Never sign a PIP. Here’s why.

I alluded to this topic in Friday’s post, and now I’ll address it directly. This search query comes to my blog fairly often: “should I sign a PIP?” The answer is no.

Why? Chances are, performance doesn’t mean what you think it does. Most people think of “performance improvement” as something well-intended, because they take performance to mean “how good I am at my job”. Well, who doesn’t want to get better at his or her job? Even the laziest people would be able to get away with more laziness if they were more competent. Who wouldn’t want to level up? Indeed, that’s how these plans are presented: as structures to help someone improve professional capability. However, that’s not what “performance” means in the context of a employment contract. When a contract exists, non-performance is falling short of an agreed-upon provision of the contract. It doesn’t mean that the contract was fulfilled but in a mediocre way. It means that the contract was breached.

So when someone signs a PIP, he might think he’s agreeing that, “Yeah, I could do a few things better.” That’s not what he’s actually saying, at least not to the courts. He’s agreeing to be identified as a non-performing– again, in the legal sense of the word– employee, in the same category as one who doesn’t show up or who breaks fundamental ethical guidelines. Signing a PIP isn’t an admission that one could have been better at one’s job, but that one wasn’t doing one’s job. Since white-collar work is subjective and job descriptions are often ill-defined, making the binary question of professional and contractual performance difficult to assess in the first place, this sort of admission is gold for an employer looking to fire someone without paying severance. The employer will have a hell of a time proving contractual non-performance (which is not strictly required in order to fire someone, but makes the employer’s case stronger) without such a signature, given that most white-collar work has ill-defined requirements and performance measures.

Managers often claim that signing such paperwork only constitutes admission to having read it, not agreeing to the assessment. Even if true, it’s still a bad idea to sign it. This is now an adversarial relationship, which means that what makes the manager’s work (in the firing process) easier makes your life worse. Verbally, you should say “I agree to perform the duties requested of me, and to make the changes indicated, to the best of my ability, but there are factual inaccuracies and I cannot sign this without speaking to an attorney.” If you are pressed to sign, or threatened with termination, then you may sign it, but include the words “under duress”. (The shorthand “u.d.” will not suffice.) What this means is that, since you were threatened with summary termination, you were not free to decline the PIP, and therefore your signature is meaningless.

Whether you sign the PIP or not, you will probably be fired in time, unless you get another job before the process gets to that point. Not signing it doesn’t make it impossible for them to fire you. It only makes it somewhat harder. So why is it harmful to sign it? You want two things. First, you want time. The longer you have to look for a new job while being employed the old company, the better. If your manager sees you as a risk of messy termination, he’s more likely to let you leave on your own terms because it generates minimal work for him. PIPs are humiliating and appear to be an assertion of power, but they’re an exhausting slog for a manager. Second, you want severance if you don’t find a job in time and do get fired. Severance should never be your goal– non-executives don’t get large severances, so it’s generally better for your career and life to get another job– but you shouldn’t give that away for free.

There isn’t any upside to signing the PIP because, once one is presented, the decision to fire has already been made. A manager who genuinely wants to improve a person’s performance will communicate off the record. Once the manager is “documenting”, the relationship’s over. Also, people very rarely pass PIPs. Some people get the hint and leave, others fail and are fired, and in the remainder of cases, the PIP is ruled “inconclusive”, which means “not enough evidence to terminate at this time”. That’s not exactly an endorsement. For a PIP to be passed would require HR to side with the employee over management, and that will never happen. If the employee is under the same manager in 6 months, there will be another PIP. If the employee tries to move to another team, that will be almost impossible, because a “passed” PIP doesn’t mean exoneration. The reputation for instability created by a PIP lingers on for years. What I am essentially saying here is that, once a PIP appears, you should not sign it for the sake of maintaining a professional relationship. There is no relationship at that point.

Signing the PIP means you don’t know how to play the termination endgame. It means that you have no idea what’s happening to you, and you can be taken advantage of.

This said, there’s a way of not signing it. If you appear to be declining to sign out of bitterness or anger, that doesn’t work in your favor. Then you come off as childish. Childish people are easy to get rid of: just put them in increasingly ridiculous circumstances until they lose their cool and fire themselves by doing something stupid, like throwing a stapler at someone. The image you want to project is of a confident, capable adult– one who will not sign the PIP, because he knows it’s not in his advantage to do so, and who knows his rights under the law. This makes you intimidating. You don’t want to frighten adversaries like this– a frightened enemy is dangerous unpredictable– but you do want to intimidate them, so they get out of your way.

There’s a lot more to say about PIPs, which are dishonestly named processes since their real purpose is to create a paper trail to justify firing someone. That I’ll cover in a future post. For now, I think I’ve covered the most important PIP question. Don’t sign the fucking thing. Be professional (that’s more intimidating than being bitter) but decline to sign and, as fast as you can, get another job. If you see a PIP, moving on is your job.

What is “at-will employment”?

Since I write a lot about the sociology and HR game theory of software engineering, I get a lot of hits to my blog for queries related to employment and, in particular, its endgame, such “should you sign a PIP” (answer: no) and “can they fire you for <X>”. I’m going to answer the second category of question. Can a company fire employees for any reason? Isn’t that what at-will employment means?

Well, no. Companies like to claim that at-will employment means that an employee can be terminated for any reason and has no recourse. They like to argue that people never win termination lawsuits except when discrimination is obviously provable. They say this because they don’t want to deal with the lawsuits, and they believe they can get away with low or nonexistent severance payments if the employee actually believes this. However, that’s not true. If it were, companies would not write severance packages at all.

Before I go any further, I am not an attorney and this material is provided for informational purposes only. This is no substitute for legal advice, and if you are at risk of, or in the process of, a messy termination, you should be consulting a lawyer. Preferably, find an attorney in your state, because these laws differ depending on where you are. What I’m providing here is for the purpose of explaining the HR game theory involved, with the goal of shining some light on how companies work.

What is “at-will employment”?

Legally, it means that the employment contract is of indefinite duration and can be ended by either party on a same-day basis. An employee is not in breach if he quits at any time, nor is the firm required to provide notice or a severance package. It exists to protect 3 classes of termination:

  1. Layoffs for business reasons. Companies that choose to end employment for a business reason, such as the closing of a factory or a need to reduce payroll, have the right to end jobs. In some cases, they are required to provide notice or severance (see: WARN Act) but not in all.
  2. Objective, published performance or conduct standards. Companies have the right to set performance standards as they wish, as long as they are uniformly enforced, and to fire people who fail to meet them. (Uneven enforcement is another matter. If it can be proven, the employee might have recourse.) It is not for the law to decide that a standard is “unreasonably high”. If a business decides that it needs to set productivity standards at a level that only 5 percent of the population can meet, that’s their prerogative.
  3. No-fault “breakups” in small companies. In small firms where the failure of a single working relationship can make employment completely untenable (because there’s no possibility for “transfer” in a 8-person company) the employer maintains the right to say, “We’re just not that into you”. This does not apply to large companies, where an employee who fails to get along with one manager could be transferred to another.

I don’t think any of these provisions are unreasonable. Companies should be allowed to lay people off for valid business reasons, set uniformly-enforced performance standards as high or low as the business demands, and terminate people whose failed relationships make employment untenable.

What doesn’t it cover?

A surprisingly large set of terminations are not covered under the above. I’m going to pick on one, resume lies. Clearly, this is fireable under any circumstances, right? Well, no.

Job fraud, defined as procuring a job that would not normally be available using misleading information that claims competencies the individual does not have, is a breach of professional ethics in any line of work, and in life-critical professions or law, it’s illegal. (If you say you’re a doctor and don’t have a medical degree, you’re likely to end up in prison.) People can be terminated for that, no question. So what is job fraud? If someone claims to have a PhD and didn’t even finish college, that would be considered job fraud, if the job requires a higher education. If someone is hired as an Enterprise Salesman based on his claimed 5 years of Goldman Sachs (and the contacts that would imply) but did not work there at all, that’s job fraud. What about someone who covers up an embarrassing, 4-month-long, gap in employment? That’s a much grayer topic. Let’s say that the applicant actually had 37 months of experience in that field, and with the inflation, 41 months. Well, that’s like rounding up a 3.651 GPA to 3.7: not exactly fraudulent. To establish just cause for termination, the company must prove that it would not have hired that same person with only 37 months of experience: that a pre-existing cutoff for that position was between 37 and 41 months of employment. (It could set a policy of not hiring people with 4-month gaps in their history, but juries will not look kindly on a company with such a policy.)

