Rewarding Performance: Focus on the Few or Target the Many?

In Making Talent a Strategic Priority, featured in this month's The McKinsey Quarterly, a follow-up to the firm's War on Talent research conducted in the late 90's, McKinsey principals Asmus Komm and Emily Lawson, and associate principal Matt Guthridge, call for executives to rethink the way their companies attract, motivate and retain employees.  One of their recommendations, a notable departure from the firm's earlier emphasis on rewarding and retaining the top tier of performers, is to broaden talent management strategies to target a broader segment of the workforce.

A decade ago, the War for Talent work made a strong case for emphasizing the recruitment and retention of a company’s A players—the top-performing 20 percent or so of managers. Our research at the time showed that these high performers were twice as likely as average ones to improve operational productivity and to raise sales and profits. Consequently, we argued, top performers deserved up to 40 percent higher compensation than their average counterparts received.

The impact of top talent on corporate performance hasn’t diminished, but what’s much clearer today—not least, as a result of the expansion of knowledge work—is that organizations can’t afford to neglect the contributions of other employees. Several authors in recent years have rightly emphasized the valuable contributions of B players: capable, steady performers who make up the majority of any workforce.8 The insurer Aviva, with its strategy of managing “the vital many” rather than risk alienating the bulk of its workforce by focusing exclusively on highfliers, is one company that makes this commitment explicit. Research on social capital has also highlighted the importance of inclusiveness: top talent is more effective when it operates in vibrant internal networks with a range of employees.9 Performance suffers when such social networks are absent or withdrawn.10 Our experience has even shown that strong networks help retain fickle young Gen Y professionals.

8 Thomas J. DeLong and Vineeta Vijayaraghavan, “Let’s hear it for B players,” Harvard Business Review, June 2003, Volume 81, Number 6, pp. 96–101.

9 Mohan Subramaniam and Mark A. Youndt, “The influence of social capital on the types of innovative capabilities,” Academy of Management Journal, 2005, Volume 48, Number 3, pp. 450–63.

10 Boris Groysberg, Ashish Nanda, and Nitin Nohria, “The risky business of hiring stars,” Harvard Business Review, May 2004, Volume 82, Number 5, pp. 93–100.

It is interesting to see McKinsey formally acknowledging what many organizations have struggled with throughout the last decade: finding the balance point in rewards whereby we encourage and reinforce the "stars" without alienating or demotivating the "steady eddies".  Success requires that we draw the best possible from all employees. 

Comments

[Frank Giancola]

Ann,

Thanks for pointing that out. I'm surprised that McKinsey could miss such a basic point that the efforts of 80% of the workforce are important for company success and have to correct itself.

Frank

[Ann Bares]

Frank-
Thanks for the comment. I think that the last decade has taught all of us a lot about the dangers of focusing all opportunity, attention and rewards on a few stars - particularly since we are also challenged to define what stardom should truly entail!

[Paul Hebert]

Why is it so difficult for companies to understand the concept of "team". No top performer is a top performer by themselves. They need the contributions of the other players to achieve their goals.

Not to mention - in most cases top performers were once B or event C players - until ignited by a new manager, task, challenge, etc.

Any performance program needs to address the entire distribution of performance in a company.

[Ann Bares]

So right on, Paul! But perhaps there is hope now that the "experts" have caught on and are making the case!

[Frank Giancola]

Ann,

The more I thought about McKinsey's erroneous thinking, it sort of made sense, considering the source.

From what I've heard, McKinsey is comprised of primarily people who think of themselves as stars, so it's no wonder they would think that all the other employees have nothing to do with a firm's success.

I believe they recruit from the big name MBA programs, where a degree requires the completion of one HR course, so it's easy to understand why they would have no clue when it comes to HR matters.

With all that brain power, maybe the next McKinsey study should be an effort to understand why they could be so wrong about basic HR matters.

Frank

[Ann Bares]

Interesting points, Frank - especially the larger one: How much does a major consulting firm's particular philosophy and set of values color its research and the interpretation of that research which it sends out into the world? I would guess that there is truth in what you say, that McKinsey's position on matters of talent management says as much about McKinsey as it does about what is going on in the rest of the world.

Thanks for the comment!

[Wally Bock]

Paul hit on an important part of this, the part about team. By and large, businesses succeed because of group or team performance, not because of star performance. Centuries of looking at organizations from the Roman Army to Toyota should give us the clue that top performing organizations are more likely to get that way because of systems that help everyone work productively than they are by trying to assemble all-star teams.

[Ann Bares]

I couldn't agree more, Wally. Perhaps there is hope that the era of the superstar is finally waning, and we will - going forward - have a better sense of balance in our approach to managing talent.

[Paul Hebert]

The real key for the future is the "superstar team builder" - the one that gets most out of the rest - not the one that does more than the rest.

It is difficult to reward and recognize the person that is the catalyst for success since they typically don't stand out.

[Wally Bock]

John Maxwell has an interesting view of leadership development that's apropos here. Maxwell says that stage one is personal development, state two is learning how to make teams productive (Bill George calls this moving from "I to We") and stage three is learning to develop leaders. We tend to think of "leader" as the person at the top of the chart whose jobs are to chart strategy and give directions. We're less likely to imagine a "leader" as someone who develops a system that enables people at all levels to do a good job or who develops the leaders for the next couple of generations. Yet great companies, like GE or Proctor and Gamble or Toyota, and great organizations like the US Marines are the result of the second kind of leader.

[Wally Bock]

Paul says that it's difficult to identify and reward the person who's the catalyst for success. I don't agree. First, there's the simple method of basing compensation on group performance. Then there are more sophisticated measures. I'm working now with a client who requires retails sales people in a store to cooperate in order for the store to do the best it can. Otherwise you have a sales version of the Tragedy of the Commons. We're experimenting with something like the hockey plus/minus that measures the team goal differential when a specific player is on the ice.

[Ann Bares]

What a great dialogue. Wally, your retail client experiment sounds interesting - I hope you'll share what you learn there about measuring cooperation. Maybe a post at the right moment?

[Paul Hebert]

Wally - I would love to hear more about the measurement you describe. Sounds very interesting and would take into account both group and individual contribution.

You're right on about tragedy of the commons. I've lived that as a sales person in the past.

Great thread Ann - way to be the catalyst for a great conversation :)