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Anti-Consulting with Gerry Murphy · Disengaged

• Gerry Murphy: I suspect there are many people in management roles that don't want to be in management roles and never asked for may have asked for it as a way to get more pay and equity. And as a result, that's where they've ended up, but are not fundamentally happy doing what they're doing as a manager. And so the solution there is obvious. Don't make them a manager. James: Welcome to another episode of Disengaged. My guest today is Gerry Murphy, partner and co-founder of Nua Group, A San Francisco based HR consulting firm that refers to itself as the anti consulting firm. Gerry himself spent most of his career at the companies that now make up firms like Mercer and Willis Towers Watson. But a few years ago, Gerry and a few colleagues left to found their own firm on a different set of principles. Nua Group is rare in the professional services world in that they don't have individual sales targets. They don't have individual targets for billable hours. They don't have too many titles. They don't have individualized bonuses. And I myself worked at Nua for a few years. And the reason I wanted to speak with Gerry is because professional services is normally characterized by a fairly aggressive pay-for-performance culture, a fairly controlling environment, lots of metrics, lots of numbers, and Nua deliberately went against the grain in that regard. So it's an example of a very participative management format within the world of professional services, which is a fairly rare thing. So in the first half of this call, we spoke a lot about Nua and how it uses that model and what it gains in exchange for that higher orientation towards trust rather than control in the second half of the call, we get into more of the types of client engagements and the types of solutions, what that means in terms of things like job architecture and and pay for performance. and we spent the last portion of the call talking a bit about equity and the debate between using options or RSUs, for example. As always, if you enjoy this podcast, please follow the show on whatever platform you use. Please give it a rating if you're able to do that. And most of all, please tell a friend. This is tremendously helpful for me to help grow the show and to help share these conversations with other people that might find them helpful. So without further ado, I give you Gerry Murphy of Nua Group. Gerry Murphy, welcome to Disengaged. Gerry Murphy: Thank you, James. Appreciate the invite. James: Good to see you. And what the listeners and viewers should know is that, as you know, I pride myself on my objectivity and independence in my journalistic podcast endeavors. However, I have to declare an interest here because you and I worked together for two years and we still play golf regularly, and I was at Nua Group for those two years as well. So I'm not as independent or objective as I would normally be Gerry Murphy: Yes, yes. And neither am I. I've James: Right. Gerry Murphy: been obviously somewhat behind the scenes, a big supporter of your endeavors and congratulations on your success. It's been terrific James: Thank you. Gerry Murphy: to watch. James: Thank you. And you do feature in the book as well. So if we get time we'll talk about your section, which I just called Gerry's Dilemma in the book as well. So we might talk about that later. Gerry Murphy: I did see that, I didn't get to read it and check its accuracy, but anyway, look forward to discussing James: Yeah. Gerry Murphy: that. James: Yeah, we'll come back to that. That was kind of fun and the the genesis of that section was kind of funny as well. so, before we get to Nua because I'm very excited to talk about this, and I'll explain why a bit later, let's go back to Ireland and Dublin because you Gerry Murphy: Yes. James: started your career and no one can tell anymore, because you've completely lost your accent. At least I can't hear the accent anymore. Some people tell me that it comes out after a a Guinness or two. But you started your career as an actuario student in Gerry Murphy: Yes. James: Irish Pensions Trust and you got Gerry Murphy: Yes. James: your badges at twenty five and now here you are in San Francisco with your own consulting firm. So that's quite a quite a journey. So talk me through that. Gerry Murphy: know, interesting, I would say not at all planful. Yes, I was an actuarial student in Dublin with Irish Pensions Trust, which has subsequently been bought by what is now Marsh, guess, Mercer, whatever they're called. But look, this is very personal angle to this. I had always told myself when I qualified, if anyone, nobody probably remembers Ireland in the 90s, but it wasn't all this, it's a terrific country, I love it, I love going back, but it was pretty rough economically then, so I sort of set myself a goal, once I qualify, I'm gonna leave, but I thought I would end up going to Asia, but I met my wife, girlfriend then, and she's from San Francisco, and frankly at that point. I was like, I wasn't thinking about career or anything. I was 25, who does? I was just thinking, hey, I want to go somewhere fun and exciting. I said, the US would be great. And one small, maybe funny to me, but not so funny to my wife. I remember I got a job after I qualified at our office in Chicago. And I was excited to come back home to Terry and say, Guess what? I got a job in Chicago. can move. She said, Chicago? You know how far that is from San Francisco? I said, well, it's all the US to me. anyway, that's, and then ever since I've sort of wandered, but it is kind of funny how I think my career has been more accidental than it has been planned, frankly. James: Which feels like a common thread in in our industry. Like no a lot of people find themselves in comp or HR Gerry Murphy: Yes. James: accidentally rather than deliberately. Gerry Murphy: Yes, yeah. And what you start off doing obviously is very, very different. I don't, I mean, it's, I wouldn't say it's fun to do pension actuarial work anymore, but, and so I consequently don't do a lot of it. James: Yeah. But you still have that a the actuarial streak running through you. I can detect it in your logic, in your decision making, you have that sort of actuarial mindset I think still that shows up from time to time. Gerry Murphy: think it's a, like I think if you bring different perspectives to things, it's always fun. And I do like the learning as for me, like being an actuary, it's sort of making sense out of little information. and choosing assumptions and understanding, worst case, best case scenarios and understanding sort of what moves those things. So I always find that quite interesting and that logic is helpful when you come to make decisions, whether it's your James: Mm. Gerry Murphy: business decision, career or pay decisions, James: Yeah, and we'll circle back to that because I do find that when we when we talk, your mind sort of projects out. As soon as you I can see you going, you can see you're thinking, and your mind is sort of, you know, projecting out the possibilities of whatever it is I'm talking about, because whatever zany idea I'm coming up with, your mind's figuring, okay, what are the what potential outcomes from this? so let's talk about Nua then. So I had a great time in Nua, and this is part of the reason I wanted to talk, So you but you describe yourself as the anti consulting firm. And this is one of the things I noticed Gerry Murphy: Yes. James: first when I applied for Nua when I and I spoke to the recruiter, I saw these words, the anti consulting firm, which appealed to me immensely, which I might talk about later. But why do you describe yourself as the anti consulting firm? Gerry Murphy: So, it goes, you know, there are a few more sentences in that description that are kind of relevant, but we talk about offering a choice, a different choice. that choice we talk about offering is to two parties, is to our customers, our clients, as you would expect, but also to our consultants. And so our goal when we were setting Nua up 10 years ago was to take our learned experiences and look, I wanna say off the top, I enjoyed my time immensely at Mercer. I got tremendous opportunities there, similar at Watson Wyatt now, WTW. So I'm not going to necessarily come from a negative, but more from the perspective of what did at the time, Joe and Chris and I, what did we want to do differently? and what did we feel was not an available choice in the marketplace. So, and we were seeing it from two perspectives, can we offer a different choice to our clients and can we offer a different choice to consultants? And in our view, they're kind of one of the same. You know our industry, but I think it's true across industries. If the relationship between the deliverer of the service or product or solution and the customer The less you get in the way of that, the better. And then just measure the customer outcome. Is the customer happy or not? And I'm a big believer that customer satisfaction, customer outcome is probably the most predictive of company success. If you can get that piece right, then... It's not necessarily all was true, but if you get that piece right. So how do get that piece right? Well, you know this from your career, James. Clients love their consultants. They don't necessarily love the company they work for, but they love their consultants. So I'm sure they loved James when James was at Radford, but I don't know they necessarily loved Radford. I think they loved James. And it's like, why did they love him? So really, it's about... trying to recreate that bond, that was our goal. And in order to do that, what do consultants want? We spent a lot of time thinking about that. And we ended up with a model that we think is very different. So the anti-consulting is a kind of a playful, maybe a little bit of a poke at the way the big consulting firms work with billable hour models, with sales goals, with... lots of internal meetings and what have you, and removing a lot of those barriers. And again, we're a small boutique firm. You would hire some of these big consulting firms to do certain things that you would never hire us to do. where there are things that you might want to hire us, then we're offering you choice, then we want to offer something different. James: I feel like the best way as I've been asked or sort of why is it different before? And I find it easy to describe the things that you don't do, which might alarm some people. So so first of all, if you think about the traditional consulting model, it's characterized by long hours, up or out sort of performance models, quite aggressive internal competition in politics, billable hours, revenue targets, partners that sort of are up in their special offices traditionally, not so much anymore, of course, but you know, the traditional model. Travel as well to clients, so lots of time on the road. And Nua didn't really have any of those things. Gerry Murphy: Yeah, I mean, we wanted to build a simple business to manage because simplicity meant less internal wasting of time. If you are, to kind of go back to my old days, if you are a pension actuarial firm, there is a lot of infrastructure you need to build. There's a lot of