Stick and Carrot

Few would dispute that Welch was seen as a demanding executive who aroused a mixture of awe and fear. Aware of the daunting effect he can have on people, Welch worked hard to counter that image. Not long ago, recalled human relations chief William J. Conaty, one manager who had to make a presentation before Welch was so apprehensive he was shaking. It was the first time he had met Welch, who was passing through St. Louis. «I’m so nervous,» the manager confessed to Welch. «And my wife has told me she’ll throw me out of the house if I can’t get through this presentation.»

At day’s end, when Welch was back on the corporate plane, he immediately arranged for a dozen roses and a bottle of Dom Perignon to be delivered to the man’s home. He then wrote a note to the wife: «Your husband did a fantastic job today. We’re sorry we put him and you through this for a couple of weeks.»

Welch set precise performance targets and monitored them throughout the year. And each of Welch’s direct reports received from Welch handwritten, two-page job evaluation at the end of every year. Attached to the detailed notes were his jottings from a year earlier, with new comments written in red pencil: «Nice job.» «Still needs work.»

Every bonus, and every stock-option grant to Welch’s 20 or so direct reports came with a candid talk about performance. «There are carrots and sticks here, and he is extraordinarily good at applying both,» said a senior VP. «When he hands you a bonus or a stock option, he lets you know exactly what he wants in the coming year.»

Welch skillfully used rewards to drive behavior. Welch demanded that the rewards a leader disbursed to people be highly differentiated. Although GE set an overall 4% salary increase as a target in 1998, base salaries could rise by as much as 25% in a year without a promotion. Cash bonuses could increase as much as 150% in a year. Stock options, once reserved for the most senior officers at GE, have been broadly expanded under Welch. Now, some 27,000 employees get them, nearly a third of GE’s professional employees. Unlike many companies that hand out options as automatic annual grants, Welch did not want GE’s program to be perceived as a «dental plan.» So everyone who received options didn’t get them every year.

Welch has been a major beneficiary of stock options. Yet few things energized Welch as much as reviewing a list of GE employees who cash in their rewards. Combing through the names, Welch could hardly contain his enthusiasm – for the wealth he has put into the hands of people whose names were unfamiliar to him. In the first quarter of 1998 alone, some 3,900 employees exercised 8.7 million options with a net value of $520 million. «It means that everyone is getting the rewards, not just a few of us,» he said. «That’s a big deal. We’re changing their game and their lives».

While analysts on Wall Street or GE’s own investors viewed Welch’s likely legacy as creating the world’s most valuable company in stock market terms, Welch himself saw things quite differently. The man who spent more than 50% of his time on people issues considered his greatest achievement the care and feeding of talent. «This place runs by its great people,» said Welch. «The biggest accomplishment I’ve had is to find great people. An army of them. They are all better than most CEOs.»

While many companies profess to run as meritocracies, in reality, they are often conscious of class. At GE many of the company’s most successful executives were, like Welch, the first in their families to earn college degrees. When it came time to pick a new CFO, for instance, Welch passed over several candidates in line for the job in favor of then 38-year-old Dennis Dammerman two layers down in the ranks because he was impressed with how he had handled other tough assignments.

In every potential leader, Welch was looking for what he called «E to the fourth power.» That was his term for people who have enormous personal energy, the ability to motivate and energize others, «edge» – the GE code word for being instinctively competitive – and the skill to execute on those attributes.

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On September 7, 2001, Jack Welch said goodbye to GE, and its people. He appointed Jeff Immelt to succeed him and set in place a staff that he believes will support his successor. The next chapter in GE’s history began.

Source: Business Week (online), June 8, 1998, abridged

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