It’s all about the money. While the number one reason people leave companies is not money, a lot of dissatisfaction stems from money and the performance review process. It’s not about the dollar amount, though. It’s about not getting equitable rewards for equitable work. I’m not sure about your experiences, but my experience during annual review time was never pleasant. A general tension permeates the office as people wonder where they will fall in the performance rankings. Rumors about force-ranking employees and how the bonuses will be distributed prevail. And then once the reviews are delivered, commence walking on eggshells as people dance around the subject of whether they felt their ratings were fair. The impact of this is highest for top performers and high performing teams. Here are some human resource practices that contribute to disengagement of high performers:
There’s always a bottom performer. When I worked at Target, we were told that on every team there is always a bottom performer. And if you are forced to rank a team from best to worst, that’s true. It’s a very limited perspective, though, and what you do with that information can be detrimental to a team’s success. At Target every manager needed to be performance-managing their bottom performer through coaching and corrective action. This shortsightedness doesn’t take into account pockets of performers. High performers attract high performers, and low performers tend to congregate as well. The manager of Team A may have done an exceptional job building and mentoring the team and may have actually developed an entire team of high performers, whereas the manager of Team B may have done a poor job of development and has a team of mostly bottom performers. With the mentality there is a bottom performer on every team, the manager of high performing Team A has to performance-manage an individual who is out-performing the top person on Team B. Companies resort to this rule in an effort to make continuous improvement a focus. Three better solutions? First, allow managers to spend the majority of time with top performers. Performance-managing people out of a company is time-consuming and requires a lot of documentation and follow-up. Spending time with top performers and helping them get even better has a higher ROI. Second, focus on getting people into the right positions. Invest in understanding individuals’ strengths and ensure they are in positions that are leveraging those strengths. Finally, create a culture where bottom performers want to leave. There are different ways to do this, but one example is Nordstrom. Nordstrom expects its employees to have high standards for themselves and to hold each other to those standards.
The bell curve. Many medium to large companies use a bell curve to determine compensation. This means if you have a four-point scale, approximately 15% of the people would be your top performers, 34% would be your good performers, 34% would be your average performers, and 15% would be your bottom performers. From a macro perspective, at a company level, using standard deviation and bell curves can be highly accurate within medium to large companies, but as you move into the micro-level (departments or small companies), that isn’t the case. Companies tend to apply these distributions to individual departments, informing a manager of twenty people that only three people can be top performers, six to seven people must be classified as good, six to seven as average, and three must be bottom performers. As mentioned in the example above, rarely would this distribution be accurate when pushed down to smaller teams. Instead, compensation should be tied to metrics. The distribution should be weighted based on a department’s ability to attain its goals. Part of the hesitation about this is the idea that almost everyone in the company should get something. If a company feels that way, it should separate a “cost of living” increase and merit increases. If everyone is going to get an increase regardless of performance, assign a value and label it “cost of living.” Beyond that, all compensation should be based only on merit. These types of rewards increase employee engagement. The quickest way to kill employee engagement in a company is rewarding non-performance. Non-performers don’t change (because they got rewarded), and those who are performing are less inclined to do so (why do more if you can still get rewarded doing less?).
Move ’em up or out. Some companies have adopted the idea that you should always be moving up in the company, and if you aren’t, it’s time for you to leave. This does create constant bench strength and growth, but it doesn’t take into account the benefits of the strong contributor. Successful companies are made up of top performers and strong contributors. The top performers are continually pushing towards the top, while the strong contributors provide stability and some consistency within the company. Strong contributors make great trainers and gain depth of knowledge in their area of expertise. These people actually provide a platform for top performers to excel even further.
The most effective way to alleviate these challenges is to take the mystery away from the compensation process. A few trailblazing companies make compensation public within the company. You can know what your peers make and what raises are received (this can also be done in a way where individual names are not released, but all salaries are shared by position). It’s harder to hide unjustified merit increases (driven by length of service, politics, etc.) when compensation is transparent. It also places pressure on people to live up to their compensation. If I know I’m the top-paid employee in my department, you better believe I’m going to work my butt off so no one ever feels the need to challenge my salary.
What compensation practices have you seen that increase engagement within a company?
Jana Axline is Chief Project Officer at Axline Solutions and author of Becoming You. Through her leadership musings she inspires audiences to grow as leaders and ultimately achieve who they were created to be. For more information visit Axline Solutions.