Broadly speaking, resume lies fall into two categories: job fraud, and status inflation. If job fraud occurred– the person would have been ineligible for the role were truthful information provided– the company will have no problem firing that person. Severance or notice are not required. The company is not required to prove that the standard is reasonable, but only that one exists and is uniformly applied. On the other hand, most resume lies are inflations of social status and political success: upgraded titles, tweaked dates, improved performance-based compensation, and peers representing themselves as managers to fix reference problems. It’s much harder for a company to prove that the person would not have been hired were truthful information provided. There’s a spectrum:

  • Overt job fraud, at one extreme, is deception claiming competencies a person does not have, such as a person who never attended medical school claiming to be a doctor. This person can be fired immediately, and often prosecuted.
  • Cosmetic falsification is generally not grounds for termination. Let’s say that a person claims to have ancestors who came over on the Mayflower. In “white-shoe” law or management consulting, this could easily sway an interviewer. It’s a signal that the person is more likely than average to have the pedigree that clients prefer. However, since it’s not an explicit requirement for the job, and the company would have a hard time proving that it swayed their decision, few companies would be able to justify terminating an employee on that alone.

This is also why it’s much more dangerous (and far less useful) to fake a college degree than to upgrade a job title, self-assigning a promotion when one was actually passed over. The first is considered fireable job fraud almost always, and it lacks plausible deniability (you cannot claim to have forgot how you spent 4 years of your life). The second has two advantages. First, unless that title were an explicit job requirement (“we only hire SVPs, not VPs”) it doesn’t consist of grounds for termination on its own. Second, there’s plausible deniability: “I was promoted during my last week there, and they must have forgot to put it in the system. Since I was no longer working there, I wasn’t aware of this discrepancy.”

Why does HR exist?

The purpose of the above discussion was to show that companies don’t have as much freedom to “fire at will” as they might want. They can’t just can people who annoy them. However, most company executives would like to be able to fire as they wish, and preferably cheaply. That’s where HR comes in.

For blue-collar, commodity work, companies have the unambiguous right to set performance standards and fire people who don’t meet them. However, the standard must be uniformly enforced. If a company decides that 150 widgets per hour is the productivity standard and fires Mark for achieving 149, it’s within its rights to do so. However, if Mark can establish that Tom, the boss’s son, was regularly pulling 145 and retained, then Mark can justify that his termination was wrongful.

In most states, uneven enforcement of policies is not enough to justify a lawsuit. Rather, wrongful termination requires a specific protected context (discrimination, retaliation, harassment, union-busting) before a case will even be heard, and “he just didn’t like me and was unfair” does not qualify. It is, however, not that hard to create such a context. Here’s one way to do it: in response to managerial adversity, put in for a transfer. Now, a negative performance review (if that review reduces transfer opportunities, or would be visible to the manager of one’s target team at all) constitutes tortious interference with an attempt to establish a mutually beneficial working relationship elsewhere in the company. Since part of the worker’s job is to remain aware of internal mobility opportunities, this is direct interference with work performance, and that is, of course, a form of harassment. It’s retaliation against legitimate use of internal processes.

This approach doesn’t work if the company can establish a uniformly enforced, objective performance standard. No employee at 149 widgets per hour was ever retained or afforded transfer. However, the nature of white-collar “knowledge work” is that it’s almost impossible to define standards for it, much less enforce fairness policies that can apply uniformly across a job description. Consider software. A first scratch at a standard might be “20 lines of code, per day”. For engineers on new development, this is easy to meet. For maintainers whose time is spent mostly reading code, it’s very hard. Also, it provides dangerous incentives, because it’s relatively easy (and in the long term, costly) for an engineer to add 20 lines of useless code.

This, of course, is what’s behind the “calibration score” nonsense and global stack-ranking in which companies regularly engage. The original intention behind these systems was to enable quick layoffs without discussion. Actually cutting projects that made no sense (which is what the company needed to do, possibly in addition to reducing personnel) required a discovery process, and that involved a lot of discussions and input, and word would get out that something was going on. The purpose of the global stack-ranking is to provide a ready-made layoff for any cutoff percentage. It’s a simple database query. What percentage are we cutting? 7.5? Here’s your list. This is actually a terrible way to do layoffs, however, because it means people are cut without eliminating projects. So (a) fewer people are left to do the same amount of work, and (b) the excessive complexity– what likely caused the company to underperform in the first place– never goes away. That said, it remains a popular way of doing layoffs because it’s quick and relatively easy. It also generates a slew of bad data.

One of the dangers of bad data is the temptation to use it as if it were valid. “Calibration scores” are subjective, politically motivated, and often bear virtually no correlation to an individual’s ability to add value to the firm. However, in the context of at-will employment, they have an additional use. The books can be cooked in order to justify “performance-based” firing of any employee for any reason. Instead of “150 widgets per hour”, the standard becomes “3 points out of 5″. Of course, the numbers are bullshit made up to justify personnel decisions that were already made, but they create the appearance of a uniform policy: no employee below 3.0 was retained.

This also explains the phenomenon of transfer blocks. Employees who meet too much documented political adversity find themselves immobile in the company. Either that person’s personnel file is damaged (often by falsehoods the employee will never be allowed to see, because she would have a serious harassment claim if she knew what was in it) so severely that no manager will want her, or she is prohibited from moving at all as per HR policy, even if there’s another manager who’d gladly hire her. At first glance, this makes no sense. Why would HR care enough to interfere with internal mobility? The answer is that it can break the uniformity that’s needed to justify termination. Let’s say that this employee was particularly politically unsuccessful and received a damning 2.6 (where 3.0 is passing) on her performance review. If she’s allowed to transfer to another team, then another employee who received a 2.7 and was not allowed to transfer has recourse. Of course, the likelihood that an ex-employee will compile this sort of information in enough volume to build a case is very low, because the data are hard to get without initiating a lawsuit, but this should explain why companies are insistent on keeping those “calibration scores” secret.

The HR transfer block is a nasty thing to encounter. It doesn’t occur unless a manager is so hell-bent on firing an employee that he must be kept in place. It also means that, even if the new manager desperately wants to hire a person, she often can’t. There are only two ways to beat an HR transfer block. One is to escalate, but that rarely works, because managers at a high enough level to do this are generally too busy to hear petitions from peasants they don’t know. The second is to offer a bribe to someone in HR who can change the review. This practice is a lot more common than people think, but that’s not a good position to be in, and I’d say it’s not the recommended course of action in most cases. (Just get another job.) HR bribes don’t always work, and they typically cost 3 to 10 percent of a year’s salary. When you’re at the point of having to pay for your own job, you’re better off just finding another one. Keep in mind, also, that if you’re in this position you’ll often be paying two to three times the bribe you offer, because what you’re doing is immediately fireable. (The first rule of extortion: when offered an illegal bribe, triple it.)

There’s one more thing to talk about. What is it that companies really fear? When they write these “performance improvement plans” (PIPs) and create elaborate machinery to justify terminations that are actually political, what are they trying to defend themselves against? First, they don’t want to be sued– that much is clearly true. However, they also know that the vast majority of employees won’t sue them. It’s extremely time-consuming, it can be dangerous to one’s professional reputation, and employers win most of the time. The economic cost of losing a lawsuit, multiplied by the low probability that one occurs, is not something a large firm fears. Secondly, they’re afraid of public disparagement, which is what severance packages are really about. People who can move on to another job without financial worry or loss of career status are unlikely to spend months to years of their lives suing an ex-employer. They move on. However, there’s a third fear that is often not discussed, but it’s important to understand it when negotiating severance (in which, by the way, you must involve a lawyer because you do not want an extortion rap). Companies aren’t afraid of the financial costs of a lawsuit, and they can’t do much about disparagement, but there’s something else that terrifies them. Discovery. Even if the employer wins a termination lawsuit– and, fair warning, they win about 80 percent of the time– they’re going to have to prove that the termination occurred in the context of a uniformly enforced, fair performance standard. Everyone knows that white-collar work is subjective and often impossible to measure, so there are a lot of angles that can be exploited. All sorts of personnel data, HR intrigue, and possibly even historical compensation tables, can be brought into the open. That’s a terrifying thought from an employer’s perspective: much scarier than losing a termination lawsuit. So even winning a termination lawsuit is a pyrrhic victory for the employer. However, that’s unfortunately also true for the employee: winning is pyrrhic, and losing can be disastrous. There’s a delicate “mutually assured destruction” (M.A.D.) at play. Companies will often pay severance just to make the dance not happen.

