to your inner feeling as you read this paper. As the summer comes to an end, it is time for many in finance to reflect on the year so far, and to prepare for the sprint into the holiday season. Also, it is the time when the promotion and the year-end compensation process go into full gear. For many, the final months of 2021 will be filled with joy and disappointments about both compensation and, more importantly, promotions. In my experience, underrepresented groups disproportionately fill the ranks of the disappointed. Hopefully, 2021 will be different, but I am not optimistic because the system remains flawed.
After posting my previous LinkedIn piece, I was asked many times how do you solve the promotion system? I argue that the flaws rest in the system as well as the people. To solve the promotion problem on wall street begins with a healthy dose of honesty about our own relative individual talent or lack thereof. It also requires honesty about our inability to judge talent correctly. If you want an example of poor judgment of talent, look at the sports draft or have a conversation with Tom Brady. This second installment summarizes my thoughts. As always, I welcome debate around any part of this piece.
Creating a system where minorities and other underrepresented groups have the same advancement opportunities as white males requires radical changes to the promotion system. Our understanding of human behavior, the brain, and the limitations of individual decisions make it apparent that the system is as crucial as its actors. For example, economists once assumed if person A likes X more than Y and Y more than Z, they obviously like X more than Z. However, that is not the case. Humans are prone to bias and mistakes.
Today’s promotion system has three major flaws which can be corrected.
1. Managers decide when a candidate is up for promotion. Most people up for promotion get it, so getting in onto the list is a giant step in the right direction. In this process, the underlying assumption is that the manager is good at their job or understands how to judge talent. Both beliefs are likely untrue since most never receive formal training on talent management and often rely only on their own experience of performance to make decisions, making themselves and the process potentially susceptible to similar-to-me or idiosyncratic bias. In my experience, you become a manager by being good at your day job. In revenue-producing roles, it is often the case that the only skill of the manager is making money.
2. Insufficient and inadequate data is collected: During the review season, 365 days of work is summed in a few questions, answered by a subset of your colleagues. In the best review systems, there is a 360 component. The legal system has shown numerous issues with our memories. Daniel Kahneman, through research, shows that our memories are as much based on fact as on how someone makes you feel. As a result, reviews are likely more of a commentary on someone’s personality than the quality of their work. Other research shows that last interaction is a better predictor of how a person is viewed (recency bias). In essence, do all your good work right before the promotion process begins to increase the chances of promotion. Why can’t we capture feedback in real-time? I will come back to you later on this…
3. All people on the promotion committee work at the firm. When all the members of the promotion committee work at the firm, the members’ own career trajectories sit in the hands of the senior most raters, therefore the loudest and most influential people will drive the outcome. If the head of a division does not want someone promoted, their career prospects are nil unless they can find an equally strong sponsor—if that sponsor fears crossing the division head to project their own prospects, what is the incentive to speak up? Having an outside firm that is truly independent and focused on diversity to audit the process would help hold all accountable.
Fixing the above issues will revolutionize the promotion system at your company. Allowing people to put themselves up for promotion (with the right rules regarding frequency and criteria) will take power away from ill-equipped managers and give agency to employees. For example, a rule can be implemented that you can put yourself up for promotion a max of every two years unless invited by the committee. Keeping fair and accurate records of performance and impact throughout the year will help people to focus on the full picture and compare talent more equitably.
The best promotion system I have seen is the U.S. military. The life and death consequences of leadership provide a clear incentive for continuously improving the promotion system. Obviously no system is perfect, but based on conversations with veterans and reading material on Army promotions, the military system strives for the following:
- Clear criteria for promotion for both enlisted persons and officers
- Good data collection on achievements, performance and feedback
- Centralized promotion board looks at all relevant candidates
- Promotion Board changes periodically and diverse by design
- In many instances, candidates can advocate for themselves either in front of the promotion board or in writing
- Good data is kept on both physical fitness and performance
- Individuals have agency around when they are put up for promotion
Accepting our limitations is the only way to move forward. If you ever find yourself telling a candidate that the secret to their promotion is networking more, then stop. If the system is not designed to understand who and how someone adds value, the system needs fixing. Are you saying that I can order Ben Jerry’s at 3am to my door and then immediately give the driver a rating, but firms cannot keep records on who do great pitchbooks? If you are, then shame on you.
Good luck to all those who are up for promotion this year—and for those who aren’t sure, try pushing the envelope.
If reading this reminded you of a negative promotion experience, take the energy and fix the system.