Crazy, you say!  Maybe not when you consider all of the aspects of this idea.  We are operating in a unique time that may make unusual action the winning strategy for both the short and longer term.  Let’s look at this concept in a little more detail.

All of the companies that I have worked with and all of the managers that I have know have had several different levels of employee vis-à-vis their performance on the job.  At the top, we have the superstars who consistently make us look like geniuses.  They take on every assignment and turn in results that even we did not think possible and they do it consistently day by day.  Next, we have that group of generally competent employees who consistently meet our expectations and occasionally show flashes of brilliance.  Unfortunately, those flashes don’t come often enough or last long enough, but, overall, they are still good employees.  A third group is the consistent employee – the ones who generally perform as expected but rarely, if ever, do they have that flash of brilliance.  In older days before it became politically incorrect we would have called these our average employees.  The next and hopefully last group on your payroll are those employees who we consider “just good enough not to fire.”  Typically they do not meet expectations consistently but generally perform near the competent level.  They may take extended breaks or lunch periods, use all of their “sick days,” occasionally arrive late, and typically turn in work that just meets the minimal acceptable level of performance.  Occasionally, companies will have one final group of employees – those who do not meet expectations and should be fired immediately.

Why do we continue to employee the last two groups?  One reason I have heard is “Their replacement might be worse, at least I know what I have with ‘good old Joe’ and I can work around his inefficiencies or lack of skills.”  Another excuse has been “It will cost too much to replace them,” which has the appearance of validity if you believe the research that suggests replacement costs of 2 to 6 times the employee’s salary.  Valid reasons or management excuses that is the question.  All of us know that it is not an easy or pleasant management duty to terminate the services of an employee and the longer that the individual has been an employee the harder the task.  Unfortunately, unpleasantness is not a valid reason for shirking a duty.

Data support the fact that companies with high performance individuals perform better than their peers or comparator companies.  Therefore, why settle for an employee population that has less than the optimal number of high performers?  There is an old adage in the sales and consulting professions that states that each year you should be replacing the bottom 10 to 15% of clients or customers with more profitable ones.  Why should we take a different approach when managing our department or business?  Unfortunately we do accept less rather than take the time to document performance or face the unpleasantness of ending someone’s job.

Why raise this question now?  Because we are in a rather unique period where unemployment has risen to about 5 or 6% depending on whose report you see and new college graduates are being offered, on average, 4 to 6% less than last year’s graduate.  In a MBA class I recently taught one of the students was the manager of a technical call center that handled questions on DSL service, he reported that he could hire all of the Bachelor level computer graduates he wanted for $9.75 per hour, quite a change from a few years ago when hiring bonuses, company cars, and stock options were the rule. 

So, this leads us to the point were (1) we know and have identified the lowest performing, albeit previously acceptable, performers, (2) we have compared our performance to a peer or comparator group of companies and identified that we are not the leader, (3) we believe that enhanced levels of individual performance will lead to enhanced overall corporate performance, (4) we have documented the skills, traits, and behaviors of our best performers to use as a hiring standard, and (5) we know that there are talented individuals in the market place.  Now, the decisions become a numbers game.  A numbers game of calculating the cost of replacing an employee (more on that later) compared to the anticipated increase in profits that a higher performing individual will create.

First, in the current talent market, the cost of replacement is significantly reduced because of the events included in the calculation.  Those costs generally included not only the direct recruiting costs of advertising, search fee, testing fees, and the like, but also the softer costs associated with the work not performed because the job was not filled, the cost of the supervisors time to do part of that job and recruit, overtime for other employees to cover the gap, etc.  Today, there are more applicants than positions which gives one the luxury of recruiting to fill a currently occupied position, thus saving many of those soft and some of the direct costs of turnover.  Assume you have six engineers on staff, three outstanding and licensed, two good but not licensed, and one who has been “just good enough not to fire.”  Why not entertain, or even advertise for, an engineer with the qualifications of your top performers without disrupting the current work force until a better candidate is identified and hired?  Am I being cold, calloused, and a scrooge or am I doing everything in my power to maximize the performance of my company? 

Sharing some of my experiences in this regard might help you decide what action you want to take.  First, quite a few years ago now (even though I have not gotten any older) I was employed by a major retail company with operations in all of the north central states.  Two major labor disruptions left the company staggering and it was decided that a reduction in management staff was necessary.  During my time there I had worked with two attorneys from the corporate office, one who was outstanding and another who had a hard time finding the exit from a well lit closet.  When the layoff notices were delivered, the outstanding attorney was let go much to my dismay.  When I talked to Greg he confided that the President had told him that he was being laid off because he would not have any trouble finding work while his associate certainly would.  Upon hearing that news, I immediately began a concerted job search because I felt strongly that I could not, in good conscience, work for a company that rewarded incompetence.  I left shortly after this and have since watched the company close stores and divisions and retreat to their historic home turf.  What might have happened if only the best had been retained?

Another example involved a manager of an accounting department who could never bring himself to honestly evaluate the performance of his six or seven graduate accountants.  When asked, he would extol the skills of one over all others, and then quickly shift to another and how they were that much better in another subset of his overall department’s function.  This would continue until each employee had been praised in one area or another and all were ranked as “competent” or average.  The next thing that would happen in my role as Compensation Director is that his entire department would converge on my office and beg me for an explanation as to “Why won’t he just tell us how we are doing?”  Employees want to know what is expected and how they are measuring up.  They also want to associate with other top performers and work in a department or area where everyone is carrying their weight. Could that accounting function have operated more smoothly and contributed more by producing more timely or accurate financials?  I firmly believe that it could have and would have if it had been effectively managed.  Unfortunately, I was not able to change this manager nor was I able to convince the CFO that mediocrity was an unacceptable option.  Possibly I was premature, because those were the days before good managers had come to realize that they can only maximize profits if they maximize each and every one of their employees.

Another interesting thought may prevail if your department is large enough to have two “just good enough not to fire” employees.  Is it possible that you could replace two of these mediocre performers with one outstanding performer and not only increase overall productivity and quality, but also actually reduce base payroll expense?  I think it is highly possible.

Finally, back to the initial premise “reward the best,” not in exorbitant base salaries, rather in good base pay and great incentive bonus opportunities.  As we have said in the past, incentive pay is both generous and fiscally responsible (the PC synonym for selfish).  “Generous” because you give the employees an opportunity to increase their pay significantly based on their performance and “fiscally responsible” because the incentive payout is only a small part of the additional dollars that drop directly to the bottom line.

Then the time is ripe, the call is yours, will you take this unique window of opportunity to improve operations by upgrading your staff?  I can only hope that you do and enjoy both the measurable and somewhat more intangible rewards of your actions.  I believe that you will not only reap significant financial rewards, you will also find that your job as a manager has gotten much easier.  Easier because now you are working with top performers who believe in their own capabilities and you are not being forced to continually try to motivate and pull-along the underperformers.  Likewise, I believe you will also see and overall improvement in the remaining top performers as they are no longer distracted by underperforming peers that they too have to carry on a daily basis.  Good luck, let us hear of your success.

James E. Mittler, CMC is president of J.E. Mittler & Company and can be reached at Mittler@mittler.net. Additional information is available at www.mittler.net.

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