This also leads to the one bit of advice that I’m going to give. This is not legal advice, but I’ve seen enough good people (and a few bad ones) get fired that I think it’s valid. Unless you are in financial need, you probably don’t want to push for more cash severance than is offered. If they offer 3 months, and you’re likely to have a job in two, then take it. Don’t try to push your go-away fee up. However, never walk away for free, and always make sure your reputation is protected. You can take a zero for cash, but if you do, mandate a positive reference (written, agreed-upon, contractually obligated) and the right to represent yourself as employed until you find your next job. One major advantage of pushing for a non-financial package is that you’re less likely to inadvertently do something illegal. Companies know that disparagement is a more credible threat, in the age of the Internet, than a termination lawsuit, but you can’t legally say it. If you say, “Give me $50,000 in severance or I’ll write a blog post about this”, you’re breaking the law and, while you probably won’t go to jail, you’ve lost all leverage with the employer. With only a reference being asked-for, you can frame it as, “Hey, we need to come up with a straight story so we don’t hurt each other in the public. I intend to represent my time at your company well, but here’s what I need from you.” Still, work with an attorney to present the deal because this is a very weird territory. (I know too much about extortion law for one lifetime, having been illegally extorted by a (now ex-) employer in the spring of 2012.)

That, in a nutshell, is an incomplete summary– but a scratch at the topic– of at-will employment. I hope that none of my readers ever need this information, and certainly that I will never have to use it, but statistically, many will. Good luck to those who must fight.

The problem with “one thing only”

As an antidote to the mediocrity and lack of clarity induced by corporate multitasking, Peter Thiel developed an alternate management approach when at PayPal: focus on a single contribution. This approach has a lot of benefits. It keeps people focused, takes advantage of convexity (accelerating returns) in difficult work, and removes excuses. It will also never work in the modern corporation.

“Why? Because Reality, that’s why.”

Here are three major problems with “one thing only” in a traditional corporate environment:

  1. There’s a lot of work that is important but of which there isn’t enough to make it a “one thing”.
  2. The question of who gets to set a person’s “one thing”– immediate management? upper management? the employee?– becomes extremely political.
  3. It eliminates the possibility for the employee to create redundancy in his “support network”, which is a necessity to keep the company stable.

Sporadic work

A lot of work is sporadic. It needs to be done, but it’s not enough to justify a full time, 2000-hour-per-year, effort. This is especially true in startups. The CEO can’t afford to neglect nasty paperwork because it’s not part of his “one thing”. Engineers shouldn’t take that attitude either. There’s a lot of sporadic work that’s extremely important, even if it fits poorly into a “one thing only” performance review process. For example, in a small company, recruiting is sporadic work, because there just isn’t enough activity to justify a full-time effort. Production support often becomes another category of such work, because most companies don’t want to have a dedicated person on it, because (a) it’s usually unpleasant, and people will expect very high compensation if doing it full time, and (b) that person can easily become a “single point of failure” for the business. When support duties rotate, they become another category of sporadic work. It’s not part of anyone’s “one thing” but it needs to be done.

Under a “one thing only” regime, sporadic work inflicts a performance penalty, because it means that less time can be dedicated to the assigned task. People who take it on tend to fall into two categories: (a) those who neglect it, because they won’t be rewarded for it, and (b) those who take it on eagerly and do it well, because they’ll be using that experience in a near-term job search. In other words, sporadic work is either done by people who are blowing it off, or people who are boosting their careers and likely looking for an external move– in part because a “one thing only” company makes it hard to move internally.

Who sets the “one thing”?

This is the most obvious problem with a “one thing only” management system. Who decides on a person’s “one thing”? Is it the immediate manager? If that, you now have a dictatorial company where a single manager dominates all of a person’s work. People are still willing to show up in the same place for nine hours per day, five times a week; but very few desirable employees are going to tolerate that sort of unilateral control over their time. Most employees are happy to follow orders from a manager in some of their working time, but sneak away 15 to 25 hours per week to support their careers through (a) side projects, (b) cross-hierarchical work that leads to internal mobility, and (c) online courses. The “fog of war” induced by corporate multitasking, incoherent direction, and convoluted command topologies is what enables them to get away with this self-support; remove that, and you have unhappy employees.

On the other hand, if the person chooses the “one thing”, then you have open allocation, whereby employees have the right to direct their own work. That’s great, but it’s inconsistent with a “one thing only” policy. Open allocation means that employees are trusted to change their “one thing” as needed, if (a) they believe a different “one thing” will add more value or be more likely to succeed, or (b) if they believe that they can effectively focus on two or more things and that it would be beneficial for them to do so. I like all of this, but it’s not consistent with a “one thing only” policy.

Under an open allocation policy where people’s creative energies are encouraged rather than stifled, one tends to observe an alternating pattern between divergent and convergent creativity. Divergent phases are characterized by searching and a process that appears disorganized. From a typical micromanager’s perspective, the person doesn’t seem to be producing anything, but is just having a bunch of conversations and reading books. This is an exploratory phase in which interest is often scattered as the person tries to figure out what to create. After finding something, a convergent phase sets in where the person shuts out all distractions and gets to work on that project. This is when the person is behind a closed office door for 12 hours per day, focused singularly on “one thing only”. Complex projects will usually involve several divergent and convergent phases in sequence.

Creative people know the often brutal process that’s required if one wants to achieve anything great. It starts with free expansion (divergence) and ends with brutal cutting (convergence). The problem with typical closed-allocation micromanagement is that it allows only for the latter, and the result is that workers end up “converging” on a product that no one (except the manager, who is often not a direct user of the work) really wants.

Redundancy and support networks

What keeps people in a company? Most HR theorists believe that it’s money, but there are a few problems with that explanation. No one has any real idea what technological or creative work is actually worth, but there is a fairly consistent market salary at any given time. Companies rarely depart from the market figure, the result being that most people can get a comparable job, if not a slight pay raise and a promotion, by changing employers. Money is a part of this, but what really keeps people working at the same place for years is differential social status (DSS): the difference in standing that exists between where a person is, socially, and where he or she would be in another company. This is strongly relevant because a person’s happiness while actually at work is much more strongly correlated to that person’s social status than compensation (which pertains to happiness outside of work).

A company owner has a great deal of DSS. He’s the boss, and if the company fails, he’ll be an employee somewhere else. People with a lot of connections and credibility within the company have high DSS. Most entry-level employees start with their DSS at zero. They probably have some social status (enough to justify having a job there) but no more than they would in another company. Incidentally, most employees find that, after a few years, their DSS at a given company is negative. They might have had a couple promotions, but their next big promotion is external. They leave.

What  does this have to do with “one thing only”? Well, most employees in a company are going to put some effort into internal networking. They’ll take interest in cross-hierarchical work to make themselves visible to other teams. In part, this is about building up credibility, or DSS. More to the point, they also do this so that, if things go sour where they are, they can transfer. They’ll look for a “backup boss”– someone with managerial credibility, but outside of their direct reporting line, who can vouch for them– or five. In a traditional managed setting, the employee has serial dependencies: he depends on his relationship with his boss, who depends on the relationship with her boss, and so on, up to the company’s relationship with the market. Any one of these links failing can mean The End. It’s like ice climbing, in which you can do everything right, technically speaking, but still die if the ice calves because of an earthquake. Smart employees are going to build parallel support into their networks, building up a positive DSS and a web of connections to protect themselves if things get hairy.

