A mainstay of talent strategies in most organisations is to differentiate pay based on individual performance. We advocate it, our clients embrace it and Aon Hewitt research1 shows it works – but do we truly understand high performance? What creates it and how prevalent, impactful and sustainable is it?
Emerging research is suggesting that a cadre of so-called ‘elite employees’ has the potential to dominate productivity in modern workplaces. If this is the case, we must challenge the existing rules of engagement around measuring and rewarding individual performance if we expect to significantly improve organisational performance and retain the best talent.
It’s a long-held belief that employee performance within an organisation will follow a normal distribution (ie the “bell curve”), with a clustering of results around the average and outliers spread equally around that mid-point. In reality most organisations struggle to fully realise a bell curve with outcomes skewed towards high performance, but it’s clear this is the market’s underlying intent. A recent study2, however, suggests that employee performance in certain industries follows the Pareto principle (ie 80/20 rule) rather than the bell curve. In other words, the vast majority of output was delivered by a small number of ‘superstars’, with a sharp drop off in performance for the majority.
If this were to hold true in modern workplaces, our traditional performance assessment approaches could be said to inadvertently elevate the performance of the average worker relative to their high performing counterparts. And there is some intuitive appeal to the research in the context of the contemporary knowledge-based workplace. Unlike in traditional manufacturing environments where a large group of workers dominated production through sheer numbers, as work becomes more individualised and less process-oriented, there’s greater capacity for individuals to differentiate themselves and impact production through performance. However if performance really does follow this 80/20 rule there are significant implications for today’s employee performance and pay strategies that focus heavily on the average worker or “mighty middle”.
The possibility of a non-bell curve performance distribution is worth considering seriously – organisations need to determine how bottom-line value is being created, and who is creating it. If innovation and key knowledge, rather than the performance of your average worker, is what will truly differentiate your company, Aon Hewitt sees 3 key implications for performance pay models:
- differentiate pay within a performance rating band – not all “Outstanding” performers are created equal, and pay regimes should reflect this. Treat performance ratings as only the “first pass” of performance differentiation, but don’t force elite performance outcomes into existing pay structures, provide for flexibility. This approach can deliver the same overall spend but can lead to significantly better retention of critical staff by further rewarding the best of the best
- link fixed remuneration to potential – your business results are driven by retaining and engaging your highest potential employees. Does it make sense to continue using ratings and past performance as the primary driver for fixed remuneration increases, while giving no consideration to the competencies that will drive future performance levels?
- get comfortable with less collectivism in pay models – if elite employees are fairly compensated to reflect their outstanding contribution, pay disparities might rise 5 to 10 times, or even higher that of their peers.
For more thought-provoking insight into the topic of rewarding high performers download our full complimentary whitepaper High performers and elite employees.
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1 Studies on the Aon Hewitt Best Employer database (2013) show that 70% of employees in Best Employers gain a clear benefit from being a high performer, compared with 41% in other organisations
2 O’Boyle Jr., E. and Aguinis, H. (2012), “The Best and the Rest: Revisiting the Norm of Normality of Individual Performance”, Personnel Psychology, 65: 79–119.