Wall Street Journal
June 21, 1999
General Electric's Welch DiscussesBy CAROL HYMOWITZ and MATT MURRAY
His Ideas on Motivating Employees
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.
Lessons on Motivation From Jack Welch
Tell people to never allow themselves to become victims. ... They should go somewhere else if that's how they feel. Constantly refine your gene pool ... by promoting your best performers and weeding out your worst. Grade on a curve. ... If I get 10 people, one is a star and one won't cut it. Instead of giving people specific operating goals, challenge them to give you every growth idea they've got. 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.