In a “one thing only” company, this cross-hierarchical work is discouraged, at least for junior people. Their only allowed source of social status is the relationship with the manager. If the employee is tapped as a “protege”, then there is positive DSS, but managers rarely do that for obvious reasons (the other reports will call it “playing favorites”, which it is). Thus, the relationship with the manager does not provide positive DSS, unless the manager has unusually high clout. Typically, the manager/subordinate relationship delivers zero or negative DSS.

Solution

I don’t think a “one thing only” policy works, as much as I admire the endeavor to eliminate the mediocrity inherent in corporate multitasking. If I were running a company, I would adapt it as follows:

  1. Your job is to excel at (at least) one thing. You’re allowed to work on multiple things, but if you’re junior, you should have one main target (because excellence may be harder than you expect). You might also be mediocre at your assigned work, and that’s okay. The question I care about is not, “What do you do?” but “What do you do extremely well?” If you can’t answer that, the next question is “What will you do extremely well in the future, and what’s your plan to get there?” It might be something different from what you were hired for. That’s also fine. The first casualty of battle is the plan.
  2. Make your work useful. Finding something you excel at is important, but you also need to make your work useful to the company. If you excel at something that nobody wants or needs, then you’ll have to find something else.
  3. Excellence takes time, and that’s okay. No one’s expected to deliver meaningful weekly results. When you start, your job is to find something you can excel at, not show “contribution” from the first week, because everyone knows that real contributions start in the mid-single-digit months. Your task is to start looking. Talk to people. Figure out what you might be interested in, and what you might do well at, and go from there.
  4. If you try to excel and you fail, that’s okay. What you want to do may be impossible, or unaffordable. It may take five times as much time as you or anyone else thought. You may not have the ability or experience that’s necessary. Or you might produce something excellent that no one wants. If you do all this in good faith, you’re not fired. You shouldn’t even be embarrassed. You should be proud of having had the courage to try. Learn from the experience, write a couple internal papers to share what you learned, and move on.
  5. Impact reviews instead of performance reviews. You will never have a “performance” review. Why? Because the language of “performance” is fucking insulting. It means an employee isn’t getting the benefit of the doubt. Unless I know you extremely well (and if I’m running a company, I probably have too much on my mind) I am just not qualified to evaluate you for “performance”. Performance is personal and pejorative, impact is observable and objective. We will discuss impact. What is the actual effect of your work on the larger organism? The goal is to improve motivation (by reminding you that your work matters) and align interests, not to put you on trial. Also, whatever is discussed will never be used for personnel action (favorable or adverse). Its purpose is to remind you of the larger system in which you work.
  6. I will fire you only if you can’t excel. Low impact isn’t personal, and it’s not a problem if it happens in good faith. Most companies play “heads, I win; tails, you lose” by firing low-impact (or politically unsuccessful, which is more often the state of things) personnel while keeping over 99% of the proceeds (with the piddling “performance bonus” that is a tiny fraction of that work’s value) when their employees generate a high impact. That’s pretty goddamn scummy. Now, if I’m running a company, I am in the business of capturing the proceeds of creative, excellent work so I will be capturing and reinvesting the bulk of the profit. An employee who saves the company $10 million might get (in addition to a career-altering promotion) a $250,000 bonus– better than most companies give, but only 2.5%. However, if I’m taking the bulk of an employee’s upside in good, high-impact years, then I will also be taking on some of the downside in bad years. It’s only fair. So the only people I’ll fire are people for whom I cannot see any possibility that they excel within the context of the company. They will have three options. The first is a severance package, calculated based on the expected length of a job search, in exchange for non-litigation and non-disparagement. They can take that, resign that day, and leave in two weeks (to avoid the embarrassment of an abrupt termination). They will be allowed to represent themselves as employed during the severance period, and we will agree upon a positive reference, in order to ensure that they move along with their careers and have a chance to excel somewhere else (or not excel, as it’s no longer my problem). Their second option is to work out a transition plan, in which they hand over their duties properly, and which includes the allowance for time to conduct their job search on “company time”. I will even give them a private office where they can take phone interviews, and I won’t count on-site interviews against any vacation policy (if one exists). Their job is to find another job, peacefully and seamlessly. Their third option is to excel at something I didn’t think of, and prove me wrong.

The policy shouldn’t be “one thing only”. That can rapidly become a political mess. It should be: excel.

Tech companies: open allocation is your only real option.

I wrote, about a month ago, about Valve’s policy of allowing employees to transfer freely within the company, symbolized by placing wheels under the desk (thereby creating a physical marker of their superior corporate culture that makes traditional tech perks look like toys) and expecting employees to self-organize. I’ve taken to calling this seemingly radical notion open allocation– employees have free rein to work on projects as they choose, without asking for permission or formal allocation– and I’m convinced that, despite seeming radical, open allocation is the only thing that actually works in software. There’s one exception. Some degree of closed allocation is probably necessary in the financial industry because of information barriers (mandated by regulators) and this might be why getting the best people to stay in finance is so expensive. It costs that much to keep good people in a company where open allocation isn’t the norm, and where the workflow is so explicitly directed and constrained by the “P&L” and by justifiable risk aversion. If you can afford to give engineers 20 to 40 percent raises every year and thereby compete with high-frequency-trading (HFT) hedge funds, you might be able to retain talent under closed allocation. If not, read on.

Closed allocation doesn’t work. What do I mean by “doesn’t work”? I mean that, as things currently go in the software industry, most projects fail. Either they don’t deliver any business value, or they deliver too little, or they deliver some value but exert long-term costs as legacy vampires. Most people also dislike their assigned projects and put minimal or even negative productivity into them. Good software is exceedingly rare, and not because software engineers are incompetent, but because when they’re micromanaged, they stop caring. Closed allocation and micromanagement provide an excuse for failure: I was on a shitty project with no upside. I was set up to fail. Open allocation blows that away: a person who has a low impact because he works on bad projects is making bad choices and has only himself to blame.

Closed allocation is the norm in software, and doesn’t necessarily entail micromanagement, but it creates the possibility for it, because of the extreme advantage it gives managers over engineers. An engineer’s power under closed allocation is minimal: his one bit of leverage is to change jobs, and that almost always entails changing companies. In a closed-allocation shop, project importance is determined prima facie by executives long before the first line of code is written, and formalized in magic numbers called “headcount” (even the word is medieval, so I wonder if people piss at the table, at these meetings, in order to show rank) that represent the hiring authority (read: political strength) of various internal factions. The intention of headcount numbers is supposed to be to prevent reckless hiring by the company on the whole, and that’s an important purpose, but their actual effect is to make internal mobility difficult, because most teams would rather save their headcount for possible “dream hires” who might apply from outside in the future, rather than risk a spot on an engineer with an average performance review history (which is what most engineers will have). Headcount bullshit makes it nearly impossible to transfer unless (a) someone likes you on a personal basis, or (b) you have a 90th-percentile performance review history (in which case you don’t need a transfer). Macroscopic hiring policies (limits, and sometimes freezes) are necessary to prevent the company from over-hiring, but internal headcount limits are one of the worst ideas ever. If people want to move, and the leads of those projects deem them qualified, there’s no reason not to allow this. It’s good for the engineers and for the projects that have more motivated people working on them.

When open allocation is in play, projects compete for engineers, and the result is better projects. When closed allocation is in force, engineers compete for projects, and the result is worse engineers. 

When you manage people like children, that’s what they become. Traditional, 20th-century management (so-called “Theory X”) is based on the principle that people are lazy and need to be intimidated into working hard, and that they’re unethical and need to be terrified of the consequences of stealing from the company, with a definition of “stealing” that includes “poaching” clients and talent, education on company time, and putting their career goals over the company’s objectives. In this mentality, the only way to get something decent out of a worker is to scare him by threatening to turn off his income– suddenly and without appeal. Micromanagement and Theory X are what I call the Aztec Syndrome: the belief in many companies that if there isn’t a continual indulgence in sacrifice and suffering, the sun will stop rising.

