June
21, 1999
Marketplace
By CAROL HYMOWITZ and MATT MURRAY
Staff Reporters of THE WALL STREET JOURNAL
As chairman and chief executive of General Electric Co. for nearly
two decades, Jack Welch has been celebrated for reshaping his company
through more than 600 acquisitions and achieving one earnings record
after another. He himself says his most important job, the one he
devotes more time to than anything else, is motivating and assessing
GE's employees.
He recently sat down in his New York office with the Wall Street Journal
to share his ideas about motivation -- including his controversial
belief that GE's 85,000 managers and professionals should be graded
annually on a curve.
"You have to go along with a can of fertilizer in one hand and
water in the other and constantly throw both on the flowers,"
he says. "If they grow you have a beautiful garden. If they don't,
you cut them out. That's what management is all about."
WSJ: What were you like as a manager when you started
out at GE?
Mr. Welch: I didn't know how to manage when I came
to GE. So I learned how to manage one person, two people, four, than
eight. It was informal and collegial. I didn't see another way, and
every time I see another way now I kind of don't like it.
WSJ: Do you think managers are made or born?
Mr. Welch: We're all creatures of the experiences
we've had and the experiences we create. And it is very important
to have self-confidence. You may get that from getting A's in school,
or from being captain of a sports team, from your mother, your father.
But you don't go to management school to learn how to manage.
WSJ: What did you learn about motivating people from
your first management job?
Mr. Welch: I had the luxury of starting as the first
employee of a new plastics operation at General Electric. When I hired
my first person, we were a team of two. I didn't see myself as a boss
but as a peer. The two of us hired a third employee and then more.
We had all of the things you have in a small start up. We went to
my house for dinner. We met on the weekends. We socialized. We worked
Saturdays. We didn't have any pomp and circumstance, and we didn't
have any memos. It was like the family grocery store, which is what
we always called (our business.)
I think ideally that is how a company works. It becomes a place of
ideas, not a place of position.
WSJ: Is it still a grocery store?
Welch: As any business matures, it runs into problems of hierarchy.
But there is still spirit and a party atmosphere. When you win, you
celebrate. We used to have the 100-pound-order club. Whenever we got
to 100 pounds, we would ring a bell and stop (the assembly line) and
everyone would go bonkers. I see elements of that today in different
businesses at GE.
Five
Lessons on Motivation From Jack Welch
1.Tell
people to never allow themselves to become victims. ... They should
go somewhere else if that's how they feel.
2.Constantly refine your gene pool ... by promoting your best
performers and weeding out your worst.
3.Grade on a curve. ... If I get 10 people, one is a star and
one won't cut it.
4.Instead of giving people specific operating goals, challenge
them to give you every growth idea they've got.
5.You can't just reward people with trophies. Reward them in the
wallet, too.
WSJ: Did you have a particular boss who inspired
you?
Welch: In my first 16 years at GE, I never worked
in the same town as my boss, so in some ways I never had a boss.
But my first job was in Pittsfield, Mass, and I had a disaster once
when a plant blew up. I had to go down to Connecticut to see my
bosses and explain what had happened and they couldn't have been
more supportive and encouraging.
I clearly learned you have to make mistakes. Here I'd blown up a
plant and I wasn't fired, I wasn't yelled at or even criticized.
WSJ: How did the frustrations you felt as an up
and comer shape your management style?
Welch: Initially I was part of a workplace where
the reward system was incredibly level. I was on a small project,
like several other GE newcomers. At the end of the year, we all
got the exact same $1,000 raise. I said this isn't for me, I have
to get out of here. But my boss asked me to stay and I never had
that problem again.
That experience made me aware of what the frustrations can be for
others in a large company like GE. You drive into the big parking
lot, put your car among rows and rows of other cars, go into the
office and some horse's ass tells you what to do and how to do it.
And this isn't what you expected out of life. If you don't get recognized
and you have the wrong boss, it can be awful.
WSJ: What do you advise employees to do?
Welch: I tell people to never allow themselves
to become victims in an institution. Because many people end up
feeling like victims. They are in the wrong job, or they have plateaued
or they don't want to rock the boat.
I encourage them to raise their hands, to be seen, to make a statement.
I tell them, 'if GE can't be the place where you can get rid of
that victim feeling, go somewhere else.' And we try to weed out
the managers who make employees feel like victims, the managers
who lose staff all the time.
