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This is the third and final part of Silvia’s blog series on leadership. Make sure you read part 1 If you Care about Business, you must Care about People first and part 2 Revise your Reward System! It might be putting your Company at High Stake
What distinguishes great leaders from the masses is that they build a culture that combines dopamine and serotonin. In other words, leaders combine the excitement, created by stimulating the reward (dopamine), with the meaning, satisfaction and pride that each employee gets when their contentment (serotonin) circuit is activated.
Serotonin is also a neurotransmitter, but instead of creating addictive, aggressive, and risky behaviors when over-stimulated, the serotine circuit makes people feel part of something meaningful, bigger than themselves. They feel satisfied and grateful.
To activate the contentment circuit, leaders need to put emphasis on demonstrating values over outputs, and they need to reward employees for acting on those values. In my last blog post, I discussed what happened when NASA didn’t listen to their engineers in 1986 (link). What would have happened if the Morton Thiokol employees would have been rewarded on doing the right thing to make sure their products contributed to the safety of the spaceship launch, instead of being rewarded and pressured to keep clients satisfied, no matter the cost? Although an aggressive reward system on outputs can benefit the short-term economic performance of a business, rewarding on values and creating the right culture helps companies outperform in the long run.
Costco and Walmart have very different leadership styles that cascade into their values and culture. Jim Sinegal, Costco’s founder says his mission is to keep their employees happy. Stakeholders satisfaction is a by-product of Costco’s focus on employees. He personally visits outlets to say hello to the workers. He also makes sure that employees are paid a fair wage and that everyone has health insurance. Costco pays their employees 65% more than Walmart, whose employees have been in the news a few times this year complaining about salaries and benefits. In 2008, when the recession was hitting hard, Costco avoided layoffs unlike most retailers. Jim Sinegal explained it himself in an interview with the Seattle Times:
“ We said … two things: No. 1, we want to drive our business to succeed, so we’re going to lower prices and try to drive more business into our buildings. And in addition, our employees … deserve our loyalty. They needed it just as much then as they ever did, or more. So we said, let’s see how we can get through this thing without having layoffs”
Costco employees generate 200% higher sales than Sam’s Club, Walmart’s wholesale branch. Costco’s employees’ very low rotation saves the wholesaler millions of dollars per year. Moreover, the way employees are trusted and treated makes Costco enjoy the lowest theft ratio in the whole industry.
What about the economic results. Costco’s shares grew 200% while Walmart’s grew 50% between 2003 and 2013. Recently Nasdaq wrote “shares of Costco have surged nearly 84% over the last five years, which tops the S&P 500’s roughly 73% climb. Investors should also note that Costco crushed Walmart’s 11% gains over this stretch”.
Walmart’s employees reward system is under-stimulated, with low salaries and benefits; while their stress system, the fear center, is on high alert due to a culture that emphasizes too much performance and a sense of urgency and immediate results or else. The words of Sam Walton, Walmart’s founder are a perfect example of the culture he created:
“There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.” – Sam Walton
Costco created a culture of contentment by putting values before outcomes. During the crisis, they could have made more money on the short term by making employees redundant, but instead they showed their loyalty to the employees by not adding additional worry.
Mastering the art and science of leadership is the solution to growth beyond success (dopamine). It is the way to ensure greater individual and company value (serotonin).