Psychologists have spent decades trying to answer the question, “Why does work suck?” The answer might be surprising. People aren’t lazy, and they like to work. Most people do not dislike the activity of working, but dislike the subordinate context (and closed allocation is all about subordination). For example, peoples’ minute-by-minute self-reported happiness tends to drop precipitously when they arrive at the office, and rise when they leave it, but it improves once they start actually working. They’re happier not to be at an office, but if they’re in an office, they’re much happier when working than when idle. (That’s why workplace “goofing off” is such a terrible idea; it does nothing for office stress and it lengthens the day.) People like work. It’s part of who we are. What they don’t like, and what enervates them, is the subordinate context and the culturally ingrained intimidation. This suggests the so-called “Theory Y” school of management, which is that people are intrinsically motivated to work hard and do good things, and that management’s role is to remove obstacles.

Closed allocation is all about intimidation: if you don’t have this project, you don’t have a job. Tight headcount policies and lockout periods make internal mobility extraordinarily difficult– much harder than getting hired at another company. The problem is that intimidation doesn’t produce creativity and it erodes peoples’ sense of ethics (when people are under duress, they feel less responsible for what they are doing). It also provides the wrong motivation: the goal becomes to avoid getting fired, rather than to produce excellent work.

Also, if the only way a company can motivate people to do a project is to threaten to turn off a person’s income, that company should really question whether that project’s worth doing at all.

Open allocation is not the same thing as “20% time”, and it isn’t a “free-for-all”. Open allocation does not mean “everyone gets to do what they want”. A better way to represent it is: “Lead, follow, or get out of the way” (and “get out of the way” means “leave the company”). To lead, you have to demonstrate that your product is of value to the business, and convince enough of your colleagues to join your project that it has enough effort behind it to succeed. If your project isn’t interesting and doesn’t have business value, you won’t be able to convince colleagues to bet their careers on it and the project won’t happen. This requires strong interpersonal skills and creativity. Your colleagues decide, voting with their feet, if you’re a leader, not “management”. If you aren’t able to lead, then you follow, until you have the skill and credibility to lead your own project. There should be no shame in following; that’s what most people will have to do, especially when starting out.

“20% time” (or hack days) should be exist as well, but that’s not what I’m talking about. Under open allocation, people are still expected to show that they’ve served the needs of the business during their “80% time”. Productivity standards are still set by the projects, but employees choose which projects (and sets of standards) they want to pursue. Employees unable to meet the standards of one project must find another one. 20% time is more open, because it entails permission to fail. If you want to do a small project with potentially high impact, or to prove that you have the ability to lead by starting a skunk-works project, or volunteer, take courses, or attend conferences on company time, that’s what it’s for. During their “80% time”, people are still expected to lead or follow on a project with some degree of sanction. They can’t just “do whatever they want”.

Four types of projects. The obvious question that open allocation raises is, “Who does the scut work?” The answer is simple: people do it if they will get promoted, formally or informally, for doing it, or if their project directly relies on it. In other words, the important but unpleasant work gets done, by people who volunteer to do it. I want to emphasize “gets done”. Under closed allocation, a lot of the unpleasant stuff never really gets done well, especially if unsexy projects don’t lead to promotions, because people are investing most of their energy into figuring out how to get to better projects. The roaches are swept under the carpet, and people plan their blame strategies months in advance.

If we classify projects into four categories by important vs. unimportant, and interesting vs. unpleasant, we can assess what happens under open allocation. Important and interesting projects are never hard to staff. Unimportant but interesting projects are for 20% time; they might succeed, and become important later, but they aren’t seen as critical until they’re proven to have real business value, so people are allowed to work on them but are strongly encouraged to also find and concentrate on work that’s important to the business. Important but unpleasant projects are rewarded with bonuses, promotions, and the increased credibility accorded to those who do undesirable but critical work. These bonuses should be substantial (six and occasionally even seven figures for critical legacy rescues); if the project is actually important, it’s worth it to actually pay. If it’s not, then don’t spend the money. Unimportant and unpleasant projects, under open allocation, don’t get done. That’s how it should be. This is the class of undesirable, “death march” projects that closed-allocation nurtures (they never go away, because to suggest they aren’t worth doing is an affront to the manager that sponsors them and a career-ending move) but that open allocation eliminates. Under open allocation, people who transfer away from these death marches aren’t “deserters”. It’s management’s fault if, out of a whole company, no one wants to work on the project. Either the project’s not important, or they didn’t provide enough enticement.

Closed allocation is irreducibly political. Compare two meanings of the three-word phrase, “I’m on it”. In an open-allocation shop, “I’m on it” is a promise to complete a task, or at least to try to do it. It means, “I’ve got this.” In a closed-allocation shop, “I’m on it” means “political forces outside of my control require me to work only on this project.”

People complain about the politics at their closed-allocation jobs, but they shouldn’t, because it’s inevitable that politics will eclipse the matter of actually getting work done. It happens every time, like clockwork. The metagame becomes a million times more important than actually sharpening pencils or writing code. If you have closed allocation, you’ll have a political rat’s nest. There’s no way to avoid it. In closed allocation, the stakes of project allocation are so high that people are going to calculate every move based on future mobility. Hence, politics. What tends to happen is that a four-class system emerges, resulting from the four categories of work that I developed above. The most established engineers, who have the autonomy and leverage to demand the best projects, end up in the “interesting and important” category. They get good projects the old-fashioned way: proving that they’re valuable to the company, then threatening to leave if they aren’t reassigned. Engineers who are looking for promotions into managerial roles tend to take on the unpleasant but important work, and attempt to coerce new and captive employees into doing the legwork. The upper-middle class of engineers can take the interesting but unimportant work, but it tends to slow their careers if they intend to stay at the same company (they learn a lot, but they don’t build internal credibility). The majority and the rest, who have no significant authority over what they work on, get a mix, but a lot of them get stuck with the uninteresting, unimportant work (and closed-allocation shops generate tons of that stuff) that exists for reasons rooted in managerial politics.

What are the problems with open allocation? The main issue with open allocation is that it seems harder to manage, because it requires managers to actively motivate people to do the important but unpleasant work. In closed allocation, people are told to do work “because I said so”. Either they do it, or they quit, or they get fired. It’s binary, which seems simple. There’s no appeal process when people fail projects or projects fail people– and no one ever knows which happened– and extra-hierarchical collaboration is “trimmed”, and efforts can be tracked by people who think a single spreadsheet can capture everything important about what is happening in the company. Closed-allocation shops have hierarchy and clear chains of command, and single-points-of-failure (because a person can be fired from a whole company for disagreeing with one manager) out the proverbial wazoo. They’re Soviet-style command economies that somehow ended up being implemented within supposedly “capitalist” companies, but they “appear” simple to manage, and that’s why they’re popular. The problem with closed allocation policies is that they lead to enormous project failure rates, inefficient allocation of time, talent bleeds, and unnecessary terminations. In the long term, all of this unplanned and surprising garbage work makes the manager’s job harder, more complex, and worse. When assessing the problems associated with open allocation (such as increased managerial complexity) it’s important to consider that the alternative is much worse.

How do you do it? The challenging part of open allocation is enticing people to do unpleasant projects. There needs to be a reward. Make the bounty too high, and people come in with the wrong motivations (capturing the outsized reward, rather than getting a fair reward while helping the company) and the perverse incentives can even lead to “rat farming” (creating messes in the hopes of being asked to repair them at a premium). Make it too low, and no one will do it, because no one wise likes a company well enough to risk her own career on a loser project (and part of what makes a bad project bad is that, absent recognition, it’s career-negative to do undesirable work). Make the reward too monetary and it looks bad on the balance sheet, and gossip is a risk: people will talk if they find out a 27-year-old was paid $800,00o in stock options (note: there had better be vesting applied) even if it’s justified in light of the legacy dragon being slain. Make it too career-focused and you have people getting promotions they might not deserve, because doing unpleasant work doesn’t necessarily give a person technical authority in all areas. It’s hard to get the carrot right. The appeal of closed allocation is that the stick is a much simpler tool: do this shit or I’ll fire you.

The project has to be “packaged”. It can’t be all unpleasant and menial work, and it needs to be structured to involve some of the leadership and architectural tasks necessary for the person completing it to actually deserve the promised promotion. It’s not “we’ll promote you because you did something grungy” but “if you can get together a team to do this, you’ll all get big bonuses, and you’ll get a promotion for leading it.” Management also needs to have technical insight on hand in order to do this: rather than doing grunt work as a recurring cost, kill it forever with automation.

