Managing Talent To Drive Higher Performance Ep 356

In a discussion led by Alex Hormozi, he shares innovative strategies for talent management and compensation within his company, acquisition.com. Hormozi highlights the effectiveness of variable compensation and management by objectives (MBOs) to incentivize non-sales roles, such as leadership and executive positions, to align with company growth goals. He introduces a novel approach learned from a colleague, where employees set their own measurable goals with the potential to earn variable compensation. This method leverages social pressure, autonomy, and intermittent reinforcement to drive performance and align individual objectives with the company's vision, potentially reducing employee turnover by fostering a sense of progress and challenge within the team.

• Alex Hormozi discusses a unique method of talent management.
• Emphasizes the universal entrepreneurial need for better personnel and enhanced output from existing staff.
• Attributes importance to culture and training but highlights a specific process with effective results.
• Mentions the intention to implement this process within his holding company.

"A good friend of mine in my building had a really, really interesting way of managing talent to get it and drive higher performance and output."

This quote introduces the central theme of the discussion, which is an innovative approach to managing talent to boost performance and productivity.

• Alex Hormozi introduces himself and his company, acquisition.com.
• His company's significant annual revenue establishes credibility.
• He expresses the common challenge for entrepreneurs to improve their team's performance.
• Explains that the motivation for the video is to share a valuable process that can be applied to other companies.

"My name is Alex Ramosi. I own acquisition.com. We do about $85 million a year."

Alex Hormozi introduces himself, his company, and its financial success to establish authority and relevance to the topic of talent management.

• Discusses the concept of variable compensation as a performance incentive.
• Variable compensation is tied to specific performance metrics or achievements.
• This is a common practice in sales through commission structures but less so in leadership and executive roles.

"He has a level of variable compensation. That's not new."

This quote introduces the concept of variable compensation as a method to incentivize employees, which is not a novel idea but is central to the talent management strategy being discussed.

• Alex Hormozi explains his company's use of Management by Objectives (MBOs).
• MBOs are used to align company and individual goals.
• The structure is designed to motivate employees to work with an ownership mindset towards common objectives.
• MBOs are more commonly applied to leadership and executive positions, rather than direct sales roles.

"And so the way that we have split our things up to this point is that we do something called mbos, which is management by objectives, which are for the company and then also for the indiv"

This incomplete quote suggests that the conversation was about to delve into how MBOs are tailored for both company-wide and individual objectives, emphasizing the alignment of goals across different levels within the organization.

• Alex Hormozi discusses the compensation structure for key employees like a director of marketing.
• A 50/50 split between base salary and variable compensation is typical.
• Variable compensation is further divided into two parts: company growth metrics and personal achievements.
• The personal achievement component ensures employees can earn part of their variable compensation regardless of overall company performance.
• The structure allows employees to participate in the upside of the business if the company grows.

And so they might get, let's say half of their, they might have a base. Let's just use round numbers. Let's say they're making, their targeted earnings is $200,000. We're going to give them $100,000 base and we're going to give them $100,000 of variable compensation.

This quote explains that the targeted earnings for a key employee, like a director of marketing, would be split evenly between a guaranteed base salary and a variable compensation that depends on performance.

Right now of that variable compensation. That half, we split that again in half. Half of that, which would be 25% of their total comp, is going to be of whether the company grows overall.

Alex Hormozi clarifies that 25% of the total compensation for the employee is tied to the overall growth of the company, aligning their interests with the company's success.

And the other half is going to be on whether they did something personally that they have control over.

This quote emphasizes that the second half of the variable compensation (another 25% of the total) is based on personal achievements that are within the employee's control, ensuring they are rewarded for their individual contributions.

So if you've got 100 grand, they got that guaranteed and they've got 50 that as long as they do all their stuff, they've got. And then they get to participate in the upside of the business if the business overall grows.

Alex Hormozi summarizes the compensation structure, highlighting that the employee has a guaranteed base salary, a portion of variable compensation based on personal achievements, and the potential to earn more if the company grows.

• The management by objectives is a key part of setting compensation structures.
• Employees typically do not have a choice in the objectives set for them, with some room for negotiation.
• The objectives are set by the team or company leadership.

But what he presented was a different way that I really, really liked. And a key part of this is that the management by objectives and the things that we set, we set for our team.

Alex Hormozi expresses his approval of a different approach to compensation that involves management by objectives, where the company sets specific goals for the team.

