In their paper The Effect of Relative Compensation Dispersion of Firms on the Mobility and Entrepreneurship of Extreme Performers*, authors Seth Carnahan, Rajshree Agarwal and Benjamin Campbell explored the hypothesis that compensation dispersion influences the probability of an employee's choice to exit the firm. Their results showed that low compensation dispersion (less differentiation) increases the probability that high performers will exit and high compensation dispersion (more differentiation) increases the probability that low performers will exit.
So if we accept this finding, failing to actively differentiate rewards by performance can put you at risk of losing your top talent. And of course, rewards aside, nothing erodes your organizational reputation and brand like being known as the place that high performers leave.
Is retaining high performers a concern? In a recent survey from Sibson of about 100 HR representatives, 99% report that their organizations are concerned about retaining their star talent, but only 76% believe their organization has been successful at doing so. In their article A War for Stars is Underway, Sibson's Myrna Hellerman and Jim Kochanski follow this data with the assertions that the losers in the war for stars are those that "allow high performers to stagnate" and "under-use pay for performance - they cling to across-the-board actions with little or low differentiation." Those winning the war "have disciplined performance-management and career-development processes to ensure that stars are appropriately rewarded and deployed."
Conclusion? More evidence, if we needed it, that we ignore high performance - and high performers - at our own peril.
Does this mean that nurturing and keeping stars is all about cash? Of course not. Retaining your top performers demands a broad, multi-faceted effort that address their overall work experience. But while it may not be all about cash, don't underestimate the importance of cash as the foundational element of that overall package. Money talks, and the way you compensate these employees relative to their peers speaks pretty loudly.
Does this mean that we funnel all reward and recognition initiatives to the highest 10%-20% of performers? Of course not. We all know that organizational life is not that simple. In most organizations, the work of our "meets expectations" performers is key to creating the conditions in which the stars succeed - and it must be recognized and rewarded as such.
What it does mean is careful attention to the balancing act through which we aggressively differentiate and reward the stars without losing sight of how we recognize and support all employees, creating the climate and culture that encourages everybody to be their best.
Hey if it was easy, everybody would be doing it, right?
Ann Bares is the Founder and Editor of the Compensation Café, Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting services to a wide range of client organizations. She earned her M.B.A. at Northwestern University’s Kellogg School and is a bookhound and aspiring cook in her spare time. Follow her on Twitter at @annbares - and join her along with her Cafe colleagues Dan Walter and Margaret O'Hanlon at HR.com's Compensation Best Practices and Trends Conference on September 10, where they will be sharing their top-rated presentation Everything We Do in Compensation is Communication. How to Do Everything Better!
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*Hat tip to workspan magazine's August issue, where this paper was highlighted.