Tim Harford, aka the “undercover economist,” is an economist who focuses on who economic theory guides our everyday actions. In this talk, given at TEDxWarwick, Tim finds some lessons for leaders from an unlikely source: the initial failures in the Iraq War.
Archives For March 2011
I had a discussion recently about the concept of topgrading. Tograding was made most popular by former General Electric CEO Jack Welch. Welch’s practice at GE was to locate the top 20 percent of performers, celebrate them and pay them handsomely. The middle 70 percent of performers would continue on as usual, not without the knowledge that they were not in the top. Lastly, the bottom 10 percent would be “invited to be successful else.” Welch advocates such performance evaluations up to 4 times per year.
Initially, the idea sounds great. It is unfair to allow employees to work without receiving feedback about their performance. Even the bottom 10 percent are done a great service by being told that their performance is at the bottom. However, is topgrading really in the best interests of the organization?
Topgrading rests on assumptions that may or may not be accurate.
It assumes that the bottom 10 percent are always loafers, always failing to meet the requirements of the job. What if they’re doing everything they’re being asked? Then you have the unfortunate task of firing people who have met expectations.
It assumes that suitable replacements are being found that will have higher performance. If the new employees are more talented, than next cycle, individuals who were told that they were average are now being told to “shape up or ship out.” In the short term, those average employees, whose performance met expectations, are now being eliminated. In the long term, eventually even the original top 20 percent employees will find themselves being “elsewhere invited.”
However, recent research into the portability of performance suggests this is difficult at best. Often times the new “star” employees hired into an organization experience a significant drop in performance that may or may not be recovered from. If the new employees are not performing better than the previous, than the organization has spent a lot of money for naught.
We posted this to twitter last night. Seth Godin was asked what separates managers and from leaders. While not 100% backed by the research-oriented definitions, this is a great operational definition. If most executives took this to heart, than there would be a significant, positive increase in the work environment.