compliance issues around that. We, first of all, didn't want to do that. But you can imagine the amount of internal machinery that goes into managing and maintaining a company that delivers a complex. And they get paid rightfully for an important service that they deliver. But by reducing and making our business simple in the services we're offering and in the clients we choose to work with, it reduced tremendously And by eliminating some of these other things like billable hour goals, sales targets, it reduced the internal time. It was interesting because, I mean, you know this, James, we basically have got about two meetings at most every two weeks. We've got one meeting every Tuesday and then one meeting every other week. And those are pretty much the entire, that's the entirety of our internal meeting time. So we have... there's another seven and half hours in those days and eight hours in those other days to focus on clients. And I found for, in a lot of organizations, there's lot of other, there's internal time takes up quite a lot of, so that utilization of time and allowing people to focus it purely on and simplifying your business to focus it on what you want to do, I think it helped us be more efficient. And also made, You know, we don't have to work 60 hours a week. Now, I think some of our consultants do work extremely hard and when necessary, we'll put in the late nights or whatever, but we try to put the system and structure in place that that's not the norm or intended James: Mm-hmm. Gerry Murphy: to be the norm. James: Yeah, and when it happens, I f I feel like it it's not people understand that because your goal is happy clients, people understand that that's in service of happy clients. It's not to earn the billable hours credit goal or get the promotion. Gerry Murphy: Yes. James: It's it's about fulfilling that mission. So what I know is that is all that was always clear from day one and through to the last day. That was the North Star. I feel like it was like, okay, if we create happy clients, everything kind of flows from there. And you can dispense with a lot of those systems of control that ostensibly are there to create happy clients, but in reality just kind of get in the way. Like you say, you end up filling Gerry Murphy: Yeah. James: your week with admin. Gerry Murphy: Yeah. And I would say, I think I've talked to you before about this example. We sometimes struggle with defining what a happy client is because James: Mm. Gerry Murphy: who defines a client's happiness? The client does, not you. But very often we get caught up in, we will define what it means for you to be happy as a client. And the reality is we... So it's a scale, it's something we need to learn and I can't say we're perfect at it. We need to make sure we truly understand what, and sometimes we can over engineer stuff in the service of trying to make the client happy without realizing, hey, we can keep it simple for the client too and they're appreciative of it. But ultimately James: Mm-hmm. Gerry Murphy: that's, you're right, that is our North Star and we do what we can to. to live up to those on a daily basis. James: Yeah. I do want to come back to that as well because you model what you recommend in the way you run your own company. So a lot of these inbound requests will come around pay for performance or an e extra levels or granular job architecture and and you kind of so you you do try to keep things simple and you kinda say, Look, we we don't do that. So we can kind of show you that you don't need to necessarily do those things to to create a happy working environment. Gerry Murphy: Yes, and it is interesting when you have a conversation with a potential client. Sometimes they are, there's almost a, well, everyone else is doing it, we should be doing it this way. you don't always, you can, of course, mimic the, you can, of course, mimic the industry. Sometimes competitively, you have to adopt. practices that everyone else is using. But there should also be a choice to consider simpler, easier ways of managing people and managing your business. James: Yeah, which I do want to come back to. But before we we talk about some of the actual the the work that you do, now when we when you talk about the way you do things or the way you don't do things and you don't you don't have the meetings, you don't have the bill of allows, you don't have individual represent Yeah, exactly and you don't have bonuses as well. Gerry Murphy: How the heck do we manage the business if we don't have billable hours? James: And do you have individual bonuses as well? So there's no individual financial reward or success or failure. Now, when I Gerry Murphy: Correct. Correct. Correct. James: think about all of these things, you know, I think about this spectrum of trust and control. On one hand, you've got a company that trusts people and says, look, You're good, hardworking people, you just want to enjoy your work, enjoy your relationships, and I'm gonna assume that you're gonna go off and do the best for our clients. On the other hand, you have control, and a lot of things we talk about are on the control side of it. It's I'm not sure that we're billing right, so we're gonna track hours and use that to manage billing, or I'm not sure you're getting enough productive work done, so I'm gonna make sure you hit 70% your billable hours target, or I'm not sure people are working hard enough, therefore I'm gonna put in place an individual bonus to make sure people do that. I think a lot of people, if they are from consulting backgrounds, will be very, very familiar with that and probably haven't been in a professional services environment that's more on the trust side of that continuum. So how does it work? why do Why do people not just do nothing with their day? Gerry Murphy: particularly in an environment where we are semi-remote. mean, you... James: Right. So you can't even see people. So you can't walk around and look at people's screens to make sure they're working hard either. Gerry Murphy: We can't do bad swipes on people's front doors. James: Right. Gerry Murphy: I haven't mentioned that idea yet. But... So the billable hour thing is a little interesting. I would say, James, what has been at times interesting is Joe and I, Elizabeth, who as partners run... we sometimes will take inbound requests from employees to say, hey, can we track hours? almost like asking. So you're right. I think it was used primarily in larger firms as a way to monitor productivity and measure performance. it was a pain in the butt. Everyone recognizes the pain in the butt. The other thing that led to in our opinion, at least in our observation, was sometimes like nickel and diming, that we would say, well, we had budgeted these many hours for this task, client asks us to do an extra meeting, we're going to send them an invoice for that extra amount. And what our approach has been is, when we give you a price, that's the price, we expect the outcome to be what you pay for, and we're not into the nickel and diming. And the hourly model can do that. I would say, just to be very clear, when we build our client budgets, we do look at our expected time. So we do consider the amount of time it takes. And we do look and we do try and, obviously, I think otherwise, you may be doing the service to your client because you're maybe not figuring out the most efficient or appropriate way to do the work. Or if you build in too low of a budget or too high of a budget, there's negatives that are associated with that. So we do have it as part of our management structure. do consider, what we simply don't do is set people at 1800-hour billable hour goal and require them to submit a type sheet on a Friday. As an aside, there are some clients, a minority, that say we prefer to pay you on a time and materials basis. In that case, we... we do record time, is fine. And there are a number of those clients where the work's unpredictable and it makes sense. But again, it's in service of the client, not us. And it's done in a way that's pretty transparent. the sales goal is kind of interesting as well. And in fact, as you know, a few times we've had discussions with people, would you prefer to have a sales goal and maybe a higher bonus as a result and an individualized bonus? And I think most people have said that wouldn't work for us. And part of the reason it wouldn't work is people are maybe remember what it's like when you're trying to get sales credit for something. And it's like, do I get 20 % of that or I want to get something? It puts little barriers in place that prevent people from sort of working together, helping each other out in a new business environment. So those are the reasons, I think, frankly, why we do it. But we still, we are managing the business in a responsible way that does consider how do we utilize our time and does make sure that we are building appropriately, know, client budgets that makes sense and match what it takes to get the work done. James: I've got to be careful how many rabbit holes I got we go down with this one. But you but Gerry Murphy: Yeah, sure. James: you're you're right. Like so you kind of use the minimum degree possible to deliver on again, if we think about trust and control, it's the minimum amount of control possible to fulfill that mission. So your real source of control is your your outcomes, which are happy clients. That's the main source of control. And then you use systems in service of that. And I think the big crossover point for me, particularly with billable hours, and this is the dangerous rabbit hole, because we could spend an hour complaining about buildable hour models, but I don't want to do that. but the billable hours model, when it became a currency for me, that was that was the big problem. It became this bartering chip, you know, and you wanted to be on the project with lots of hours so you could meet that goal, and you wanted to get more hours than the person next to you, so you didn't bring people in because then they'd take price of the project. And that that transferred into revenue as well. if you brought someone into your project as an advisor, they would eat up some of your revenue because they're in a different business unit. So that that to me is like it's like those second and third order effects, you know, they just don't really get enough consideration. Gerry Murphy: I hear Harbson right. I beware of unintended consequences. I James: Mm. Gerry Murphy: mean, I think you also, what has not changed, I think you know, you recognize quality work. And I'm proud of the group we work with. feel they do produce high quality work consistently. But we can see that. the time swapping, the time hoarding, all the sort of bad behaviors that come from it, don't do anything to help you run the business and can create the wrong kind of tension. Now again, look, that's fine for a firm of maybe a little bit less than 20 people. If James: Mm. Gerry Murphy: I'm running a 20,000 person organization, I don't know what my choice points are there. I might have to choose something a bit different, I do think, know, trusting people that they will use their time efficiently. I mean, that's sort of key to what we do and being able to give them the freedom to go ahead and do it without sort