Management theory in the last decade of the 20th century inspired many firms to focus on their primary functions and to outsource other operations. Now, in the first decade of the 21st century, visionary companies will understand their primary functions to include the management of talent, by encouraging employees to continue doing what they are expert at and by halting the promotion of workers to positions that are beyond their competence.
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The virtue of letting employees evolve into virtuosos struck me one day, more than 30 years ago. Having just started Selection Research Inc. (SRI), a company that eventually acquired The Gallup Organization (and took its name), I wandered by my bookkeeper's office. I couldn't help but notice that the woman was beaming. "Why?" I asked. The accountant replied, "Because the books are balanced." I continued my rounds, making a mental note to hire others like her and let them do what they do best.
Over the past 30 years, Gallup has interviewed more than 2 million adults to uncover the secrets to their successes and the reasons for their failures. These interviews reinforce what I had suspected: The most valuable players on any team are those who focus on the job at hand, rather than on how to climb the corporate ladder. Yet most companies continue to channel star performers toward promotions by tying raises, roomier offices and fancier titles to changes in job roles. Would you choose to change roles if you could increase your pay by doing your current job better? That is the question Gallup put to more than 1,000 Americans. Fifty-eight percent of employed adults said they would remain in their job if they could earn more by doing it better, rather than be promoted.
I try to keep that bookkeeper in mind, but like other executives I've made the mistake of promoting a person from a position he excelled at to one he was ill suited for. My mistake was based on the most common fallacy of corporate meritocracy: A talented performer will be just as effective in a managerial position. About 20 years ago, a talented corporate analyst who worked for me quit after I promoted him to a management position. As he explained to me when he resigned, he hated being responsible for other employees' productivity and problems.
Mispromotion carries four hidden costs for every company. It prompts frustrated employees to quit, strips job categories of star performers whom novices could model their careers upon, pits workers against one another in the competition for upper-rung positions and lowers overall performance by uprooting achievers.
Restless workers make the plague of over-promotion possible. Often people reach for promotion because it is the only reward or recognition their workplace offers. But experience has taught me that you aren't a superior manager until someone who works for you makes more money than you do. In 30 years of lecturing to business audiences, I frequently ask my thousands of listeners whether anyone is suffering from over-recognition. I've never seen a single raised hand. In our status-oriented society, promotions are often the only way for employees to improve their standing at the office and at home. Yet according to Gallup research, 65% of employed adults say enjoying their job is more important to them than being paid well or having an important title. To capitalize on the talent within a company, employers should make sure there is no trade-off between job satisfaction, suitable pay and workplace status.
Executives can channel workers to develop, rather than abandon, their aptitudes. Look, for example, at a type of organization often dismissed as outmoded -- the law firm. As attorneys advance from junior associates to partners, their function remains essentially the same, but their status and salaries improve. The firm reaps the benefit of their flowering skills. Creating multiple pay and prominence grades within each role -- a practice that has been called broadbanding -- encourages every employee to become a virtuoso.
Of course, helping employees develop their talents isn't as simple as erecting the right incentive structure. There are three major impediments to implementing a pay-for-performance system. First, it requires managers to monitor and develop a means to measure employees' work. This type of individualized attention can, therefore, be cumbersome to manage and require too much time and sensitivity to properly implement.
The second obstacle to instituting pay for performance is simpler to overcome. Paying different people in the same position different amounts can lead to lawsuits. Under the Equal Pay Act of 1963 and Title VII of the Civil Rights Act of 1964, as amended, it is illegal to pay an employee of one gender, for example, less than an employee of the opposite gender if both are doing the same job. But the law is not an obstacle to individualized pay. Lawful exceptions to the rule of pay equity include unequal skill, ability, experience and authority. The Equal Pay Act and Title VII require executives to ensure that pay differentials are justified by differences in performance or authority. Nuisance suits challenging a pay-for-performance reward system can be averted by creating written standards for upgrades and systematically evaluating employees.
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The final obstacle to reshaping organizations to encourage virtuosity is the most stubborn one -- tradition. Corporate hierarchy is so calcified that it takes time to break down the notions that each performer should ascend the company ladder and should be paid more than those one rung below.
So, is reinventing the way we pay and promote worth the time and transition costs? All of the more than 200 companies that Gallup helped convert to pay-for-performance enjoy productivity and profit increases. But perhaps the best example of why you should pay excellent employees more to remain in their present jobs is found within our own company. Nancy Philipps joined Gallup's data-entry group right out of high school. An above-average performer from the start, Nancy became an exemplar once we instituted a pay-for-productivity program. The average number of keys punched per day was about 350,000. Nancy thought she could punch 1 million. In two months she made her mark, but wasn't satisfied. Within a year Nancy hit 2 million keys. Eventually -- and not for the best -- she moved up. Soon after, when she approached me at a Christmas party, I asked how she liked her new job. Nancy confessed that she had been happier in data entry. By February she was back stroking keys. In April she exceeded 3 million. Today, after 24 years with the company, she still inspires our employees. That is the sort of performance that makes breaking taboos worth the trouble.
