In early February, AOL announced a change to its retirement plan that touched off a media storm. Instead of contributing 401(k) benefits at each pay period, Chief Executive Officer Tim Armstrong decided AOL would pay a lump sum at the end of the year. He cited rising health-care costs, including the tab of treating two workers’ “distressed babies,” as the rationale for his decision.
The uproar caused Armstrong to apologize and reverse course. Even so, the logic behind his proposed change to AOL’s retirement program is worth a look. The move would have saved the company a significant amount of money. It would have also cost employees a lot: Any who quit before Dec. 31 would lose out on company retirement contributions for the year.
Today, this is a typical approach to job retention: Give employees the incentive of a financial carrot that gets bigger and bigger the longer they stay at the company. While this is supposed to ensure loyalty and high performance, it’s effective only in certain conditions.
There are other ways to create a loyal and productive workforce. Rather than offer pure financial rewards, many industries use increased job security, such as tenure, as a management tool. Tenure has been an integral part of academia, medicine, and strongly unionized industries for decades. In theory, it furthers the goal of a cohesive, productive workforce by promoting experimentation and reducing stress.
If you don’t need to worry about getting fired, the theory goes, you can try new techniques—even if they fail—and work smarter, rather than harder. Unfortunately, theory and practice don’t always coincide.
Speaking with an executive at a major company that has a largely tenured workforce, I got a fascinating look at the effects of the tenure system. In his company, employees receive tenure after a few years on the job. While they work toward tenure, productivity climbs rapidly, only to nosedive permanently immediately after they get it. Here’s a representative graph of this phenomenon:
Clearly, we want people to feel secure, but we don’t want them to feel so secure that they blow off work every day to go golfing. We also want a gradation so that, at some point, employees can achieve iron-clad job security after proving they’re the best of the best.
What organization offers the most effective model? Believe or not, it’s sumo, the 300-year-old sport and bastion of Japanese cultural tradition. For the uninitiated, sumo is a wrestling sport in which the goal is to knock down or push a rival wrestler out of the ring.
Sumo officialdom relies on a rigid hierarchical ranking system for the hundreds of professional sumo wrestlers. The only way to climb the rankings is to win more matches than you lose (kachi-koshi). Even if you win all your matches in one of six yearly tournaments, it takes years to reach the highest ranked (and televised) makuuchi division.
The makuuchi division is broken into two classes of wrestlers: maegashira (the lower ranks) and sanyaku (the higher, “titled” ranks). Maegashira wrestlers are ranked from 16 to 1. Apart from the potential for promotion to a higher rank, there is no difference in the incentives offered by the Japanese Sumo Association. Once you make it to the sanyaku ranks, however, things become more interesting.
Every wrestler who reaches the sanyaku ranks obtains shares in the Japanese Sumo Association. The longer they remain and the higher their rank, the more shares they receive. There are four sanyaku ranks in all: komusubi, sekiwake, ozeki, and yokozuna, listed in ascending order. Even if you later lose your rank and choose to retire, you are forever known by the highest rank you have attained.
Sekiwake is the highest rank you can achieve simply by continuously racking up kachi-koshis. It is also a rank you can lose quickly if you have a poor showing in a tournament. To become an ozeki, a committee must appoint you. There’s no set criterion for promotion, but if you’re a komusubi or sekiwake who wins a tournament or has a number of consecutive impressive showings, you are ordinarily promoted.
In addition to a higher salary, rank, and additional shares, ozekis have some amount of job security. As long as they don’t have back to back losing records in tournaments, they can never lose the ozeki title. Even if they do manage to have losing records twice in a row, they automatically win back ozeki status by mustering 10 wins out of 15 matches in the next tournament.
Naturally, promotion to yokozuna is even more difficult. You must be an ozeki who typically has won two tournaments back-to-back or won one tournament and scored an extremely impressive showing in a second. In its history, sumo records only 70 yokozuna. These wrestlers garner even more impressive salaries (somewhere in the neighborhood of $1 million annually), more shares, and ironclad job security. Even with many consecutive poor showings, the yokozuna cannot be demoted. Once they seem to face the downside of their careers, yokozunas are pressured to retire.
Circling back to places whose workers don’t wear stylized, chunky g-strings, we have only two levels of job security: maegashira (most companies) and yokozuna (universities). Increasingly, organizations are turning away from tenured positions—in effect, going “full maegashira.” They see the problems with performance drop-offs and reduced engagement and opt to avoid any system that remotely resembles tenure.
Still, job security is important. Its original purpose—to promote experimentation and reduced stress—is increasingly critical. Average company tenure is decreasing quickly, and the only way for organizations to compete is to engender the same levels of trust in their workforce that they hope to create in their customers. Job security systems are a great way to accomplish that.
Honed over centuries, the sumo model is more forward-thinking than most corporate human resources departments. I personally think people would flock to a company that offered them the opportunity to become a yokozuna—as long as they needn’t weigh 300 pounds.