Mfs Anti Star Employee Performance System Case Study

The majority of financial service sector industry players embrace a highly competitive, compensation-driven culture in which there is an atmosphere of every person fighting for what is seen as a finite pie. However, the Massachusetts Financial Services (MFS) anti-star system, according to the case study “Massachusetts Financial Services” (Hall & Lim, 2004), was nothing like this traditional system. MFS prided itself on inventing the mutual fund. However, since creating what is now an industry standard financial product, the company was struggling to maintain motivation in its employees while using a very unique evaluation system to maintain a congenial team-based culture, rather than a competitive one.

In the 1987, when Jeffrey Shames took the company’s helm, a critical problem was that compensation was virtually level across the board, with only lower compensation for bottom-level performers. By not incentivizing top-level performers with higher compensation, MFS inevitably attracted less ambitious financial service sector employees. Although this did possibly contribute to a more collegial and team-oriented culture, it also may have discouraged more ambitious employees from joining MFS. On the other hand, some highly talented and competent people were attracted to MFS and its unique approach within in the industry.

One of the main reasons pay-driven employees leave the firm quickly is the fact they are in search of higher bonuses, while employees that want to work in a more pleasant atmosphere are more likely to stay at MFS. MFS, in other words, offers more intrinsic rewards than the typical firm in this industry sector. The firm rationalized that while it might be able to draw certain high-performers with a large paycheck, it would be just as easy to draw them away with a high paycheck.

Although compensation was still largely based upon performance, the amount of the end-of-the-year pie and performance assessment for portfolio managers was based upon subjective criteria to a significant degree, particularly upon willingness to collaborate with and mentor others, versus compete with others. Fund performance determined only 60% of competitive bonuses, versus subjective measurements like team and organizational contributions (Hall & Lim, 2004, p. 6). Fund managers also received equity in MFS and could only retain such equity so long as they worked at the company, again tying their personal futures to the future of the organization.

The bonus pool of equity and fixed income was based upon performance, and the subjective aspects of the feedback were based upon 360-degree feedback from everyone who interacted with the fund manager, although not every single evaluation was equally weighted (Hall & Lim, 2004, p. 7). On one hand, it could be argued that compared to the industry standard, this is a relatively weak pay-to-performance based upon data-driven aspects such as the profit generated by the fund. On the other hand, it could be argued that the thoroughness of this evaluation system is very strong in terms of pay-to-performance, it is just different aspects of employee performance that is being prioritized. Advocates of more traditional systems might counter that, even though the evaluations were conducted twice annually, the multiple sources of feedback, the opaqueness of the system, and the difficulty for employees to set goals to improve performance all weakened the pay-to-performance aspect.

Ideally, the types of behaviors the MFS system motivates are altruistic ones, encouraging the fund managers to be mindful of a strong financial performance, but also encouraging other team members (who will play a critical part in evaluating them) to excel. Critics, however, might counter that such a vague system does not really motivate any behaviors at all, beyond the 60% aspect of financial performance. A commonly-repeated cliché is what cannot be measured cannot be improved, and if the criteria by which managers are evaluated in terms of their commitment to the team and organization are overly vague, even talented and committed performers may feel frustrated by the indeterminate nature of the system

One challenge for the firm is to keep motivation high, even when there is little discrepancy between different high-performers’ compensation. Even if employees like the atmosphere of the firm, this can be frustrating. While they may be happy that low-performing years, financially speaking, can still ensure steady compensation if they show strong performance in other areas, during other years where members of other firms are profiting from more aggressive compensation systems, they may begin to look elsewhere. Although some employees did apparently change their behavior based upon feedback, many seemed to fall through cracks in the system, particularly if feedback was not concrete and did not offer specific meaningful steps to undertake change.

One way to make the system less opaque may be to more clearly define what is meant by a team player and one who motivates others. Subjectivity can result in excessive favoritism of certain employees and errors in judgement which can ultimately result in a lack of motivation. Asking assessors to rate specific behaviors and characteristics on a Likert scale, for example, can force those contributing to the assessment process to quantify their perceptions in a more meaningful fashion. Assessors could also be asked to back up their assessments with specific examples for every positive and negative characteristic they cited.