of coming back and saying, did you spend eight hours on Friday or did you only spend six hours and what happened to those other two hours? James: Mm-hmm. Yeah. And it makes you think of When a measure becomes a target, it ceases to become a good measure. So if you're using revenue and you're using hours as measures of how well you're delivering on client, but then you give that as a target to somebody, then it becomes something different completely. I want to ask you a bit about careers at Nua So The typical consulting or the typical professional services career, you know, I was an accountant, I had the same kind of career path, is very legislated. you you can see it, it's all laid out ahead of you. You've got a d what whatever it might be, a junior associate, associate, a senior associate, a consultant, a senior consultant, a principal consultant, you know, a director, a senior director, associate director, partner, senior partner, whatever it may be. And it tends to be characterized by quite a lot of steps bef below the the partner level. But you only have four levels in Nua And you actually mentioned this in in an interview back in twenty nineteen, so I did my research here in the Nua blog, and you said the biggest change has been the redefinition of what a career means. Gerry Murphy: So I think it comes back again a little bit to making things a little bit simple and giving the best consultants kind of what they want. So we're focused on, from a career perspective, giving people the work that they can do and that also provides a bit of a challenge for them to to develop. So we will ask people to take, go outside at times a little bit their comfort zone to do, and with the goal being that, hey, if you can do this, then that means you can take on a greater level of work. But for us, the career thing is, I have found with the team, We're not a group that is chasing a corporate title, I would say by and large. I don't think people are looking to be and have, does it have a sort of a principal after my name or does it have a senior director or a VP? We've never really had that as an issue. so frankly, in some ways, we only have two levels. have partner and consultant. but it's important to think about level for us in terms of are we giving people the right level of work and are we giving them the opportunity to develop beyond that? And then you've got to, of course, reward people appropriate for their contribution based on the type of work they're doing, the value it brings to the organization, which, you know, we obviously live in the real world and we've got to be competitive in how we do that. do, you know, career development is something we talk about. I think as a partner group, we spend much of our time talking about our people, making sure are we giving them the right opportunities? we giving, are they being put in the right position to succeed? That's an important part of how we think about. And the other, I don't know how, I haven't really thought much about this, but it may be relevant too. We don't organize ourselves as sort of one practice. So we naturally have evolved into people who major in, let's say HR strategy and operations work, but may minor in job architecture. And we have people who may major in rewards, comp and equity, but may minor in say, benefit strategy or the like. So we've built one group, but people are building their own personal major miners so we can build teams that can cross-pollinate on clients and that we can hopefully build some pretty diverse teams with diverse skill sets and James: Hmm. Yeah. Gerry Murphy: not keep it. And look, it's a debate because some of the big firms have got fantastic resources that are incredibly well qualified, but they could be very deep in just one specific area. James: Mm. Gerry Murphy: We have people who are deep, we also like to round them off with bring an additional kind of skill to what they can do. James: Mm. Was it is it that is it called the T shaped career where it's about breadth of knowledge rather than just depth of knowledge? Something. Gerry Murphy: That would require a lot of advanced thought on our behalf, which James: Ha Gerry Murphy: may not, but it is, we have tried to think about like, what can people not think of ourselves as, you know what it's like when in a company where you've got different practice areas, that's another level of friction that builds up. And we try to eliminate that, so there's none of that. And if anything, try and. cross pollinate as much as possible. James: I'm intrigued about the idea of scale. And when we talk about more trust-based organizations or participative work environments, I tend to use that the word participative, which is more defaulting to, well, people are just gonna do good work as long as you don't get in their way. Let's assume that's the case and work from there. When we talk about that, everyone goes, Well, that's great for 10 people. Well, that's great for 20 people, but it's not gonna work with a 10,000-person organization, 20,000-person organization. and as you know, because you've you know got a copy of the the book, there there and plenty of books point out that there are actually quite a lot of companies out there that do this at scale. To me, the difference is what you assume scale to be, whether you assume scale to be remain a centrally controlled autocratic model, or whether you can accept the notion of independence among groups. So the hypothetical is if you were to expand, let's say you have a really good year and in two years from now you have a one thousand person company, you know, how would you Gerry Murphy: my god. James: Yeah yeah, first of all No, we need to stop Gerry Murphy: Yeah. James: we're shutting we're closing the doors. But yeah, how would you think about scale? Like, you know, is this a purely hypothetical model, but as far as I know, there's no professional services organization that kind of has that, you know, hourly free out no hourly model, no individual target model, none of this kind of stuff, and is a big ten thousand person company. So how would you tackle that if the if the problem came about? Gerry Murphy: So, good question. I think there are lot of this in a professional service environment, first of it comes down to culture, which is sort of an obvious thing. But one thing I guess I would start is... Is everyone clear on what outcome that we're all looking for and why? I wouldn't necessarily object to continue to use a billable hour model for if we did go to 10,000 suddenly overnight, but it would have to be in service of something. Like I imagine, this is not a business we're in, but I imagine if I was a ERP implementer, I would. billable hours would be quite important to me because that's maybe how we charge for the work, et cetera. if we were taking Nua and multiplying Nua by 100, I think the focus might be a little bit more on outcomes. Where are we trying to play? What are we trying to achieve? And what are the measures that we think will enable us to... to win in the market. Again, a large part of two comes back to can we make our business simple? If it's simple, it becomes predictable. If it's predictable, it becomes a lot easier to manage. It becomes a lot easier to identify whether you're doing well or whether you've got some intervention as required. And so I probably would focus on the business. What are the outcomes we're looking for? How do we make gifts? How are we making it simpler? And from there, I think it would quite naturally flow whether we needed billable hours or whether we needed sales goals or whether we needed some of these other metrics. I suspect for a lot of people, you simply wouldn't. Maybe you might add a revenue manage goal just as a, if you're thinking about it in terms of a series of pods that make up this new Uber organization. James: Uber Nua I like that. If he gets the ten Gerry Murphy: Oop, oop, oop, yeah. James: thousand mark, I think you have to rename yourself Uber Nua now, it's on record. Gerry Murphy: I think we might. I'm not sure we will. But get to that point. But I do think simplifying the business as much as you possibly can is, and making the running of it, and then putting good people in charge of it and letting them kind of go ahead and do their job is important. James: Mm-hmm. Gerry Murphy: We don't have a monopoly on the best ideas or the best way to run a business, so I would very much imagine James, if we were in that position that we would be looking for who's our cadre of leaders that we're relying on to run this and giving them sort of the autonomy to go ahead and succeed. James: There's two major themes like in all of the discussion around this type of business model. One is like what are you doing? Like, what's your goal here? What's the what's the North Star? a lot of companies I think struggle with a North Star. Like, what are we here for? What's our purpose? Because it can't be profit. That's that's not interesting, neither is shareholder return or anything like that. But you but you clearly stated that it's Happy clients. That's that's what you're doing here. And then it's kind of what is the least we need to do? That's the other thing that they keep coming back. So what is the minimum amount need to do? We're open to doing things, but it's we don't want to do any more than we have to, because that's gonna get in the way of that mission. So the it's about simple, simple, simple, yeah. Gerry Murphy: Simple, simple. mean, simple, simple. I cannot undersell that part. That is, I think that's just, that's huge. Or sorry, can't oversell that part. Without simplicity, it just makes your life really difficult in James: Yeah. Gerry Murphy: running a business. And just think about your legal risks and exposures you have to manage if you don't have a, it's, and there are, There are businesses out there that are not simple, I get it, but those would not be what I would spend my time on. James: Right. Yeah. Yeah. and which reminds me actually, you have a series of r I think Gerry's rules of management is what you call it, which you shared with me a few years back, right? And the top rule of management, if I remember correctly, was do nothing. Gerry Murphy: But I have my top 10, I'll give you a slight preview, yes. James: Yeah. Yeah. Gerry Murphy: The top 10, number one is on management, do nothing. James: Okay. Gerry Murphy: The second rule, which might kind of give people a flavor for it, is to get out of town, turn right on Howard and left on six. James: Right. Gerry Murphy: And rules nine and 10 are blank, because if you have too many rules, that's not a good thing. So anyway, that's a bit of a... James: That's that that's the Irish wit coming out there, I can't. Gerry Murphy: You know, I think I may have told you before there's a book in those rules of it at some point in my maybe in my dotage. I'll get to James: Yeah. Gerry Murphy: it. James: But I think that top one's really interesting actually, because you can actually obviously Gerry Murphy: Yeah. James: it's very simple. First of all, it's simple, like simple, simple, simple. Do nothing. Now I think a lot of people assume a solution is additive rather than subtractive. And I find a lot of client requests I'm not trying to like say clients, you know, that coming from the wrong place