Dalio believes the WHO is more important than the WHAT. Deciding what is to be worked on is less important than deciding who is responsible for deciding what to work on. Deciding what a job’s responsibilities are is less important than deciding who would be best at serving them.
The people are even more important than the culture, because the people shape the culture.
In several useful tactical chapters, Ray Dalio lays out his principles for people management. The major themes are:
Treating people like partners or extended family will make relationships more special than quid pro quo employment agreements. People struggle well together on a common mission, and they help each other evolve.
Expect your team to think like owners, and to behave accordingly.
Great relationships are built on common values and interests, having similar approaches to pursuing them, being reasonable and considerate with each other, and holding each other to high standards.
People who buy into the community provide it with a long-term skeletal strength. The stronger the community is, the more it protects against bad actors.
People in a community should be more considerate to others than what they demand for themselves. For example, if you are offended by how someone behaves, it is inconsiderate to ask them to stop exercising their rights for your sake.
Don’t be naive about how people behave. Most people will pretend to operate in your interest while operating in their own. Treasure honorable people who will treat you well even when you’re not looking.
Other tactics to build relationships:
Despite all the positives of culture, people need to get paid for their work, so how should you pay them? Dalio gives some advice:
The penalties for hiring wrong are huge. Years can pass when entertaining a bad hire. Many dollars can be spent in training and retraining. The graver hidden costs are a loss of morale among competent team members, and a sense of diminishing standards that will progressively cripple the company.
The importance of hiring is even greater when you choose people who operate at the highest levels, who are responsible for designing the machine and goals of the organization.
As with most things, Dalio recommends designing a great hiring machine that can systematically produce great hires.
Focus not just on what should be done—focus on who the right person for the job is.
Create a clear mental image of the values, abilities, and skills required for each person in the role to do their job well. Values, abilities, and skills are listed in order of importance.
Values are the fundamental beliefs that drive people’s behaviors. People with similar values get along; people with different values will fight constantly.
What is the difference between abilities and skills?
Once you have an idea of the criteria you’re looking for, create a spec sheet with the criteria that you are looking for.
Do NOT design jobs to fit certain people. You may have favorite candidates in your team and be tempted to fit the role for what they’re good at. This is counter-productive, since the best candidate may come from outside.
Most organizations hire by asking semi-random questions and then choosing based on how much the interviewer liked the person. This is prone to error and does not lead to systematic selection of strong team members.
To build a good interview process, think through what questions will be asked, and how different answers differentiate candidates of different qualities.
Save the answers that candidates give. Once the people you hire give you performance data, you can tell how predictive the questions are of certain behaviors.
Humans are subjective evaluators of other people. Design the process to minimize the bias:
Consider using personality assessments to know more about a candidate.
The difference between average people and outstanding people is big. If you’re not excited about a candidate, don’t hire them. Hold out for exceptional people.
Consider the applicant’s track record to see if they have demonstrated themselves to be extraordinary in some way. While brilliant people often make for great hires, experience and a great track record mean a lot. Malcolm Gladwell has a rule that it takes 10,000 hours to master something, and Dalio has found specialists who spent decades honing their craft.
Dalio likes people who ask great questions more than people who have great answers.
Don’t hire people just for the first job they’ll do; hire people you want to spend decades with.
Compensate in ways to cover both stability and opportunity. Pay enough so people aren’t stressed for money, but not enough that they become complacent. They shouldn’t come to you just for job security; they should be motivated to earn more money through good work.
Start with what a person of similar skills gets on the market. Don’t use job titles as the sole comparable.
Then build in incentives based on performance metrics so they’re motivated to outperform.
Pay north of fair. Dalio thinks the best negotiations are those in which both parties argue that the other should take more.
Whenever you’re ready to make an offer, think one last time about what important things can go wrong and how you can raise your probability of being right.
Managing people is a simple series of steps:
The ultimate responsible party is the person who bears the consequences of failure. If you’re the business owner, that is you. For example, it’s your responsibility to pick the right doctor, since you bear the responsibility if she does a bad job, not the doctor’s.
Here are Dalio’s principles on how to train new people, evaluate how people are doing, and how to decide what to do with people based on how they’re doing.
Generally, it takes 6-12 months to get to know an employee’s strengths and weaknesses and their preferences for work. It shouldn’t take longer than this to know whether someone is a good fit for their job.
This should be an iterative process. As you learn more about the trainee, she should get new assignments tailored to her strengths and weaknesses and her preferences.
When evaluating the trainee, it’s best to have at least two believable trainers triangulate their view on the trainee.
Resist micromanaging the trainee, or any employee in general. Don’t tell people what they should do—if you feel this is needed, it probably means the person being micromanaged lacks ability. Train and test them, then explore how they make decisions.
Feedback is a constant process, done throughout training and beyond. It’s a key part of radical honesty, but feedback can often be painful.
Start from specific data points, look for patterns, then build up to a larger picture.
When giving feedback, ask people to focus on whether the feedback is true, rather than the implications of that feedback (such as whether they’ll be demoted). Ask, “does this feedback sound accurate to you?” Use this to learn about them and discover root causes together.
Reflect what is succeeding and not in proportion to the actual situation.
Feedback can hurt. Remind the person receiving feedback that accuracy and kindness are the same thing. Feedback is a gift that gives the recipient the power to be successful.
Make a clear “contract” on what the expectation of work is. Without this, you can’t hold people accountable for it not being fulfilled.
Make your metrics clear-cut and impartial. Define the most critical metrics, and have discipline in checking them regularly.
Take data points over time to notice patterns in people. Built from the specific data—their metrics, performance, input from others—up to an overall impression.
Evaluate employees with the same rigor as you do job candidates. Don’t be easy on people just because they’re not outsiders.
Hold people to the same standards, and provide feedback consistent with the standards.
Assign credit precisely. Specific people are responsible for specific results.
Dalio likes “forced rankings,” in which people rank their co-workers from best to worst. This prevents an assessment of everyone as above average, and it helps identify low performers.
Don’t be overconfident about your assessments. Use other people to develop your assessment.
Judge people based on both their reasoning and their outcomes. Often, the outcomes are out of their control, and if the person had sound reasoning, they should not be punished for a poor outcome.
Periodic performance reviews should contain few surprises—feedback should have been delivered continuously so that people know where they stand.
Check behavior, and deter bad behavior. More people than you think will cheat if given the opportunity.
Based on people’s performance, you will need to figure out what to do with them.
Some people are just not suited for the jobs they were hired for. Keeping them in those jobs is toxic to the entire system. It compromises the meritocracy and lowers morale. It also holds back the person’s personal evolution, because it prevents them from discovering another way they can contribute, in your organization or another.
Diagnose the failure to get at the root cause. It can be due to design problems in the machine (such as giving someone too many responsibilities), lack of ability, or lack of training.
If the problem is a lack of values or abilities, don’t rehabilitate them. Rehabilitation involves changing people’s values or abilities. Again, these don’t change much. It’s best to assume their values and abilities are what they are, unless there is good evidence to the contrary.
Figure out whether the person is a better fit for another job in the organization. But be careful—understand why they failed, and why this won’t happen again in the new job.
Add guard-rails to a person when needed. Guardrails are structures that help people stay on course; a good guardrail can be a team member whose strengths compensate for the person’s weaknesses. But caution against using guardrails to help failing people reach the bar; it may be better to focus on making good people better.
If the person is failing in a role they were promoted to, beware of letting people step back into their previous role.
It’s hard to fire people you like and care about, but it’s necessary for the good of the organization.
Great people with great values and capabilities are rare. Think about how to keep great people. Encourage them to speak up about how things are going.