I had a colleague refer this article to me last week. It's a very interesting approach to giving additional "ownership", responsibility and accountability to your employees. Do you trust them? If not, why are they your employees?
Who's really effective at the office?
"To get a handle on that question, a handful of bosses are taking decision-making power out of the executive suite and asking employees to help identify—and reward—talent by experimenting with internal markets in which workers "invest" in co-workers' performance and ideas.
Coffee & Power, a San Francisco odd-jobs start-up, granted each of its 15 full- and part-time employees 1,200 stock options this past January, to distribute among co-workers in whatever way they chose. A worker can plunk all his options onto one colleague or split them among the group, so individual bonuses are tied to how co-workers perceive each other's work.
"It lets me reward people that management may not always recognize," says Becky Neil, who works in marketing and product management. "This person who has a big title—maybe he didn't actually contribute that much."
Exchanges like those at Coffee & Power make the labor market of an individual office fluid, crowd-sourced and open to constant feedback. Allowing employees to vote on one another's performances also holds workers accountable and raises the stakes for those who don't contribute, managers say. On the flip side, there is a chance these markets could devolve into popularity contests, or lead to hard feelings among those who aren't recognized by the group.
"Who knows better than employees themselves who the contributors are or [who is] the go-to person with a technical problem?" she says.
Philip Rosedale, an entrepreneur who co-founded Coffee & Power last year, developed the market-style bonus system, using both cash and stock options, at his previous firm, Linden Lab, creators of "Second Life," an online game. He says he wanted to let that company's 200 employees anonymously vote on who they found most effective, regardless of title or seniority.
At Coffee & Power, options vest immediately, but since the company is still private, they have only paper value—at least for now. Mr. Rosedale plans to repeat the experiment quarterly.
Some rules apply: Workers cannot reward themselves, nor can they give options to company founders, who already have sizable shares. (The money or shares allocated to employees each quarter varies depending on company performance.) Employees only know what bonuses they receive, but don't learn who allocated what. The company makes public a distribution curve of all the bonus grants, with no names attached, so workers can see what the highest and lowest bonuses were.
The largest bonus was 2,530 and smallest was 855 shares. The biggest surprise: the third-largest allocation went to the ninth-highest-paid person in the firm, a remote developer who handles small tasks and spends a lot of time helping others.
"Even with a really small team, I learned about a great person that I knew little about," Mr. Rosedale says. Since then, he says he's sent larger projects her way.
Waiting to see if others would recognize her was nerve-racking, says Ms. Neil, adding, "you don't always know what other people think of you." She declined to say how many options she received, but says she was "psyched to see [others] had the same opinion of me that I thought of myself."
Mr. Rosedale also has created a system, called SendLove, in which employees can send one-line notes of praise to their colleagues; feedback is made public on a scrolling feed at the office. Managers use those notes when compiling quarterly performance reviews, he says.
The system, developed internally at Linden Lab, has been adopted by online review site Yelp, event-planning site Eventbrite and digital-marketing agency Organic.
But not every company may be ready—or willing—to give workers such direct, public input. Linden Lab, for one, discontinued its bonus exchange after Mr. Rosedale left the company. (He remains chairman of their board.)
"You need management that is comfortable giving up some say, and let's face it, human nature isn't all programmed that way," says Ed Lawler, a management professor and director of the Center for Effective Organizations at the University of Southern California's Marshall School of Business.
At HCL Technologies, an India-based IT services firm with 88,000 workers, chief executive Vineet Nayar recently launched an experiment in which he gave a group of 100 employees 1,000 virtual currency units to use in an online exchange. Employees were instructed to spend the imaginary currency on the group members who they thought brought the most value to the company. (Each had to distribute the currency to at least two other people, or risk losing points from their own totals.)
The monthlong exchange resulted in a worker's-eye view of talent in the company, says Mr. Nayar, the author of "Employees First, Customers Second," a book about his firm's people-driven philosophy. The company published the results internally, but has so far used them only to recognize, not reward, staff.
While these internal markets are rare, a growing body of research suggests that giving employees a voice in decision-making, from performance assessment to idea generation, tends to result in higher employee satisfaction—even, in some cases, greater profitability and productivity, according to USC's Mr. Lawler.
Rite-Solutions, a Middletown, R.I., systems-engineering and software firm, has for several years used a mock exchange to give its 200 employees a voice in choosing projects and strategic initiatives, using its engineering talent to design an elaborate stock-market simulation game called "Mutual Fun."
In the online exchange, each employee receives 10,000 virtual dollars to invest in an online portfolio of ideas generated by employees. Each idea is referred to as a stock, and those mock securities are classified as "Savings Bonds," which focus on cost-cutting, "Bow Jones," which build on existing technologies, and "Spazdaq," which describes ideas using entirely new technology.
The value of the virtual portfolios fluctuates as employees comment, debate and try promising ideas. There are currently about 120 securities, or ideas, in the system.
Among the ideas that have become reality: A product that helps remotely track the safety of school buses, improvements to the internal phone system and cost-cutting measures, such as reducing the use of overnight delivery for packages.
Rite-Solutions now licenses Mutual Fun to about a half-dozen other companies and academic institutions.
"More and more companies are searching for better ways to harvest the organization's total intellectual bandwidth," says Jim Lavoie, the firm's chief executive."
—Nikki Waller contributed to this article.Write to Rachel Emma Silverman at [email protected]
A version of this article appeared April 4, 2012, on page B1 in the U.S. edition of The Wall Street Journal, with the headline: My Colleague, My Paymaster.