A TRULY GREAT LEADER TELLS EMPLOYEES THE TRUTH.

Byline: BILL GATES 

Most people think of a great leader as someone who can give rousing speeches that fire up the troops. There's no question that the abilities to inspire and motivate are important. A leader needs both vision and the ability to communicate it.

But to be successful in the long term, a leader must be frank with employees about the challenges as well as the opportunities they face. Messages must be clear and unwavering or the leader loses credibility and thus the ability to lead.

Passionate leadership won't succeed if contradictory signals are sent. If you pump up your sales force at a meeting and tell them, ``The most important goal is to make customers happy,'' you can't go back the next day and say, ``Your quota just got doubled, so go out there and sell twice as much.''

If you send that kind of mixed message, your salespeople will know that all the talk about customer service is just talk, and the real priority is achieving the higher quota.

An effective leader also recognizes that a company's reward system must reinforce rather than undermine his message.

When I was preparing to take my company public, I arranged to distribute an unusually large share of ownership to employees. It was a way of letting them know how much their performance mattered.

Because messages must be honest, a leader shouldn't promise rewards that won't materialize or offer praise that isn't sincere. I'm extremely careful about what I promise employees, and I don't overdo praise because I want my compliments to be genuine and meaningful.

The flip side of rewarding performance is making sure that employees who don't contribute are carefully managed or reassigned. Employees need to see that their peers are carrying their weight, and an adjustment will be made if someone isn't.

Without appropriate changes, an inconsistent message is sent: ``Management says it wants top performance, but it will settle for less.''

Some leaders who are brilliant at motivating employees in the short run don't do well in the long run because they aren't entirely candid. A well-known industry leader coaxed almost superhuman effort out of employees for months by promising that their project would be a stupendous success. After the product was shipped, his team broke up in disillusionment when its members realized they couldn't sustain the pace and his promises of glory were overstated.

A few leaders do very well in both the short and long terms.

Eckhard Pfeiffer pulled off a masterpiece of leadership in the turnaround of Compaq Computer, beginning late in 1991. It took me by surprise because I didn't expect that Pfeiffer, who had just been promoted to CEO, could make such fundamental changes at his company so quickly.

Compaq was founded in 1983 by engineers who figured out how to clone the original IBM personal computer. The company achieved remarkable sales almost from the beginning and enhanced its reputation by beating IBM to market with the first PC built around the 386 chip.

Compaq made excellent high-end PCs at premium prices and enjoyed comfortable margins of about 40 percent.

But by 1991, Compaq was facing tough competition from smart companies such as Dell Computer, a mail-order retailer founded and run by Michael Dell, a savvy innovator whose company thrived on margins of only about 25 percent.

After Compaq suffered several quarters of losses and falling market share, its board of directors promoted Pfeiffer to president and CEO in October 1991 and told him to bring costs down dramatically. His job was to save the company by remaking it.

There were plenty of skeptics, but doubts didn't last long. Pfeiffer cut fat and jumped into the low-cost end of the PC market with an $899 entry-level machine. Revenues rose even as prices fell, and soon Compaq was thriving again - with margins of about 25 percent.

Pfeiffer took a long-term view. He ramped up research and development. He started running Compaq's manufacturing plants 24 hours a day, seven days a week, rather than at 40 percent capacity, as before.

Changing the course of a big company isn't easy because it requires effective persuasion. Pfeiffer once said that his main goal upon assuming control of Compaq was to communicate ``one clear, crisp message'' to his employees.

Pfeiffer, who had won respect at Compaq because of earlier success running its European operations, told his people that the company would go out of business if it didn't change radically. It was true and they believed him.

Compaq became a different kind of company, seemingly overnight. It remains a leading player in the computer market and is well positioned for the future.

The consistency and candor of Pfeiffer's leadership laid the foundation for Compaq's ongoing success.

It was an object lesson for others.

MEMO: Bill Gates, chairman and co-founder of Microsoft Corp., writes a syndicated column twice a month for the New York Times News Service. Questions may be sent to Gates by electronic mail. The address is askbillmicrosoft.com. Or write to him care of The New York Times Syndicate, 122 E. 42nd St., 14th Floor, New York, N.Y. 10168.