By Maurie Cashman
Grading on the curve creates problems when it comes to retaining your key employees. If you were in the educational system anytime in the last thirty years, you probably experienced “grading on the curve”. This system generally grades based on the assumption that everyone must fall into a performance distribution that looks like a bell-shaped curve. In my opinion, it was also used to mask substandard teaching because it assured that at least 80% would receive a passing grade, even if over half could answer less than half of the questions correctly on an exam.
Now don’t get me wrong, in college I loved the curve. I figured out very quickly that you could essentially game the system. It wasn’t so much about gauging the difficulty of the material that was important in deciding how hard you had to study. It was more about gauging the intelligence of the others in your class. In essence, if we were being chased by a bear, I only have to be sure that I can run faster than you.
How many people in your business are gaming the system? And what is happening to your business as a result? How might this be affecting the ability to grow the value of your business and preparing it for a transition in ownership someday?
The first place to start this discussion is through a look at ourselves as leaders of our companies. The curve in college protected a lot of sub-standard teachers. Essentially it was a way of saying either the material is too hard, the teacher is too poor, or the students are not intelligent enough for the material to be learned.
The same can be said if you are grading your employees on a curve. I was part of this type of a system for years in corporate America and detested it, from both a manager’s and an employee’s perspective. Regardless of how an individual performed there was only so much that they were going to be rewarded. Even if you tried to push more to top performers, you were very limited to how much you could give. We were even given a scale at the start of each year letting us know the percentage raise we could give to those at each level of rated performance, and it was not large.
This breeds laziness in leadership. As a leader, if you know that you can’t make a meaningful difference in how people are compensated, you are going to tend to avoid the pain of having to deal with it and just give everyone the same, with very minor deviations. The longer it persists, the more deeply this becomes embedded.
One of the first things I ask my clients is “who are your top performers and what are you doing to make sure you don’t lose them?” There is a reason for this. Most business value is created by a very few hyper-performers. These are the people that are generating the sales, coming up with new products and ideas, and creating great customer experiences.
These “hyper performers” are people you want to attract, retain, and empower. These are the people who start companies, develop new products, create amazing advertising copy, write award winning books and articles, or set an example for your sales force. They are often gifted in a certain way (often a combination of skill, passion, drive, and energy) and they actually do drive orders of magnitude more value than many of their peers.
If you were to lose these key performers, your business would suffer greatly. My line of questioning usually goes something like this: “Who would be the most difficult person in your organization to replace? Who could you not function without if they left? How much would revenue drop if any one person left?”
These key performers are likely frustrated if you are not finding a way to reward them. They already know that they are creating tremendous value for your business. I would bet that your very top people are generating at least ten times what you are paying them and likely more in terms of growing the value of your business. So why do you give them the same compensation package as everyone else, when they are worth exponentially more? What are you doing to insure that you don’t lose them to a competitor, who knows who they are and would love to acquire that value generating engine?
It’s Your Business
Your business is likely your most valuable asset. You may very well be depending on your ability to transition your business to another owner in order to retire someday. In order to do that you have to be able to do three things:
- You must continue to grow the value of your business to make it attractive to others. This means that you have to protect those that generate ever-increasing in your business.
- You must protect the value of your business. It is always interesting to look at how much someone is willing to pay to insure various risks in their business (life, disability, liability, etc.) yet many do not look at their key people as the key risk to the business value. In truth, if you have strong enough people on your team so that the business could function without you, you may not need to focus as much resources on traditional risk protection.
- Your business is only valuable if someone else says it is. No one is going to attach the same value to a business that is in danger of losing its key employees as they are to a business with a solid core that is likely to stay with the business.
If you are grading on the curve my challenge to you is: Are you providing the proper business leadership to insure your key employees are engaged so that you are protecting your most valuable asset – your business?
© 2016 Aspen Grove Investments, Inc.