Problem
THE PUZZLING CLIMATE AT DIGITAL GAMING
Sitting at his desk, Bob Menendez is distraught over his current situation. Bob is the founder of a relatively young, small company called Digital Gaming (DG), which designs computer games. He has personally earned a lot of money and has a strong reputation in the electronic gaming industry for his vision and creativity. His computer games are routinely best sellers and rated among the top products in the industry, particularly for being lifelike, creative, and challenging. Recently, however, several industry analysts have noted that DG's games are not as creative as they once were and that occasionally the company's software contains glitches. Bob knows there is something true about these reviews. As an avid gamer himself, he sees that his products, although still high quality, have slipped a notch. Bob is equally concerned about the climate at DG. In the early years of the company's history, employees were highly engaged, full of energy, and completely committed to the company's success. Recently, however, Bob has noticed that some of the 100 programmers he employs seem distant and disengaged. Moreover, the turnover rate of his top programmers has more than tripled from its seven-year average of 10% to a point where DG continually has to hire new programmers. Interestingly, absenteeism and employee complaints are not a problem, and employees put in long hours.
Bob is confused: People are leaving his firm, but he doesn't really know why. As he tries to figure out what is causing the diminished product quality and increased turnover in his company, he wonders if how he is managing his employees is the problem. He goes out of his way to hire the best and brightest job candidates. He doesn't recruit at top-notch schools because, in his experience, many of the really gifted programmers do not bother with school. Instead, he focuses on referrals from current employees, word of mouth, and advertisements in the top trade outlets. Rather than give applicants a typical employment test or interview, he simply asks them to do some programming on a computer in order to showcase their creativity and skills. Bob usually hires people with potential right on the spot, and he provides them with very attractive signing bonuses.
Once hired, DG employees typically work long hours. However, they have a lot of control over how they work. DG has a very informal culture. Some people show up for work in shorts and T-shirts, and many people work odd hours. For example, some programmers work all night and take the afternoons off. Employees are also given liberal training budgets that they personally manage to help stay on the cutting edge of their business.
The pay package Bob offers is also fairly generous. Base pay for employees is roughly the market average, but they can earn considerably more based on the amount of programming code they complete each month. Employees' computers are monitored by electronic software, not necessarily to evaluate what they do while they work, but to track how much work they finish by the end of the week. Bob then divides a monthly bonus among the programmers based on the volume of code they have completed. Each employee can access the company's intranet to see the status of his or her volume relative to that of DG's other programmers. As shown in the table below, employees in the top 10% of volume of code receive 40% of the bonus pool - a disproportionate share of the rewards available to employees.
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Employee Ranking on Performance Curve
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Percentage of Bonus Pool
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90th- 100th percentile
70th-90th percentile
40th-70th percentile
20th-40th percentile
0-20th percentile
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40%
30%
25%
5%
0%
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Bob evaluates an employee based on several key criteria: volume of completed work, ability to meet deadlines, and sales of the products he/she personally coded. Bob also considers how well each programmer complies with the stylistic preferences and unique formula that he developed for creating code when he founded the company. Although forcing programmers to stick to this protocol limits their creativity, Bob insists that the protocol is instrumental in producing successful programming games.
As Bob is thinking about the current climate at DG, his assistant interrupts to let him know that two more of his top programmers just submitted their letters of resignation. They are leaving to join a new startup firm that competes directly with DG.
Task
a) What do you think is the problem at DG?
b) Evaluate the DG's primary HR activities.
c) What changes to DG's HR activities would you advise Bob Menendez to make? Why?