WSJ: How much time do you spend on people issues?
Welch: At least 50% of my time. I'll show you.
(Here Mr. Welch pulled out a huge notebook filled with charts that
rated each professional in one unit.) Here would the vitality rating.
Everyone knows where they are.
"1"s are the top 10%. These are the top people. Twos are
the next strongest 15%. Threes are the middle 50. The ones in the
middle have a real future. Then 4s are the caution 15%. They can
move to the left. 5s are the least effective 10%. We've got to get
rid of them. We don't want to see these people again.
On every performance appraisal they are being told you are at 1,
2, 3, 4, or 5. So no one will ever come in with any chance to say,
"I was always told I was great. And now you are telling me
I am not great."
WSJ: And your rating affects your chance at stock
options, right?
Welch: All the 1s will get options. About 90%+
of the 2s will get options. About half of the 3s will get options.
And the 4s get no stock options.
See there's an option chart in here. Who got options? Who didn't?
Here it says what happens. Did they go home? Are they out? How did
you reward these people? Do you want to love and hug these people?
Kiss them? Nurture them? Give them everything?
WSJ: What is that like for them? In a sense they
are all up against each other then. Doesn't that put a lot of stress
on them?
Welch: No. There is plenty of room. See, 3s are
okay. This is not punishing 3s. This is not at all that. I don't
know if this is more rigorous than other companies. But I think
it is our product.
WSJ: In this example, it's broken down evenly:
10% are 1, 15% are 2, 50% are 3, 15% are 4 and 10% are 5. Do you
always grade on a curve?
Welch: We demand it of every group. Because every
group will fight like hell to say, I have all 1s. If I get 10 people,
one is a 1 and one is a 5.
WSJ: How do you know when to cut somebody loose?
Welch: With the 5's it is clear as a bell. I think
they know it. And you know it. It isn't even a hard conversation.
It is better for everyone. They go on to a new place, a new life,
a new start.
The decision is harder with the 4's. The difference between a 1
and a 3, though, is not that little a jump. It is 10 people. It
is 15 people. When you get the top 10% performers, their output
and energizing impact is overwhelming compared to 4's.
WSJ: How do you motivate those average employees?
Welch: By telling them they can get to be 2s and
1s, and telling them they are eligible for options. But only the
best of them will get options.
WSJ: How many actually get options?
Welch: We have about 85,000 professionals. And
we give options to 10,000 to 12,000 a year -- but not always to
the same people. So about one-third of our people, about 29,000,
have gotten options although not all in any one year.
WSJ: Do you give people goals to improve their
performance?
Welch: I think goals are less helpful than knowing
they are not at a dead end. We want to grow this company as fast
as we can. I think that is about as specific a goal as I ought to
be setting. Because I want to let them think up a zillion ways to
grow. If I know what to do, what do I need them for?
Some companies have contracts with their employees. I hate those.
If you and I are making a contract, and I am the boss, what are
you likely to do for the week before we meet? You are going to work
out 50 charts to prove to me that you can't do too much. And I am
going to try to pull you higher. And in the end we will compromise.
On the other hand, if I turn to you and say I want every growth
idea you have in your body -- and I ask "what do you need,
do you need more people, do you need more research and development?"
-- you will come in with all kinds of things that I have never thought
about. Then I can say, "I don't like that idea, I don't want
to do that one, but I would like to do that one." The dialogue
between us is so much richer.
WSJ: How do you encourage risk taking and mistakes
when you also require results?
Welch: I talked before about the disadvantage of
working in a big company, the numbing feeling you can have in the
parking lot. But there's also an advantage to being huge. Last year
we made 108 acquisitions for $21 billion. That's 108 swings. Every
one of those acquisitions had a perfect plan. But we know 20% or
30% will blow up in our face. A small company can only make one
or two bets or they go out of business. But we can afford to make
lots more mistakes and in fact we have to throw more things at the
wall. The big companies that get into trouble are those that try
to manage their size instead of experimenting with it.
WSJ: How do you get your message down through the
ranks?
Welch: I would never want to run this company without
Crotonville (GE's management training center in Crotonville, N.Y.)
About 5,000 people go through there each year. I will see about
1,000 myself for four hours plus another two hours at the bar.
WSJ: Aren't you also known for sending personal
notes to managers?
Welch: I just became an e-mail person. And one
executive I e-mailed wrote back saying he couldn't stand my new
skill. He said "How will I know without that big black scribble
across the top of the page -- with the width of the scribble determining
the angst with which you are writing -- how you feel?"