or anything like that, but a lot of people start with an assumption you need to do something, need to add something to solve a given problem. And that first rule works against that, which is why I like it so much. It assumes that maybe probably, and I do agree with this. Probably the best solution is not to do anything or to do less than something. Maybe it's to take something away that was causing the problems to begin with. Gerry Murphy: or to let the people who are dealing with it to manage it, provided you James: Mm. Gerry Murphy: think you've given them appropriate direction on what you expect, not in terms of how they should solve the problem, but just this is what, these are our goals as a company, these are the outcomes that we expect, this is how we, and we frequently run into this, like how do you deal with, if you have a client situation that's a little tricky, how do you, well, you know, when you revert back to what you, what are some of your core principles and expected outcomes, the answer, it may not be easy, but it becomes somewhat obvious what to do. The other thing I'm conscious of, I was in leadership roles at Mercer and prior to that at Wilmastowers Watson. And one of the things I found, and maybe this is just me, but I might sometimes say something somewhat, with a genuine interest in the business, but might say something and then not realizing the impact of my words and what it caused other people to do. And it became a potentially a bit of a distraction. And I think at times as leaders, we need to consider the impact of our words and what we say because it could cause unintended consequences in organizations for people to spend. bunch of time doing stuff that is of maybe minimal value. James: Hm. I can think of an anecdote about this actually from a few years ago where a leader, you know, you get these, you know, the tech companies and the CEO founder says we should do something, we should do that. And everyone goes away and then it's interpreters as an instruction and spends a week investigating Gerry Murphy: Yeah, that's exactly the yeah. James: and then they'll come back and present and Why are you doing And so you said we should do it. No, you should. Not we need to do it, Gerry Murphy: yeah. If I told you this was going to cost you a million dollars to get to the answer, you, would you want me to do anything on it? So James: Right. Gerry Murphy: yeah, anyway, I do, the do nothing I have found is more of a be trust, know, trust your people to, to, to figure it out. They may have caused the problem, so they can probably figure James: Right. Gerry Murphy: it out. James: I mean that's another good rule, isn't it? Like the people who cause the problems need to figure out the solutions, like otherwise there's not there's Gerry Murphy: Yeah. James: nothing learned if they don't do that. But I do think I think that there's hidden depth and hidden wisdom in the concept of do nothing because it addresses a number of common, I think, failings of solution development, which it's just always trying to add on more, always trying to layer on. So and I want to talk a bit about how that all of that thinking kind of goes into your the your client solutions Let's talk about job architecture first, job architecture is a very common body of work. so I want to keep a very open question first. what is your kind of mentality to a job architecture request? Gerry Murphy: Good question. And boy, there are so many more qualified people at Nua to that answer that. how I personally, some of the questions I ask are what are the problems this is causing? How would your business leaders describe how this manifests itself? And what are you expecting that job architecture will solve? Those are, I think, three important things to understand. we're, you know, and I think most organizations, when we get into having discussion around that, I have a little bit of that, an example of that problem almost in reverse. A client had an issue with what they thought was their HR service delivery and the fact that they were spending so much time delivering compensation services to their employees and to their managers. And when we kind of investigated it and kind of look at, gosh, is there something wrong with their technology? Is there something wrong with their process? It came back to, was a very simple job architecture, the way they had set up their job architecture and how they had linked their bonuses. in this case, and equity to that job architecture was causing an incredible amount of problems. Incredible. It was a substantial amount of inefficiency. So I think you've kind of got a little dig, dig a little deep, understand what's going on here, what are the problems this is causing, what does success look like, you know, and go from there. And With job architecture projects in general, do ask consistently, do you, I think it's important to get, for two things, one is to get the business involved. There needs to be a business perspective, because they, you know, I think it's an important part to a company and to be able to manage a company. And then secondly is, you know, how will this actually work? And I'm not the person who kind of, can do all this, as you know, whether it's in like, how's it gonna appear on workday? How's it going to, when people send an email out to all directors, is it gonna go to all directors? Simple things like that. So I think it's important that the implementation be done well, as well as getting the business input. James: there's a few threads in there I want to pull on as well. first of all, we haven't defined what job architecture is, but I'm not gonna ask you to do that because in the previous episode Paul Reiman very kindly defined job architecture for us. So so if anyone Gerry Murphy: Good, and Paul would be way more qualified than him. James: So Paul, if anyone's looking for a good understanding of what job architecture is, go back and listen to Paul Reiman explain it. But what he did describe it as, which I will repeat, was he described it as the office refrigerator. He said, because it's no one's responsibility. But everyone throws things in there all the time and everyone forgets what's in there and every so often you've got to clean it out. And every so often you'll you'll find something that doesn't have any place in a refrigerator. So I think the metaphor holds very nicely. And to think to your point of engaging the business, I so I wonder if you agree with this. I I sense a lot of fear in HR when when I get HR driven requests. And there's often a fear to engage with the business. I think if it's an HR driven project, there's a sense that we just need to do it and get it done and out to get on with our lives. But I find I find that mentality kind of defeats the point of job architecture because it's the business that's gonna use it. It's not HR that's gonna use it, So I wonder if you see that as well and how you how you counteract that, Gerry Murphy: So, I mean, perhaps there is fear, James. I don't know that I see that as much as I see more practical issues. So the most common problem is time. simply don't, we need to get something in place and we don't have the time to engage. in that case, we, you know, it's all right, let's, maybe it's a case that 90 % of the jobs in the organization don't require a business review, maybe the last 10%, we can limit the amount of time, or maybe we bring in the HRBPs that support those business, then it can bring a perspective. I would say the most common problem in engaging this is time, and to some extent, expense and complexity. Like, do you really want to make this project that much more expensive and complex by adding this feature in or this need in. but I do think At least my experience, James, most of our clients, when I talk to them about this and say, do you want to engage the business? They understand the value of the business perspective, but they're sometimes faced with challenges. And the most common one that I see is time. Not necessarily, my gosh, I'm worried, they be afraid of doing this? There's always going to be, in a group of business leaders, one person that'll be the resistor, right? And it's like, gosh, we've got to deal with, he wants his own titling or she wants her own approach to pay. But by and large, I think it's more time James: and a philosophical angle on job architecture here, because Gerry Murphy: Yeah. James: you know, job architecture is by definition a system of control. You know, it is attempting to create jobs and levels between those jobs, which you know does mean that you know we don't trust you to go and figure things out to some degree, not necessarily to a whole degree, but you are essentially saying that Okay. Yeah. Well, my Gerry Murphy: I might disagree, which is good. I'm glad we can disagree on this. James: my so my way, my question is like, you know, where does job architecture go? in what direction is it headed. And part of this comes from the idea of pay transparency that requires transparency around the roles you have. But also part of it comes around the research in terms of what people need to get the most out of the work, which is generally more autonomy, more freedom. It's not really, really rigorous job descriptions that tell you exactly when to clock in, what to do with your day, what not to do with your day and when to leave, which is that from the industrial era. So generally speaking, jobs have become broader, I think, they're less constrictive in terms of what you can do. in in the name of innovation and knowledge work. But my question is really, you know, where what direction do you see job architecture going? Gerry Murphy: So I think, I would agree. think people are moving. And I think the benefit of a job architecture is, I mean, the reason why at least our customers come to us looking for help in job architecture is because what they have today is not working. And generally it's not working for employees. So whether they don't have anything or it's inappropriate. So when... putting something in place that works, I think can really help with transparency. It can help the conversation about where your career might go. It certainly helps the pay and rewards conversation. It can ensure to some extent fairness. And again, you have to look at where people are coming from and where they're going to. And I think the job architecture is... and the implementation part I sort of referred to earlier is important in just the running of an organization. bit of a, I know we don't like rules all the time, but it's a set of basic rules that this is how we're James: Okay. Gerry Murphy: gonna operate and run ourselves and is a good thing. your question about how does it work in the future, where does it go? That's a great question. I think we see a lot of questions around the impact of AI. It's minute 51. I was wondering when we would get to AI. James: Well I I tend not to bring it up until someone brings it up because I think enough other people are talking about it. But less we can talk about AI, it's fine. Gerry Murphy: Yeah, so what I think is going to happen, what I think is happening to some extent is people are, companies are looking at work that needs to be done and defining AI's role in that. And I think that's gonna have a knock-on impact on