An important notion in all this is that of a committed project. Effectively, this is what the executives should create if they spot a quantum of work that the business needs but that is difficult and does not seem to be enjoyable in the estimation of the engineers. These shouldn’t be created lightly. Substantial cash and stock bonuses (vested, over the expected duration of the project) and promotions are associated with completing these projects, and if more than 25% of the workload is committed projects, something’s being done wrong. A committed project offers high visibility (it’s damn important; we need this thing) and graduation into a leadership role. No one is “assigned” to a committed project. People “step up” and work on them because of the rewards. If you agree to work on a committed project, you’re expected to make a good-faith effort to see it through for an agreed-upon period of time (typically, a year). You do it no matter how bad it gets (unless you’re incapable) because that’s what leadership is. You should not “flake out” because you get bored. Your reputation is on the line.

Companies often delegate the important but undesirable work in an awkward way. The manager gets a certain credibility for taking on a grungy project, because he’s usually at a level where he has basic autonomy over his work and what kinds of projects he manages. If he can motivate a team to accomplish it, he gets a lot of credit for taking on the gnarly task. The workers, under closed allocation, get zilch. They were just doing their jobs. The consequence of this is that a lot of bodies end up buried by people who are showing just enough presence to remain in good standing, but putting the bulk of their effort into moving to something better. Usually, it’s new hires without leverage who get staffed on these bad projects.

I’d take a different approach to committed projects. Working on one requires (as the name implies) commitment. You shouldn’t flake out because something more attractive comes along. So only people who’ve proven themselves solid and reliable should be working on (much less leading) them. To work on one (beyond a 20%-time basis) you have to have been at the company for at least a year, senior enough for the leadership to believe that you have the ability to deliver, and in strong standing at the company. Unless hired at senior roles, I’d never let a junior hire take on a committed project unless it was absolutely required– too much risk.

How do you fire people? When I was in school, I enjoyed designing and playing with role-playing systems. Modeling a fantasy world is a lot of fun. Once I developed an elaborate health mechanic that differentiated fatigue, injury, pain, blood loss, and “magic fatigue” (which affected magic users) and aggregated them (determining attribute reductions and eventual incapacitation) in what I considered to be a novel way. One small detail I didn’t include was death, so the first question I got was, “How do you die?” Of course, blood loss and injuries could do it. In a no-magic, medieval world, loss of the head is an incapacitating and irreversible injury, and exsanguination is likewise. However, in a high-magic world, “death” is reversible. Getting roasted, eaten and digested by a dragon might be reversible. But there has to be a possibility (though it doesn’t require a dedicated game mechanic) for a character to actually die in the permanent, create-a-new-character sense of the word. Otherwise there’s no sense of risk in the game: it’s just rolling dice to see how fast you level up. My answer was to leave that decision to the GM. In horror campaigns, senseless death (and better yet, senseless insanity) is part of the environment. It’s a world in which everything is trying to kill you and random shit can end your quest. But in high-fantasy campaigns with magic and cinematic storylines, I’m averse to characters being “killed by the dice”. If the character is at the end of his story arc, or does something inane like putting his head in a dragon’s mouth because he’s level 27 and “can’t be killed”, then he dies for real. Not “0 hit points”, but the end of his earthly existence. But he shouldn’t die because the player is hapless enough to roll 4 “1″s in a row on a d10. Shit happens.

The major problem with “rank and yank” (stack-ranking with enforced culling rates) and especially closed allocation is that a lot of potentially great employees are killed by the dice. It becomes part of the rhythm of the company for good people to get inappropriate projects or unfair reviews, blow up mailing lists or otherwise damage morale when it pisses them off, then get fired or quit in a huff. Yawn… another one did that this week. As I alluded in my Valve essay, this is the Welch Effect: the ones who get fired under rank-and-yank policies are rarely low performers, but junior members of macroscopically underperforming teams (who rarely have anything to do with this underperformance). The only way to enforce closed allocation is to fire people who fail to conform to it, but this also means culling the unlucky whose low impact (for which they may not be at fault) appears like malicious noncompliance.

Make no mistake: closed allocation is as much about firing people as guns are about killing people. If people aren’t getting fired, many will work on what they want to anyway (ignoring their main projects) and closed allocation has no teeth. In closed allocation shops, firings become a way for the company to clean up its messes. “We screwed this guy over by putting him on the wrong project; let’s get rid of him before he pisses all over morale.” Firings and pseudo-firings (“performance improvement plans” and transfer blocks and intentional dead-end allocations) become common enough that they’re hard to ignore. People see them, and that they sometimes happen to good people. And they scare people, especially because the default in non-financial tech companies is to fire quickly (“fail fast”) and without severance. It’s a really bad arrangement.

Do open-allocation shops have to fire people? The answer is an obvious “yes”, but it should be damn rare. The general rule of good firing is: mentor subtracters, fire dividers. Subtracters are good-faith employees who aren’t pulling their weight. They try, but they’re not focused or skilled enough to produce work that would justify keeping them on the payroll. Yet. Most employees start as subtractors, and the amount of time it takes to become an adder varies. Most companies try to set guidelines for how long an employee is allowed to take to become an adder (usually about 6 months). I’d advise against setting a firm timeframe, because what’s important is now how fast a person has learned (she might have had a rocky start) but how fast, and more importantly how well, she can learn.

Subtracters are, except in an acute cash crisis when they must be laid off for business reasons, harmless. They contribute microscopically to the burn rate, but they’re usually producing some useful work, and getting better. They’ll be adders and multipliers soon. Dividers are the people who make whole teams (or possibly the whole company) less productive. Unethical people are dividers, but so are people whose work is of so low quality that messes are created for others, and people whose outsized egos produce conflicts. Long-term (18+ months) subtractors become “passive” dividers because of their morale effects, and have to be fired for the same reason. Dividers smash morale, and they’re severe culture threats. No matter how rich your company is and how badly you may want not to fire people, you have to get rid of dividers if they don’t reform immediately. Dividers ratchet up their toxicity until they are capable of taking down an entire company. Firing can be difficult because many dividers shine as individual contributors (“rock stars”) but taketh away in their effects on morale, but there’s no other option.

My philosophy of firing is that the decision should be made rarely, swiftly, for objective reasons, and with a severance package sufficient to cover the job search (unless the person did something illegal or formally unethical) that includes non-disclosure, non-litigation and non-disparagement. This isn’t about “rewarding failure”. It’s about limiting risk. When you draft “performance improvement plans” to justify termination without severance, you’re externalizing the cost to people who have to work with a divider who’s only going to get worse post-PIP. Companies escort fired employees out of the building, which is a harsh but necessary risk-limiting measure; but it’s insane to leave a PIP’d employee in access for two months. Moreover, when you cold-fire someone, you’re inviting disparagement, gossip, and lawsuits. Just pay the guy to go away. It’s the cheapest and lowest-variance option. Three months of severance and you never see the guy again. Good. Six months and you he speaks highly of you and your company: he had a rocky time, you took care of him, and he’s (probably) better-off now. (If you’re tight on money, which most startups are, stay closer to the 3-month mark. You need to keep expenses low more than you need fired employees to be your evangelists. If you’re really tight, replace the severance with a “gardening leave” package that continues his pay only until he starts his next job.)

If you don’t fire dividers, you end up with something that looks a lot like closed allocation. Dividers can be managers (a manager can only be a multiplier or divider, and in my experience, at least half are dividers) or subordinates, but dividers tend to intimidate. Subordinate passive dividers intimidate through non-compliance (they won’t get anything done) while active dividers either use interpersonal aggression or sabotage to threaten or upset people (often for no personal gain). Managerial (or proto-managerial) dividers tend to threaten career adversity (including bad reviews, negative gossip, and termination) in order to force people to put the manager’s career goals above their own. They can’t motivate through leadership, so they do it using intimidation and (if available) authority, and they draw people into captivity to get done the work they want, without paying for it on a fair market (i.e. providing an incentive to do the otherwise undesirable work). At this point, what you have is a closed-allocation company. What this means is that open allocation has to be protected: you do it by firing the threats.