WSJ: You were selling a very different message
from your predecessors when you first became CEO. How did you get
employees to sign on?
Welch: Well it was not easy. But I had a good core
of 25% to 30% of the company that was just so excited. I would pound
the message -- that we had to be more competitive, become faster
and global -- over and over. As a leader, you must repeat yourself
until you want to gag, until you almost come to where you can't
quite get it out one more time.
WSJ: You also were the target of a lot of hatred.
What was that like?
Welch: I was called neutron Jack. I hated it. It
is the last thing I think I am. And who likes to not be liked?
WSJ: Have you changed you management style or approach
over the years?
Welch: I think in my younger days, I went for a
lot of degrees. I went for appearance a lot.
I'm a fraction less impetuous than I used to be. I am less intense.
And the force of the job takes you away from being a micro manager
-- not because you all of a sudden become a global thinker.
WSJ: How involved do you get in GE's distinct businesses?
Welch: My job is not to know everything about each
business. It is to pick the people who will run the business and
to decide how much money business A versus business B or C gets
-- and how to transfer people, dollars and ideas across those businesses.
I don't get into the how. So I get into trouble when I get on the
golf course with someone from a particular industry who wants to
know how the widget is built. I am out of gas then.
WSJ: When it comes to recognizing employees, what
counts more, financial rewards or the personal touch?
Welch: I think showering rewards on people for
excellence is an important part of the management process. There's
nothing I like more than giving big raises. I don't want anyone
with his nose against the glass, I want them to go right through
the glass -- maybe because I had my nose against the glass.
You have to get rewarded in the soul and the wallet. The money isn't
enough but a plaque isn't enough either. Years ago I worked for
somebody who was giving out medals to employees who got patents.
I wanted to give them more cash. This guy was a fat cat who had
a lot of money. He said money is so crass, just give them the medal.
I just thought that was wrong, you have to give both.
WSJ: How do you evaluate your top executives? Do
you rate them against each other?
Welch: I compare them against their competition,
and never against each other. We have one plan where half the reward
an executive gets is for the performance of his business and half
for the performance of the whole company. But if the company doesn't
make it and the business has a greater performance, the bonus is
zero -- because no boats get to the shore if the Titanic sinks.
WSJ: How important is it to feel attuned with the
people you manage?
Welch: It doesn't matter if you don't want to hang
around with them or socialize with them. It doesn't matter if someone
doesn't like baseball or libraries or museums or opera or they dress
differently than you. But if your business values are different,
if your treatment of people is different, if you don't agree about
the behavior you want to cultivate in your company, that is a problem
You have to be on the same page there.
WSJ: How do you overcome employees' intimidation
when in your presence?
Welch: This is a hard question because I don't
really know if they feel intimidated. But we have a lot of humor
in our company. We spend a lot of time screwing around. Our meetings
are not always the most productive. Like for example the other Monday
we spent the first half hour talking about Saturday's golf tournament,
and everybody was screaming about the putts. And we had the most
crazy packed day.
WSJ: You've been CEO for almost two decades. Have
you changed your strategy in different business periods?
Welch: No, not really. I've stuck with wanting
to be No. 1 and No. 2 in every business. We haven't had a new flavor
every month. Getting into Asia or out of Asia or onto the Internet
aren't fundamental strategies, they're tactic to respond to change.
In 20 years we will have done two fundamental things -- first streamline
the organization, by getting rid of management layers and rid of
bad businesses. Second redefine how we behaved by redefining the
reward system and now with our emphasis on quality we are changing
the way we work.
WSJ: How do you figure out priorities, what you
will do next?
Welch: I don't know how you do it. You sit around
with each other. You talk a lot. It's sort of like the kitchen of
a restaurant. It looks nice when it comes out. When you go back
in the kitchen, you are not sure how it is all made. I think management
is a little bit like that. It is not a science
WSJ: You've been identified with GE for so long,
how will your successor establish his own identity?
Welch: By being himself and doing it his way. It
will take some time, it takes everyone time. But we are so deep.
We have so many people. This is so much less of a one-man show than
the world will ever give it credit for being. They are all sitting
there saying 'I would like to do this way. I would like to do that
that way, And why is that jerk doing that?' That is the way life
is.
Copyright © 1999 Dow Jones & Company, Inc. All Rights Reserved.
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