jobs and that needs to be reflected in your job architecture. Now, I think we're, this is a journey where we're kind of step one. I don't think we're close to. what it will look like. But I do suspect you will see certain workflows will get, in the same way that ERPs do certain workflows today, and that has changed the roles of finance and HR in particular, that same impact will happen probably more enterprise-wide with the impact of AI. But it doesn't mean those jobs are necessarily eliminated. It just means they're... the tools and what supports them is, and what's in place today for AI, mean, a most common example I can think of is you see a lot of job architecture, you see a lot of requirements around experience, right, or education. In an AI world, those may no longer be relevant. And in fact, in some cases, experience could be a negative, right? and certainly educate. So where is this going? I don't know exactly, but I think AI is gonna have a dramatic impact on how work gets done. And that will need to change how, what are the factors that make AI work? I had a discussion with someone recently about what's gonna, like, you a lot of people talk about the more junior levels. So what's gonna happen there? Could you have a newer model where you've got people major in finance and minor in operations or something like that, where you've got a almost like today we tend to organize all of our employees by function. Perhaps they don't get organized by function at certain levels. Maybe they're cross-functional and it gives people new career paths to choose going forward and allows companies to integrate. AI perhaps more effectively. Anyway, I'm speculating a little bit, but I do think there'll be, there obviously will be some changes, but they'll come driven by the AI's impact on workflow. James: Hmm. You actually you touched on one of there's another area I wanted to get your thoughts on as well. But the the entry level employee for me is a bit disconcerting what we do with that and what the entry level opportunities are. because if I think of all the things I did, and probably you did at an entry level, none of them need to be done anymore. And even with engineering, which it'd be a few years ago said it's a no-brainer to go into engineering, like you know, become a become a software engineer. And but now I I speak to people in engineering functions, I'm like, we don't really need junior engineers now. We just get, you know, Claude code or equivalent to to do a lot of that entry level code and then we just review it and update it. So it it's a little bit disconcerting to me that sort of lack of entry level positions. Gerry Murphy: Yeah, so I'm an optimist on this. I don't, and I'm also not an engineer, so I'm not gonna come to engineering. But I would say a few things. When I started as an actuarial student, we did much of our work literally by hand. We would have a sheet that would go from one end of the desk to the other. was taped together so I would have person's information, anyone who's listening, imagines a spreadsheet with, and that's exactly what it was. And every number checked, every number reviewed. We obviously stopped doing that a long time ago, thankfully. But I don't think it's eliminated the job per se. In fact, it's probably created more jobs. So I'm an optimist in this area, think. Providing tools and the ability for the work to be performed at even more efficient, even higher level of quality, I think will make these jobs even more valuable. the entry level person five years from now could be more qualified even with the same profile as the entry level person today or five years ago. James: Yeah. Which would mean that I think educational institutions probably need to take more responsibility in preparing people for that, which is a whole another thing, I think. Gerry Murphy: That's a whole other, I 100 % agree with you on that. And I think to some extent, I think they are because frankly, individuals are making that choice too. James: the other area I was wondering if you're gonna go with the job architecture is the role of the manager, which kind of relates to this as well, like of the managed Gerry Murphy: Yeah. James: responsibility. And, you know, I had a conversation with someone that's they said that well, we've got a I can't remember what it was, like a VP of marketing, maybe, with no direct reports. But they do have a lot of agents, like AI agents. So this is an immediate Gerry Murphy: Yes. James: impact of AI, which is changing the nature of what a role is and what a manager is. And but Gerry Murphy: Yes. James: traditionally, and so if we go take a few steps back, traditionally you had a pyramid and you had a layer of managers and they had direct reports or and those might be managers would have their direct reports, but it's all in service of this kind of autocratic pyramid. Then we saw a shift a few years back to the dual career track, the idea that, well actually we don't need those and loads of managers, we need lots and lots of ideas. So we should have a career track that allows people to progress without becoming a manager, even if kind of a lot of the time a manager was the best route. But where does the manager role go now then? So if it doesn't always need to be a manager of people that's managing a function Do we need to rethink that role in in a in job architecture terms? Gerry Murphy: Probably. It's an interesting question. And I think a couple of... So what does the manager do? I think the manager probably does two things. It manages the people and they produce an outcome, a team outcome. And so... In an AI environment, you might be able to produce a team outcome with just agents. I don't know that that's a manager though, to be honest. I'm not sure that is. think that may be more of a, I could see parts of being a manager because needing to maybe know multiple areas or multiple skills. But I also, I think the area of management that's always been most critical and most difficult to be successful on. is in the management and development of people and motivation of people. And that skill is probably gonna get even more critical. So I would imagine, a situation five years from now where a lot of the work that we assign to managers today is no longer done by managers because it's automated or automatically produced or whatever. And there's a much bigger focus on the people and management part and the outcomes. part of the James: Mm-hmm. I I certainly hope so, because I find like if you look at surveys like Gallup surveys and things like that, managers aren't very happy people, unfortunately. They are they are, they do tend to be disengaged. And a lot of the the problem with it, I do think, is the set of responsibilities that come with being a manager. It's not the good stuff. It's not the coaching and the mentoring and the enablement and the talent nurturing, all that fun stuff. A lot of the time it is. Managing the billable hours target or the revenue target or the divisional goals or the control or the checks, the balances, or the the sign offs, the vacation sign offs, or tracking whether in the office three days a week or whatever it may be, which I think is part of the problem. As you say, we can automate a lot of that stuff way if we if we even still need it, and then f refocus that role of a manager on actual people management, Gerry Murphy: people and the outcome. Now look, I think there's always gonna be what you and I might call... if it would call it silly season or whatever where people are asked to deliver messages as managers. I I was asked to do it. mean, many of us are asked to do it as managers that we don't necessarily think are a good idea or whatever it might be. And that may always be part of the job. But I think if humans become... And I'm the optimist, remember. If humans become even more valuable in an AI environment, because the work they do is gonna become more valuable, because everything that's not valuable is getting done by AI or less valuable. And maybe I'm naive, others will tell me that. But I think getting the most out of your human capital investment is gonna be critical. And that's why the role of the manager has to be, I think, even more important going forward. James: Which brings us to phrase that the title of this podcast. You it baffles me that two thirds of people are disengaged and everyone's okay with that. That that is a complete waste of economically and if nothing else, a waste of resources in terms of the return you get on that. So I think there's so much opportunity with the manager role for companies to get far more out of people and and not have to rely on those systems of control just by getting to enjoy their work. That's the the the e the easiest win for me is creating work that people can enjoy. Gerry Murphy: I suspect there are many people in management roles that don't want to be in management roles and never asked for it or may have asked for it as a way to get more pay and equity. And as a result, that's where they've ended up, but are not fundamentally happy doing what they're doing as a manager. And so the solution there is obvious. Don't make them a manager. give them a career opportunity that James: Right. Gerry Murphy: matches what they're actually happy with. The other thing I found, think this was at Mercer that I thought was quite interesting. They produced a charter for managers and made it laid out sort of very clear what the role was, what the role of a people manager was and what the expectations. And I found that... to be very useful. was able to explain to people, here are some examples of what we mean by this and what you may, and have a really good discussion. And I think people became better managers by having this charter and they understood the role and the expectations a lot better. But the James: Yeah. Gerry Murphy: first thing is probably James, people don't wanna be in that job and they're in it for the wrong reasons. James: Yeah, yeah. I I I've I spoke to a number of people that just felt that was the best way to advance, whether it's for pay or whether it's for prestige or whether it's for a higher you know, to to you know to include your stats increase your standing in the organization. They just saw it as Gerry Murphy: Yeah. James: the only way to do those things, which really comes back to your purpose and your status in the world and your me your meaning that you derive from work is fine is a way of finding that meaning and your organization is telling you, well, you gotta be a manager to do that. You've got to be a manager if you wanna increase your standing here and increase your status. Gerry Murphy: Yeah, but don't you agree that where we are today versus 10, 15 years ago, we've made so much advancement in the role of manager and James: Mm. Gerry Murphy: given people, I'm not saying it's ideal, but don't you think we're giving people more opportunities as I see today to reach their potential rather than just simply the manager track? Nothing's James: I think so. Yeah. Gerry Murphy: perfect, but I think we've made a lot of progress. James: Yeah, we we have and you have to zoom out a bit because it always feels like if you just look around your immediate y you know, zone that there's Gerry Murphy: Yeah. James: you d you notice the backward steps, you know, you notice the things going wrong and the return to office headlines and the the sort of controller and things. You think, we're going back to this industrial. But really you're right. If you zoom out, we've improved. And I think you see it reflected in the organizational setups as well. You know, you saw the traditional top down organization get replaced back in what was it, the eighties with the Matrix organization. you know, a different way of thinking about distributed systems of power and control. Gerry Murphy: Yeah. James: and the dual c career track, I think, is an i it responds to exactly that problem, giving people a career that doesn't require them to be a manager. Gerry Murphy: And now you're seeing with Jensen Wong as a classic example of this where he's got what? 30 direct reports that people are looking at span of control and thinking, maybe we don't need to, maybe we can have less managers by having bigger spans of control. And maybe that'll make people happier. it will, but I am, I do remember the role of a manager. 