If I were running a company, I think I’d have a 70% first-year “firing” (by which I mean removal from management; I’d allow lateral moves into IC roles for those who desired to do so) rate for titled managers. By “titled manager”, I mean someone with the authority and obligation to participate in dispute resolution, terminations and promotions, and packaging committed projects. Technical leadership opportunities would be available to anyone who could convince people to follow them, but to be a titled people manager you’d have to pass a high bar. (You’d have to be as good at it as I would be, and for 70 to 80 percent of the managers I’ve observed, I’d do a better job.) This high attrition rate would be offset by a few cultural factors and benefits. First, “failing” in the management course wouldn’t be stigmatized because it would be well-understood that most people either end it voluntarily, or aren’t asked to continue. People would be congratulated for trying out, and they’d still be just as eligible to lead projects– if they could convince others to follow. Second, those who aspired specifically to people-management and weren’t selected would be entitled (unless fully terminated for doing something unethical or damaging) to a six-month leave period in which they’d be permitted to represent themselves as employed. That’s what B+ and A- managers would get– the right to remain as individual contributors (at the same rank and pay) and, if they didn’t want that, a severance offer along with a strong reference if they wished to pursue people management in other companies– but not at this one.

Are there benefits to closed allocation? I can answer this with strong confidence. No, not in typical technology companies. None exist. The work that people are “forced” to do is of such low quality that, on balance, I’d say it provides zero expectancy. In commodity labor, poorly motivated employees are about half as productive as average ones, and the best are about twice as productive. Intimidating the degenerate slackers into bringing themselves up to 0.5x from zero makes sense. In white-collar work and especially in technology, those numbers seem to be closer to -5 and +20, not 0.5 and 2.

You need closed (or at least controlled) allocation over engineers if there is material proprietary information where even superficial details would represent, if divulged, an unacceptable breach: millions of dollars lost, company under existential threat, classified information leaked. You impose a “need-to-know” system over everything sensitive. However, this most often requires keeping untrusted, or just too many people, out of certain projects (which would be designated as committed projects under open allocation). It doesn’t require keeping people stuck on specific work. Full-on closed allocation is only necessary when there are regulatory requirements that demand it (in some financial cases) or extremely sensitive proprietary secrets involved in most of the work– and comments in public-domain algorithms don’t count (statistical arbitrage strategies do).

What does this mean? Fundamentally, this issue comes down to a simple rule: treat employees like adults, and that’s what they’ll be. Investment banks and hedge funds can’t implement total open allocation, so they make up the difference through high compensation (often at unambiguously adult levels) and prestige (which enables lateral promotions for those who don’t move up quickly). On the other hand, if you’re a tiny startup with 30-year-old executives, you can’t afford banking bonuses, and you don’t have the revolving door into $400k private equity and hedge fund positions that the top banks do, so employee autonomy (open allocation) is the only way for you to do it. If you want adults to work for you, you have to offer autonomy at a level currently considered (even in startups) to be extreme.

If you’re an engineer, you should keep an eye out for open-allocation companies, which will become more numerous as the Valve model proves itself repeatedly and all over the place (it will, because the alternative is a ridiculous and proven failure). Getting good work will improve your skills and, in the long run, your career. So work for open-allocation shops if you can. Or, you can work in a traditional closed-allocation company and hope you get (and continue to get) handed good projects. That means you work for (effectively, if not actually) a bank or a hedge fund, and that’s fine, but you should expect to be compensated accordingly for the reduction in autonomy. If you work for a closed-allocation ad exchange, you’re a hedge-fund trader and you deserve to be paid like one.

If you’re a technology executive, you need to seriously consider open allocation. You owe it to your employees to treat them like adults, and you’ll be pleasantly surprised to find that that’s what they become. You also owe it to your managers to free them from the administrative shit-work (headcount fights, PIPs and terminations) that closed allocation generates. Finally, you owe it to yourself; treat yourself to a company whose culture is actually worth caring about.

“Fail fast” is not an excuse for being a moron, a flake, or a scumbag.

I wrote before on technology’s ethical crisis, a behavioral devolution that’s left me rather disgusted with the society and culture of venture-funded technology startups, also known as “VC-istan”. There are a lot of problems with the venture-funded technology industry, and I only covered a few of them in that post. Barely addressed was that so much of what we do is socially worthless bubble bullshit, like Zynga– which, in my mind, only proves that a company can be taken seriously even when its name sounds like 4th-grade anatomical slang. Most of us in venture-funded technology are merely bankers, except for the distinction that we buy and sell internet ads instead of securities. This world of crappy imitations and bad ideas exists because there’s a class of entrepreneurs (who are well-liked by venture capitalists) who’ve become convinced that “the idea doesn’t matter”. That’s ridiculous! It’s good to pivot, and sometimes one has to change or abandon an idea to survive, but ideas and purposes do matter. When this fast-and-loose attitude is taken toward ideas, the result is that stupid ideas get lots of funding. That’s unpleasant to look at, but it doesn’t have the moral weight of some of VC-istan’s deeper problems, which I’ve already addressed. To pore into those, I think we have to look at a two-word good idea taken too far, and in horribly wrong directions: fail fast.

As a systems engineering term, “fail-fast” is the principle that a failing component should report failure, and stop operation, immediately, rather than attempting to continue in spite of its malfunction. The diametric opposite of this is “silent failure”, which is almost always undesirable. In software engineering, it’s generally understood that an average runtime bug is 10 times as costly as one found in the compilation process, and that a “do-the-wrong-thing” silent bug can be 10 to 1000 times more costly than one that throws a visible error at runtime. In software engineering, redundant systems are usually preferable because components can fail (and they will, for causes ranging from programming errors to hardware defects to data corruption caused by cosmic rays) without bringing the whole system down and, in these, for dysfunctional components to halt fast is usually a desirable behavior.

In the systems case, it’s important to look at what “fail” and “fast” mean. Fail means to stop operation once there is a detected possibility of erroneous behavior. Fast means to report the failure as soon as possible. Whether it’s a bug in software or a defect in a manufacturing process, it’s always astronomically cheaper to fix it earlier rather than later. The idea isn’t to glorify failure. It’s an acknowledgment that failure happens, and it’s a strategy for addressing it. Fail fast doesn’t mean “make things unreliable”. It means “be prepared for unexpected wrongness, and ready to fix it immediately”.

In VC-istan, “fail fast” is an attitude taken toward business, in which failure becomes almost a badge of honor. I believe this is intended as an antidote for the far more typical and pernicious attitude toward business failure, which is to personalize and stigmatize it, as seen in “middle America” and most of Europe. I’ll agree that I prefer the fail-fast attitude over the paralyzing risk aversion of most of the world. The reason Silicon Valley is able to generate technological innovation at a rate faster than any other place is this lack of stigma against good-faith failure. On the other hand, I find the cavalier attitude toward failure to often veer into frank irresponsibility, and that’s what I want to address.

The typical VC startup founder is rich. Without inherited connections, it takes about twelve months worth of work without a salary to produce something that VCs will even look at. (With such connections, VC mentoring comes immediately and a fundable product can be built within about half that time.) Even for the rich and well-connected, it’s dicey. VC acceptance rates are typically below 1 percent, so a lot of good ideas are being rejected, even coming from well-positioned people. Raising money is always hard, but for people who aren’t wealthy, the risk is generally intolerable: twelve months without salary and a high likelihood that it will amount to zilch. Why’s this relevant? Because rich people can afford a cavalier attitude toward failure. Losing a job just means moving vacations around. If one company dies, another can be built.

In an ideal world, everyone would be rich, by which I mean that material limits wouldn’t dominate peoples’ lives and their work in the way they do now. This would be a world of such abundance as to implicitly provide the safety associated with socialism, without the drawbacks, and in which poverty would be eliminated as thoroughly as smallpox. I believe humanity will reach a state like this, but probably not until the end of my lifetime, if not some time after I’m dead. In this “post-scarcity” world, libertarian capitalism would actually be a great system (and so it’s easy to see why out-of-touch rich people like it so much). Business failure would just be the impersonal death of bad ideas, resources would quickly be allocated to the good ones, and people would rise into and fall out of leadership positions as appropriate but could gracefully decline when not needed, rather than having to fire their help, pull their kids out of college, or move halfway across the country when this happens. If everyone were rich, libertarian capitalism would be a wonderful economic system. However, we don’t live in an ideal world. We have to make do with what we have.