Okay? So they don't have a choice in it, they just accept it. Or they might try and negotiate a couple of terms.

This quote indicates that while employees generally accept the objectives set for them, there is some room for them to negotiate terms, suggesting a degree of flexibility in the MBO approach.

• The level of variable compensation can be adjusted according to the role.
• Companies can choose what percentage of the compensation is variable, offering flexibility in designing compensation packages.

With the way that he sets it up is that every position has a level of variable compensation. And that level you can determine. You can say you want it to be 10% or you can be 20% or could be 50%.

Alex Hormozi discusses the flexibility of the new approach, where the company can decide on the percentage of variable compensation for each position, tailoring it to the role's requirements and the company's compensation strategy.

• Discusses the concept of variable compensation in customer service roles.
• Suggests making 15% of the compensation variable based on performance.
• Example given for a $50,000 annual salary, where $7,500 would be variable.

"Let's say we wanted to make, let's say, 15% of their compensation variable. So if they're targeting, let's say $50,000 a year, then that would mean $7,500 would be potential to be variable."

This quote outlines a proposal for structuring compensation, where a portion is dependent on performance, providing a concrete example for clarity.

• Alex Hormozi announces the addition of a lost chapter to his book "100 Million Dollar Offers."
• The chapter is a marketing effort to create hype for his upcoming book "100 Million Dollar Leads."
• The chapter is available for free in exchange for an email address, which allows for direct marketing when the new book launches.

"I added in a lost chapter that has never been released. I'm releasing it now transparently. I'm doing that to build hype for 100 million dollar leads."

This quote indicates the strategic release of previously unpublished content to generate interest in an upcoming product.

• Describes a method of allowing employees to set their own monthly goals.
• Goals must be publicly declared to create social pressure.
• Employee autonomy is emphasized by allowing them to choose their targets.
• The goals must align with the company's overall objectives and be quantifiable.

"What he does is that he says, this is the variable comp and you get to set the goal every month. So it's a 30 day rolling goal. And every month they get to set the goal of what they're going to do."

This quote explains a system where employees determine their own goals, which are tied to their compensation, fostering a sense of ownership and responsibility.

• Alex Hormozi discusses the importance of setting goals for employees that they can take ownership of.
• He suggests allowing employees to set their own goals to create a sense of autonomy and ownership.
• Hormozi emphasizes the use of variable compensation to motivate employees, with a portion of their earnings being adjustable based on performance.
• Intermittent reinforcement, or variable rewards, is highlighted as a key strategy to keep employees engaged.
• The approach is particularly useful for roles that are not directly tied to sales or the bottom line and are harder to quantify.

But the thing is that people on the team are going to be like, dude, come on, that's the goal. And then all of a sudden they raise it. But they raised it, no one else. And so they have complete autonomy and ownership over that goal.

This quote explains the psychological impact of allowing employees to set and raise their own goals, fostering a sense of autonomy and ownership.

You just take 15% and make it variable. So they have the potential to earn the whole thing or they have the potential to earn somewhat less.

Hormozi describes a specific method for implementing variable compensation, suggesting that a portion of earnings be tied to the achievement of goals, which can motivate employees to perform better.

They have complete autonomy and they have social pressure and they have some level of competition.

The quote outlines the elements that contribute to an effective motivational environment for employees: autonomy, social pressure, and competition.

• Hormozi believes that allowing employees to participate in goal setting can lead to psychological benefits.
• He argues that such practices can contribute to the overall growth of the company by making employees feel like they are part of the company's success.
• The strategy is designed to reduce employee churn by making employees feel like they are progressing and growing.
• Creating an environment that increases the likelihood of employee fulfillment is seen as a way to build a better business.

Because there's just so much psychology behind doing things this way. And it just allows everyone to participate and grow as employees within the company.

Hormozi points out the psychological foundation behind the strategy of involving employees in goal setting, which promotes participation and growth within the company.

And as a tangential tertiary benefit of this, your churn will go down because people will feel like they're making progress.

This quote highlights the indirect benefit of reduced employee turnover as a result of employees feeling a sense of progress in their roles.

But if you can create an environment that increases the likelihood that they feel that way, given a normal human construct, I think that you're going to build a better business.

Hormozi suggests that creating an environment conducive to employee fulfillment can lead to the construction of a more successful business, acknowledging that while fulfillment cannot be controlled, the environment can be shaped to promote it.