15, 20 years ago, and I feel like we have a lot more roles for individual contributors today to grow and reach their maximum potential than maybe we did. James: what do you think about self-selected management? there are the trailblazing companies, as I call them, that do something very different, which is, well, the people doing the work are the ones that best understand the work. Therefore they should be the ones to choose their manager, if and when they need one. So Gerry Murphy: Yeah. James: Morningstar is a U US example. does this Nucor do a certain degree of electoral management and And you've got the Handelsbankens of the world, the Buurtzorgs of the world, these self management, I think, is probably the collective term for this in different degrees. Gerry Murphy: Yeah. James: But the idea is, why should someone decide who your manager is when you are the ones that are doing the work day to day and know what qualities you need Gerry Murphy: Yeah, yeah. James: in somebody? What are your views on on that kind of approach? Gerry Murphy: So whether you sort of vote for your managers, that sounds very sort of avant-garde, but the idea of the manager as servant leader and therefore the manager is, and the success of the manager is dependent on how her or his team feel about them is, I think there's a lot of merit to that. And success doesn't necessarily mean they're giving their team everything they want or desire, but it does mean sort of managing and supporting them and helping them be successful. I think there's a lot of merit. There are some companies, I'm gonna say Alphabet, but I might be wrong saying this on a podcast, so I'll follow up. Please don't quote me, but James: Yeah. Gerry Murphy: I think there are some companies that do actively ask for team input on managers. Now look, I realize there's other unintended consequences that come from that that may make that perhaps ineffective. you would not have had that. You would James: Twenty years ago you wouldn't have had that. You wouldn't have had you know, that upward feedback at at all, yeah. Gerry Murphy: not have had that. And look, you know in professional services, the worst possible indictment of you as a leader is if your people leave. And so, and it really, and I know you, you know, maybe that's not the right way to look at it, but if your people start leaving you're very quickly not gonna be leading that role or leading that team. That is, there's gonna be a change. James: Yeah. Yeah. Yeah, I'm trying to so and and as I kinda look socially at the direction I obviously in the West we like democracy. Yeah, we no very few people disagree that democracy is is a good idea, which in which you vote for your leaders, you you elect your leaders. And increasingly in the media as well, you used to have channels that you got to choose what you watch. And these days you choose your followers. The we call them followers for a reason. You get to choose the influences that that shape your views in the world. So I feel like culturally we're shi we shift to a world where we get to have a say in the people that guide us. And the but the the the workplace tends to be the last to catch up with that. And in the workplace, many people are faced with a much more autocratic system of rule. And if that was deployed at a country level, no one would accept it. But in the workplace, Gerry Murphy: Yeah. James: people sort of accept that degree of autocracy. Gerry Murphy: you know, and this is part of the reason why talking with you was always interesting, because we disagree on a number of areas. James: Yeah. Gerry Murphy: I'm not sure that that is... Maybe I'm living in a little bit of a bubble. I understand your point, but I do think, back to the point I was making about, if you're not serving your team and your team's not being successful, it will get noticed. Everyone has James: Mm-hmm. Gerry Murphy: a boss. Absolutely everybody has got a boss. so you will get notice, it will get called out. And ultimately, I mean, I would say personally, every day, and whether it was at Mercer or now here at Nua the success of my team and my impact on that is I think about that a lot. And what can I do to help people? Now, at times maybe people would say, hey, but out, but I, perhaps that's true. But I think if you're not, if managers and leaders are not sort of thinking and acting in that way, it will show up in results. And ultimately, I don't think it's a long-term strategy that works. James: Mm-hmm. Yeah. Gerry Murphy: So I think what you're saying is kind of, I think it's true ultimately, but I don't believe that autocratic approach will be successful for business. James: It'll be interesting to see. And that that's the main thing for me. is is let's find out. let's experiment. So companies experiment with their products and services with customers all the time. We experiment with hobbies and interests in our day day-to-day lives. Well, I think we need more experimentation in the workplace for what is the optimal set of conditions. And you kind of got to do that experiment with Nua when you set it up. You see you got to start with a blank slate. So you didn't have to undo anything in order to to do that. And then you obviously, Gerry Murphy: Yes. James: of course, you have selection bias that you attract the people that will do well or look for that kind of freedom in the workplace. So obviously it's not going to be for everyone and we have preconditioned some people to look for control and guidance, probably more and more than they'd get from from Nua therefore maybe not be as successful. But I I'm more interested in in let's look around, let's see what companies are trying and let's consider whether those offer ideas that might might allow us to think more differently about how we run our own organisations. Gerry Murphy: Yeah, yeah. And I don't disagree with your premise. guess what I'm just saying is it can be kind of sexy and newsworthy to say, these people elect their leaders. But if you're going to get a line on the outcome, the outcome should be similar. It's an engaged group, engaged team who are productive and successful. Then I think we do measure, and teams do have a major influence on who their leaders are. James: Mm-hmm. let's talk a little bit about pay, because we talk a a lot pay for performance and this this phrase that we hear so much in corporate America, which you don't have Gerry Murphy: Yes. James: in Nua, you you don't have pay for performance. I mean, you might argue that you do have pay for performance in a different way. You might so so how how would Gerry Murphy: I might. James: you characterize pay then? And I I'll come on to another question, but how would you characterize how pay is used at Nua? Gerry Murphy: Sure, sure. I think when people think about pay for performance, I don't know James, but think a lot of people tend to think of it as like, did somebody get a bigger bonus than Target and because of performance. in my experience for the vast majority of people, you're not moving any needles. So. Our approach at Nua is everyone will get the same bonus outcome regardless of individual performance. Now it doesn't mean that we don't view and discuss individual performance. And individual performance impacts your career progression, impacts your base salary, impacts the kind of work that you get. And so that's why I wouldn't necessarily agree that we don't have pay for performance. It's just bonus doesn't have to be the area that it shows up in. So what I do tell, what I do talk about this with clients, like first of all, practically, do you have the ability to set goals in advance that are makes sense or meaningful? And we've talked about this in other instances before where you set goals, you can get the wrong outcomes. So that's never good, right? And you have the ability to measure them. And then will you do it on it? And that's, organizationally can be a heavy lift. So that costs something. Is that cost worth the, what you might get out of differentiating a bonus program? The answer could very well be absolutely it does. And for some organizations and some instances, particularly ones where, you know, there's a direct link between business outcomes and an individual's performance, it makes total sense to look at that. But for, I know if it's the majority of jobs, James, but for a large number of jobs, there's not that direct link. It's more obtuse. And therefore, it becomes a little bit more difficult and it become a bit of a challenge to do that. I just, you know, I don't try and, we don't try and steer people away from any particular strategy necessarily. The goal is to find the strategy that works best for them and their circumstances and to say, but the last thing we want to do is design this beautiful, elaborate pay for performance program on there with, has all sorts of. different metrics that are applied and weightings and you know as well as I do what that might be and then they can't actually make it work or James: Mm. Gerry Murphy: all it does is it moves the needle from 20 % to 21 or 20 to 19 and all you've done is you've pissed off the person that you've paid 19 and you've done nothing to motivate the person who's getting 21. James: Which is the kind of outcome I think a lot of people feel in in the world. And this and I do think that that the origins of that way of thinking do come from scientific management, you know, at the turn of the last century. The idea if we just time and motion, we figure out everything that everyone's doing, we divide it up into tasks, and we pay people to do each of those tasks, therefore they're gonna do all the tasks that we need. And it came from this kind of very mechanical idea of what humans do in their work. But the problem I think you're alluding to is we don't work that way. Like most very few jobs work that way anymore. It's all knowledge work now, it's very abstract. And I think the The signal that people might recognize is that when you look at your goals a year later, you go, that doesn't make any sense. And why did we agree to those goals? Like everything's changed since then. Like it made might have Gerry Murphy: Yeah. Yeah. James: made sense then. And then people we'll just pay you out of target. And