In the real world, failure hurts people, and most of those people aren’t 23-year-olds with $5-million trust funds. Investors (not all of whom are rich) lose large amounts of money, and employees get fired, often without notice or severance. Careers of innocent people can be damaged. This doesn’t mean that failure is morally unacceptable. Good-faith failure must be accepted, because if failure leads to broad-based social rejection, you end up with a society where no one takes real risk and no advancement occurs. This isn’t an abstract danger. It’s something that most people see every single fucking day in the typical corporate workplace: a bland, risk-intolerant environment where people are so afraid of social rejection that people torture themselves in order to seem busy and important, but no one is taking creative risks, and real work isn’t getting done. So my attitude toward those who take risk and fail in good faith is one of empathy and, sometimes, admiration. I’ve been there. It happens to almost everyone who wants to accomplish something in this world.

My issue with “fail fast”, and the more general cavalier attitude toward business failure observed in VC-istan, is that people who espouse this mantra generally step outside the bounds of good-faith failure, responsible risk-taking, and ethical behavior. When you take millions of dollars of someone else’s money, you should try really fucking hard not to fail. It’s a basic ethical responsibility not to let others depend on you unless you will do your best not to let them down. You should put your all into the fight. If you give it your best and don’t make it, you’ve learned a lot on someone else’s dime. That’s fine. The problem with “fail fast” is that it sounds to me a lot like “give up early, when shit gets hard”. People with that attitude will never achieve anything.

Usually, the worst “fail fast” ethical transgressions are against employees rather than investors. Investors have rights. Dilute their equity in an unfair way, and a lawsuit ensues. Throw the business away recklessly, and end up in court– possibly in jail. One can’t easily fire an investor either; at the least, one has to give the money back. On the other hand, a remnant of the flat-out elitist, aristocratic mindset that we have to kill the shit out of every couple hundred years (cf. French Revolution) is the concept that investors, socially speaking, deserve to outrank employees. This is absurd and disgusting because employees are the most important actual investors, by far, in a technology company. Money investors are just putting in funds (and, in the case of VC, money that belongs to other people). They deserve basic respect of their interests for this, but it shouldn’t qualify them (as it does) to make most of the important decisions. Employees, for contrast, are investing their time, careers, creative energy, and raw effort, often for pay that is a small fraction of the value they add. Morally speaking, it means they’re putting a lot more into the venture.

I’ve seen too many sociopaths using “fail fast” rhetoric to justify their irresponsible risk-taking. One example of a fail-fast acolyte is someone in his mid-20s whom I once saw manage the technical organization of an important company. I won’t get into too many details, but it’s an ongoing and catastrophic failure, and although it’s evident to me at least (because I’ve seen this shit before) that he is personally headed toward disaster, it’s not clear whether the company will follow him down the drain. (That company is in serious danger of failing an important deliverable because of decisions he made.) I hope it doesn’t. First, he took a scorched earth policy toward the existing code, which was written under tight deadline pressure. (Despite this twerp’s claims to the contrary about the “old team”, the engineers who wrote it were excellent, and the code quality problems were a direct result of the deadline pressure.) I don’t consider that decision an unusual moral failure on his part. Give a 25-year-old programmer the authority to burn a bunch of difficult legacy code and he usually will. At that age, I probably would have done so as well. That’s one very good reason not to give snot-nosed kids the reins to important companies without close supervision. I remember being 18 and thinking I knew everything. A decade later… turns out I really didn’t. Taken too far, the “fail fast” mentality appeals to impulsive young males who enjoy waving a gun around and shooting at things they can’t see and don’t understand.

My second encounter with this person’s “fail fast” sociopathy was in a discussion of hiring strategy, in which he discussed building “30/60/90 plans” for new hires, which would entail milestones that new employees would be expected to meet. As a way of setting guidelines, this is not a bad idea. Technology workplaces are a bit too dynamic for people to actually know what a person’s priorities should be three months in advance, but it’s always good to have a default plan and baseline expectations. New hires typically come on board, in a chaotic environment, not knowing what’s expected or how to “on-board”, and a bit of structure is a useful. This little sociopath wanted to take things a bit further. He thought it would be a good idea to fire people immediately if they missed the targets. New hire takes 35 days to meet the 30-day goal? Gone, after one month. No chance to move to another part of the organization, no opportunity to improve, no notice, no severance, and it’s all made “fair” by putting all new hires on a PIP from the outset. I’m pretty sure, I’ll note, that this young twerp has never been fired himself– and my money’s on him being three to 12 months away from his first experience with it, depending on how fast he can learn that primary executive skill of shifting blame, and how long he can run it. These sorts of terrible ideas emerge when people are permitted to take irresponsible risks with others’ careers. Most of the damaging HR “innovations” companies invent (which become tomorrow’s morale-damaging bureaucratic cruft) occur not because they’re good ideas for the company, but because people within these companies want to propose wacky ideas that affect other people, in the hope that some “greater fool” in upper-management will see the half-baked concept as “visionary” and promote the person who invented it, regardless of the idea’s lack of merit. That’s how Google’s douche-tsunami (douchenami?) system of stack-ranking and “calibration scores”, for just one example, was born.

I don’t like people who are cavalier about failure when they haven’t been on the other side of it, either as an investor who lost a large sum of money, or as a laid-off or unjustly-fired employee. To put it plainly and simply: “failing fast” with other peoples’ risk is not courage. I say this as someone who has taken a lot of risks and failed a few times, who has always accepted the consequences of what he has started, and who has always done everything possible to make sure that anyone taking a risk with me knows what he or she is getting into.

I’m going to advise something altogether different from “fail fast”, because the term “fast” has chronological implications that I don’t find useful. Protracted failures driven by denial are bad, sure. I agree with that aspect of “fast”, but people should try to avoid failure if they can, rather than jumping immediately to declare defeat and move on to a sexier prospect. Fail safely or, at least, smartly. Know what the risks are, disclose them to those who are taking them, and be prepared to address failures that occur. There are cases where chronologically fast failure are appropriate, and there are times when it is not. Largely, the ethics of this come down to what risks the involved parties have agreed to take. People who invest in a startup accept the risk of losing the entire investment in a good-faith business failure, but they don’t accept the risk that the founder will just give up or do something overtly unethical with the money (bad-faith failure). Employees in startups accept the risk of losing their jobs immediately, without severance, if the company goes out of business; but if they’re misled about how much runway the company has, they’ve been wronged.

The ethics of “fail fast” depend largely on the explicit and implicit contracts surrounding failure: how failure is defined, and how it is to be handled. These are conversations people don’t like having, but they’re extremely important. Failures happen. Often these contracts are left implicit. For example, a person who joins a five-person company accepts that if he doesn’t fit well with the project (because a startup of that size only has one project) his employment must end. More on that, being a founder means that one will be (and should be) fired immediately if one doesn’t work well with the rest of the team, just as being a elected official means one accepts the risk of being fired for being unpopular. On the other hand, a person who joins a more stable, large company, does so with the expectation of risk mitigation. Specifically, people join large companies with the understanding that being a poor fit for one’s initial project doesn’t mean leaving the company. The additional robustness of career is a primary incentive for people to join huge companies. Therefore, large companies that impede internal mobility, usually under pretenses of false objectivity in the performance review process, are deeply unethical and their reputations should be tarnished gleefully and often, in order to prevent others in the future from being blown up by undisclosed risks.

The “fail fast” mantra implies that failure is hard, and that it takes a certain fortitude to look failure in the eye and accept the risk. Alone, that’s not hard. Lying down is easy. Quitting on someone else’s risk and dime is not hard. Letting people down is not hard. The hard part is communicating risks as they actually are to people before they get involved, finding people willing to take those risks, working as hard as possible not to let people down, and working even harder to help everyone recover from the loss should failure occur.