Performance Management: At the Brink of Evolution

significantly greater rewards to top performers and no rewards to average or below average performers. That includes salary increases as well as bonuses. However, that's a minority and 66% of US companies are still spreading the budgets across the entire population to give something to everyone. Even the last two ratings are also given salary increases and bonuses. And the surprising thing is, most organizations aren't even aware of this happening. It is not by design but by practice. Organizations also have a fear of upsetting the average and below average population which forms the majority of the employee base. However, the irony there is that they are keeping the average and below average population satisfied or almost satisfied at the expense of top performers. O'Boyle's research clearly shows that the top 1% performers give 10% of business results while the top 5% of performers give 26% of business results. There are other studies to show that the return from a star performer is almost 200%, for an average performer it is 100% and for a below average performer it is about 40% to 50%. If organizations looked at this as an economic model, then they would differentiate rewards for top performers significantly.

There are two series that come into play and are important here. One is the incentive effect and the second is sorting series. Incentive effect basically focuses on creating a very strong relationship between results and rewards. This will translate in the existing employee population responding as per business requirements. This will ensure higher productivity and better performance. It states that there is a strong relationship between high performance and high rewards and low performance and low rewards. The sorting series says that if there is high dispersion of rewards based on performance, then over time, the set of talent that the organization draws will be high performing as compared to other organizations. The sorting effect in essence says that high performers will stay with organizations that have high performers and leave organizations that have more of average performers. It's almost like organizations are saying that either you shape up or shape out. There is no place for mediocrity.

Q. Is it realistically possible for organizations to define the "first among equals" in their top performers set? Do companies actually identify and differentiate these "elite performers"? Do you think the next gen practices make it easier for organizations to identify these "elite performers"?
A. I think it is absolutely possible to define the "first among equals". Organizations need to establish criteria to define and articulate what exactly constitutes high performers. And yes, organizations do differentiate these "elite performers". Currently, only 25% of the organizations in the US are following this practice, but yes, more need to follow suit. What would work in this scenario is deciding the Dual Rewards Strategy. The organization would need to define the rewards parameters for these ”elite performers” and communicate those to the entire organization. After this, the organization also needs to define the rewards parameters for the non-elite performers, which should also be communicated to everyone.
A few examples of the different parameters that an organization should define and communicate throughout the employee population for 'elite' and 'non-elite' performers can be -



Q. Do you think currently compensation is efficiently distributed across performance levels? What are some of the ways in which compensation can be efficiently distributed across performance levels followed by sharply differentiated rewards programs for performance levels?
A. I think, in the current model of performance management, average

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