then that's why you get this gravitation of just paying these supposedly individual bonus programs at target. It's because you look back and say, Well, there's no reasonable way I can assess you against what we thought we were going to assess you against now that we come back to assess you against it. Gerry Murphy: and this is maybe where fear meets reality too, because you might say, if you wanna be really focused on what the purpose is, you might say, hey, I'm gonna give all of our fives, I'm gonna pay them out of 200 % of target. before I fund anybody else. But then you look downstream and suddenly you find 60 % of your organization is getting a bonus that's about 25 % of target. And you go, am I? And they have, it's not paying the mortgage, but it might be paying the school bill or it might be paying the tuition for the next semester or whatever, or maybe it's a new card down payment. And all of a sudden, you've pissed off a large percentage of your population. we have to be sort of somewhat practical about this. And can you really get the differentiation you're hoping to get? some industries, as you know, like finance industry and Wall Street, the bonus is everything. James: Hm. Yeah. Gerry Murphy: It's like four or five times in some cases their base. And you James: Yeah. Gerry Murphy: do see a wide variety, zero to whatever. a hundred and that's fine and that's the expectation in an industry and that makes total sense for them. James: Mm-hmm. And they have the numbers to back it up as well. So it's more it's more in Gerry Murphy: They do. James: many ways when I look at the ones that work. I it it's I'm looking at what I would describe is more as a profit share than a than an individualized bonus because you're getting paid out from the financial success you generate. So sales plan, very obvious example of that. You're getting paid out because you're generating revenue to cover your costs and your costs go up Gerry Murphy: Yes. James: as your sales go up. Finance is exactly the same. If you make more money for the business, then then they've got money that they can share with you. So it's more individually attributable. Gerry Murphy: Yeah. James: And you can find a number of them. Gerry Murphy: And coming back to our logic, James, when we decided not to have billable hour targets and not to have sales targets, it went directly aligned with, and we're not going to vary our bonus. We're going to give everyone the same bonus. We couldn't explain how we would differentiate anybody's bonus. So just said, Let's keep it simple. James: Yeah. And to me that there's a there's an adage I f I keep I find myself using, which is matching the unit of work to the unit of pay, or matching the unit of pay to the unit of work. And because you function as a team, to d try and divide up a team's worth of work, it's always gonna have an artificial feel about it. And I think that's the pain that people feel with this. It's like you've artificially pulled out my contribution to a whole and and I can't figure out how you've done that. And that that that confusion I think is what creates that mistrust with those bonus arrangements. I want to come back to Gerry's Gerry Murphy: Yeah. James: development because this was a piece in my book that originated with a point you made. I think we're playing we're playing golf or I think actually probably after again it's at the end of a round of golf. And Gerry Murphy: Maybe. James: and because we talk about these ideas, we talk about you know the direction that we can go and the way that works changing and more participative forms of management, flatter management, decentralized, more trust-oriented. And I think one of the points that you made, this isn't wasn't your point, it was so this is one of the arguments you might get is that. Why bother? America's doing really well. Like the the stock market's huge, the biggest value companies, the most successful companies in the world, America, they're all autocratic. So I and I'll stop there because I can see you nodding that you so therefore you remember the point. But what what are your thoughts on this topic? Gerry Murphy: So you mean, the American system works, don't change it. It's working. James: Why change it? Yeah, why change anything, yeah? Gerry Murphy: Well, so first of all, I'm not sure there is one American system. And if you... We're here in Northern California and a lot of companies we work with are tech companies and they, to some extent, It's become a uber merit model for them. You have to be... The people who are the brains of the bunch, the 28-year-olds... ML research scientists, they're now getting the bulk of the rewards. You could be the best CFO in the business, but you're not really driving the outcome of a company's success that ML research scientists is, So, I think... So, first of I don't think there's one American system. However... I'm gonna get a little political here, probably say that, I'm not sure we've done a great job. There's a lot of wealth concentration. that's a, I'm not in any way taking shots at people just because they've created a lot of jobs too. But clearly there's a problem in the country where maybe it's generational, maybe it's. between different kinds of roles or different kinds of industries. you know, does the US system, does it work? I think it works for a lot of people, but there are some people that it probably needs. And even the people it works for, when you think about things like healthcare, when people are paying 30 plus $40,000 a year for a healthcare policy, and then you go to any place else in the world and they... it's, they start looking at you crazy, that's clearly not working. So, you know, there are parts of the system I think that work extremely well. I like the fact that we have equity as a part of compensation. I think it spreads, the wealth. It does get a little concentrated in founders, executives and the technology teams. So, you know, that could there be other folks that, it could be spread amongst, that's another sort of question. the flip side is, okay, what would be better? And that's more difficult question. And certainly, you you might look at China and think, well, gosh, China's done an incredible job bringing, what, 400 million people out of poverty in the last 30 years or so. But that might be okay for China. It certainly wouldn't be okay for the US. It's not, you know, no way, shape or form. And I'm not even sure it works for China today going forward. So it's a difficult question to answer and have a viewpoint on. James: Yeah, that's why I asked you because you asked me and I had to go away and think about it quite a long. There's a lot wrapped up in that put that perspective. Gerry Murphy: Yeah, I was part of, I don't know if this is maybe a more related topic. I may have mentioned this to you before, James, but I was part of a debate many years ago between the merits of the European exec comp system and the American exec comp system. And well, what ultimately came down to the measure of success was the American exec comp system produced and paid executives more in equity and that drove shareholder wealth and that was seen as being more successful. Those companies grew faster, they grew bigger and therefore the outcome, you get what you pay for. that was, whereas European firms, it was built more around sort of risk management, cash. less around shareholder wealth and more focused on maintaining sort of what you have. James: Yeah, and there's a few things in there as well. Like the the legislative environment of America does allow more innovation, more startups, VC funding, the school system. Yeah. Gerry Murphy: Which is great. I mean, it's great. James: Yeah. but interesting, MSCI studied this, the the relationship between the use of equity awards with executives and shareholder return and found a correlation of I believe zero point zero six the R squared was between the the volume of the equity award and the the the the level of shareholder return. So At the macro level you could look at it and say, Yeah, these are very these are very good shareholder returns and these are very high. It was u looking at US executives over ten years. Yeah, yeah, and it and it looks at the correlation. very, very minimal. Gerry Murphy: Was that US only study or was that a, yeah, yeah. Well, I think that might speak to just the fact that US executives in general get a ton of equity, regardless of whether they under or over perform. James: Mm-hmm. Yeah. Yeah. But the highest performers were were the lower paid executives. And they did have to normalize the thing for company size. Because obviously Gerry Murphy: Yeah. James: the the lower you're paid, the the smaller the size of the company. But that was quite an interesting Gerry Murphy: Yeah. James: analysis, I thought, because it it kind of broke down this idea that I'll just give it give ex executives a ton of equity and they'll work in the best interest of the company. But the other thing that goes into that is share buybacks. You know, but you know, executives can make decisions about share buybacks, which also impact the But that really is a rebb. Gerry Murphy: Yeah, I mean, it's, look, I think, you have to have some judgment around this and understand that if you give somebody a 1 % of fully diluted shares as their equity grant, that that's a big chunk of the company and people are going to act in that way and you're going to have to figure out a way to, if that, when there's some bad, like if there's a, know, share buybacks that you don't think is good for the company or whatever, then how are gonna deal with that? So whoever's managing, in this case, the board, you know, I think they just need to consider the totality of, it's sort of like, and you and I have had this topic where people have gone, I don't like stock options anymore. Everything James: Hmm. Gerry Murphy: is RSUs. It's like, well, James: Yeah. Gerry Murphy: the whole purpose of stock options is to align shareholder growth with, and again, there's gonna be plenty of opinions out there telling me I'm wrong, the measure was, well, you're gonna have more dilution with stock options. But if you get more growth, isn't that a good thing? Why do James: Mm. Gerry Murphy: you care about dilution if your growth is more outsized? James: VC back companies and the shift to RSUs traditionally, stock options were the domain Gerry Murphy: Yes. James: of the private company. If your private use stock options, and then you got a few unicorns, and they said, well, actually, we want to shift to RSUs before we go public, because we know we're gonna go public and we wanna start Gerry Murphy: Yeah. Yeah. James: competing in that space and we wanna manage dilution and things like that. But I know that your view on this is that i it there there's nothing wrong with stock options, or maybe not as much wrong with them as people make out, and maybe that shift doesn't have to happen quite as early as some companies try and make it, and there are some trade offs to that. Gerry Murphy: So first of all, a stock option for many pre-IPO companies, depending on how it's set. But generally, it's actually pretty similar to an RSU, the actual mechanics, because you got typically a big gap between the preferred and the 490A, which most people will set their strike price at. But the RSU, So commonly, as you probably know, 490 starts rising and the gap narrows, and then the 490 also becomes a more substantial amount of money, therefore to actually exercise would be costly. That's when people start, and when they're getting worried about dilution concerns, they start looking at RSUs. I do wonder whether people are simply how do I put this saying, well, we're done with our growth. And now we're just sort of, we need to maintain like the Uber growth that came with the and rewarded the early stage investors and employees, that's kind of over and now we're into more maintenance and wealth protection mode. But if I'm a shareholder, I do think I would prefer people who are focused on growth and it would seem to me that you get better leverage from the stock option. So maybe the, and I'm not an exec comp consultant necessarily and you know that's not an area we spend a ton of time on. So maybe it's that it should be, that should be more of an exec executive focus and they should be less focused on RSUs but. James: And what I will say to anyone listening, there's four we've mentioned 409a prices and stock options RSUs If that's jargon to anyone, my very first episode was with Dan Walter, and he explained a lot of what all this Gerry Murphy: Yes. James: meant. So I'm not gonna ask you, Gerry, to sit and explain what all this means. But if anyone's curious, then that's a good episode to go back to. yeah. Gerry Murphy: Good, because I struggle. James: it's yeah, or just yeah, gotta go to your favorite LLM and ask it to give you the basics of Gerry Murphy: Yes. James: sort of stock-based pay. Gerry Murphy: And then quick tip, get one LLM to check the other LLM and see what exactly. James: Yeah, right. Yeah. Yeah. So it's not leading you astray. Yeah. it isn't but I mean, and we've seen companies run into problems of shifting to RSUs too early. You know, famously I think Stripe was it the one Yeah, yeah, had to Gerry Murphy: Yeah, mean, maybe you end up having to go with the double trigger on, yeah, James: Mm and you have said double triggers. Mm, yeah mm. Gerry Murphy: it, yeah, it's not always, but the other thing, James, is regardless of, times I kind of, you know, this is true of a number of things, regardless of my point of view, to some extent, if the market has moved that direction and that momentum is inevitable, there's, you you kind of got to recognize reality too. And that's James: Mm. Yeah. Yeah. Gerry Murphy: kind of where we are. But again, if you go back pre-option, pre-stock based compensation and the expensing, was, what was that? That was about 1990, it was about 1995 or so, right? Was that when? James: I'm not too sure about it, yeah, but it's must have been mid nineties, that's coincided with the the boom of all this. Gerry Murphy: Yeah, there just wasn't that same, I don't think RSUs were even, I don't know when they came about, somebody with a history background would know better than I, but it was all options at public companies. So I feel like expensing has to have something to do with this, right? Because expensing comes in and all of a sudden, stock-based conversation becomes an expense that needs to be managed and therefore you look to manage it. James: Yeah. But overall to your point again, the direction of travel is making more employees owners of companies, which is a good thing because if you have this Gerry Murphy: It's a great thing. James: phrase like think like an owner, think like a founder. Well, if you really want people to think that way, then they need to be owners, they need to be founders. And even so, they're still kind of kept I think, hemmed in a bit by liquidity issues and protecting other investors and et cetera, Gerry Murphy: So I really do applaud the fact that we've got a culture of employee ownership more and more, particularly here in the Bay Area. I think it would be even, imagine if employees fully understood what it takes to go from James: Mm-hmm. Gerry Murphy: the point they're at today. think, and I'd love to see some good stories around that, because I think that could be. That can make, again, the more information you give employees about the business and what it will take, James: Yeah. Gerry Murphy: I think the better chance you have of success. James: Yeah, there there are some wonderful stories. I really love stories of employee buyouts and kind of employee ownership of businesses. And there are several stories Gerry Murphy: Yeah. James: of failing businesses that got bought up by employees, one of which was a guy called Jack Stack, and they got a lever a hugely leveraged buy. I think the most leveraged buyout in corporate American history at the time had to go through 50 odd banks and eventually they got the loans for the employees to buy the company. But one of his principles is exactly what you said. We need everyone needs to understand this. So we're gonna help you understand the financials, we're gonna help you understand the cap table, we're gonna make you understand what your impact is on the value of the stock that you own. Because if you don't have that link, then it's you might as well just pay cash at that point. You're not gonna get the the value Gerry Murphy: Yeah. James: out of it. And I do think there's a existing huge opportunity for companies to bridge that gap between giving people equity and helping them understand what that means. Gerry Murphy: And I do think at times, look, I don't want to, I'm generalizing, but I probably shouldn't, but at times I think there is a little bit of a fear that if I tell employees that I somehow need to protect them, and James: Mm. Gerry Murphy: at least in my experience, being open and transparent with the state of the business, what needs to happen to be successful, and by the way, what might happen if we're not successful is by and large a good thing. I think people treat that information very maturely. and act in my experience in a positive way. They'll help the business when they feel as long as, but if they don't know, then they don't know. James: No. Gerry Murphy: you know, right? They'll get blindsided and go, I can't believe we're laying off 20 % of the company. I thought we were doing really well. Now sometimes that happens regardless, but you know, I think we could do, we could all do a better job, ourselves included, about communicating what the business needs and how employees can help in that. James: I think it again it comes down to this the the the asymmetry between life and work to me. a lot of these people that you you're worried about what they might say if they knew the few f the the full financials are applying for mortgages, they're they're raising families, Gerry Murphy: Yeah. James: they're doing a lot of very difficult finan or they're expected to at least they're expected to learn it for themselves. And it's like you borrowing a mortgage and say, Well, what's my interest rate? Well, you don't need to know that. Don't worry about that. Like, you know, so if a company Yeah, Gerry Murphy: Yeah, trust me. James: just trust us, we'll go it's the same thing for a company. If you say, Hey, how are we doing by the way? How's our division's profitability and what what's our return on that? You don't need know that. It's like, well then why would I care if I don't need to know the answer, the outcome. Gerry Murphy: One of the things we all hated at the big companies was this sort of almost mandatory quarterly meeting, maybe even more than quarterly where here's what we're doing. And it's like, my God, do I have to go to this meeting? So one of the things we said, we're not doing that. And after about a year, now we were still. fairly open with people about us. After about a year, had one of our consultants, Ryland was like, can you give us a little bit more information on? So we developed what we now call the Ryland Report, is James: Yeah, I remember that. Yeah. Gerry Murphy: a very, very brief. but it was kind of interesting how, yeah, people ended up saying, well, I do want to know a little bit more information. So it was fun. James: Yeah. Which I think's a really good sign as well. If you if they want to know, then you know, one of the things that frustrates me is that you you I've suggested this kind of thinking before to some leaders like, well, there's a few people that'll get it, but the trouble is the people that don't get it, you know, they're gonna misinterpret it and things like that. So well, how do you think the people that get it got to the point where they get it? Do you think it was by never ever seeing anything? At some point you've got Gerry Murphy: Sir. James: to learn, you've got to trust that people are gonna figure things out and use that information the right way. Gerry Murphy: yeah, and if you don't tell people, they will, they'll make it up themselves. James: you know, nature abhors a vacr a vacuum is what they say. Like people will fill the vacuum with their own interpretation of what's going on, and that can be far more dangerous than just trusting them with the information in the first place. Gerry Murphy: Yeah, absolutely. James: So again, I had two wonderful years at Nua, and a big part of that is because of the high level of trust, which I was looking for. I was looking to get away from control, I was looking to get away from being told what to do, when to do it, where to do it. I was looking for a place where I could just focus on client work, which is what NUIR offered me. So first of all, well done with doing that, because I think you're living proof that Gerry Murphy: Thank you. James: professional services can be a more fun, healthy place to be, while also being financially successful. Gerry Murphy: Thank you. James: and my my final question which I ask everyone is if people want to learn more about what you do, about what Nua does, whether they're potential clients or whether they're potential future members of your team, Where can they follow your journey? Gerry Murphy: So I would say all the usuals, but look, if you're interested in finding out more reach out, just drop me a note, drop me an email. You should be able to, there's an email on the website, but it's gerry.murphy@nuahr.com Feel free to drop me a note. Always open to a chat with folks. And then, you know, we're obviously on LinkedIn. Feel free to sign up for our newsletter. I think I like the simple human way of let's have a chat. James: The old fashioned way. Give us a call. Gerry Murphy: If you're in town, let's grab a coffee. I'd love to learn as much about other people and other companies and how they're doing it. We don't have a monopoly on the best practices. We like to learn from others too. James: Nice. Okay. Well, Gerry, thanks so much for your time. I look forward to seeing you again soon. All right. Okay. Take care. Gerry Murphy: Thanks, James. Yeah, enjoyed it. Okay, take care. Bye-bye. James: Thank you so much for listening to this episode of Disengaged. If you enjoyed it, please remember to subscribe so you don't miss out on future episodes and if possible, please give the show a rating. Finally, if you have friends or colleagues that you think might find this interesting, please let them know. This is tremendously helpful and I do appreciate it. see you next time on Disengaged.