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Derek --- Here are a few suggestions for recognizing your top 10% valuable employees. If you can't give a big increase in salary due to financial constraints you can do the following:

1) Have a VP hold small group meetings with them and appreciation and also "tap" their ideas for improvement. SMALL INFORMAL meetings --- no surveys. Not one meeting for everyone --- break out the total number into small groups of 7-8 people. Keep it small, personal and very INFORMAL. Not HR but a VP

2) Let these employees shadow their VP for a day or two including any meetings with clients and top management

3) Let them know their contributions are valuable. Give them a project/problem and tell them it's an important one for the company. They will work their __ off to solve it. Let them have access to high level management to discuss progress and to get help in removing any organizational barriers that are keeping them from solving the problem.

I think this kind of recognition with this group is better than a letter of appreciation, a gift reward (dinner for two at a fancy restaurant), public recognition at an all employee meeting, etc.

This doesn't mean you don't give recognition to other employees who are high performers -- but you really need to differentiate and reward the really valuable employees with a different type of recognition.

Just my opinion.

The original author's catchy phrase, "unfair pay," is an unfortunate but memorable one. I would prefer to substitute other terms to describe your otherwise valid points. Paying inequitably, differentiating appropriately and customizing your reward reinforcements for the variable contributions of unique individuals and recognizing exceptional performance... would all be nicer ways to achieve the same objectives with friendlier words. The Pareto Principle still applies.

Jacque correctly notes that any positive consequence involving direct empowerment granted from line management is a far more powerful reinforcement tool than anything available from HR. Unless the outstanding performer works for HR, of course!

Don't think Derek needs to comment about the fact that there are a million different forms of recognition, with more rediscovered or newly invented every day.

Thanks for this piece. Yes, it is true that the importance of Employee Segmentation and Rewards Differentiation – in their many forms -- are not new to many rewards professionals. In fact, in HR (and rewards) decision-making, we often to discriminate / differentiate on the basis of solid grounds in terms of job- or performance-related data and considerations

I agree that the wording "Pay Unfairly" is unfortunate. Instead of risking the high potential of legal exposure of stating in writing that you have "unfair" pay in your own organization, it might be safer to speak of 'unequal rewards for unequal performance' or, more positively, 'really fabulous rewards for really fabulous performance' or something along those lines.

These days, I am saddened each time I hear / see mentions of 'merit pay' when there is a discussion on paying for performance. It has been extensively suggested (established?) that so-called 'merit pay' practices and matrices are really NOT about 'merit' but about sticking to budgets. Worse, merit pay systems do not discriminate and differentiate significantly between high performers and low performers. The common phenomenon of Merit Rating Compression (ostensibly to make things fit into the budget in relatively egalitarian cultures) is particularly annoying to high performers, and drives them away. In fact Merit Pay methodologies are anachronistic relative to rewarding performance. Many advocate scrapping them all together, even though there are, still, some sectors that would have difficulty without them.

It would be instructive if we obtained more verifiable evidence, on a case by case basis, on these suggestions of 80:20, 90:10 or whatever ratio it really is relative to productivity of high performers versus others. I am inclined to think that the ratio depends on many dimensions along which organizations vary, and requires care in definition and application.

Here is a random list on a part of the equation, since you asked:
Beyond attending as well to non-cash rewards that provide a balance of 'total rewards' aligned with your employee interests / values, we need to focus on the things that help high performers (individuals and teams) do their thing. Hire them well; resource and engage them well on projects (instead of making them sit around for too long in dysfunctional groups, or in scrappy work spaces and work environments, etc.); keep them away from terrible managers, narcissistic leaders and distracting politics (to the extent possible); assign them to teams with others they respect, listen carefully and respond to them (some of them hardly talk or talk in very 'different' ways); etc..... There is increasing body of work on what works for high performers.

Anytime you discriminate / differentiate in rewards, your need to very carefully manage rewards communications to avoid unintended consequences. After all, besides high performers, we do need 'the others' too.

Runaway Egalitarianism in rewards is a sure way of entrenching entitlement cultures, and killing initiative, creativity, innovation, and organizations.

... Just a starter of thoughts....

Thanks again.

Pay unfairly? Perhaps not. If performance level is more a function of individual endowments (e.g., abilities, traits) than effort expenditure, and small differences in performanace level translate into large differences in economic return on employment, it makes sense for the employer to allocate pay in a highly skewed distribution.

Those of us who have been compensation practioners for many years were inculcated with the notion of performance levels across employees being distributed as a normal (bell shaped) curve. This notion was compatible with how businesses operated in the late 20th century -- company performance was dependent on the collective contributions of the mass of employees. However, in present day, it is the "superstar" employee that counts. The performance distribution really reflects a Paretial (power law) curve. I refer you to an article in Personnel Psychology 2012 on "The Best and the Rest: Revisting the Norm of Normality of Individual Differences" by O'Boyle and Aguinis for an academic discussion of this subject.

In any case, I generally agree with Bock's comment. As compensation practitioners, we will need to change our thinking to accommodate this new reality of delivering more polarized pay treatment that places emphasis on the top 10%. The traditional merit pay program -- with its more broadly distributed pay treatment -- is becoming a less relevant vehicle for this new era. Thanks.

What works for high performers is frequently the same "secret sauce" that changes low performers into high ones, too. Everything we have discussed here was covered succinctly in the famous old Mager/Pipe Performance Problem Analysis model which is still overlooked more than applied, even today when we KNOW that it works.

Anyone who thinks a bell curve distribution fits a high performing organization should have THEIR bell rung. Loudly and repeatedly! Preaching to the choir, of course...

Paying fairly =/= paying equally.

Paying fairly means you acknowledge the contributions of your star peformers who went above and beyond hit stretch goals by giving h(im/er) more merit/bonus and not giving merit/bonus to the slackers.

The problem is, not many managers wants to have that tough conversation. Plus, with the US current merit budget, giving your star performers 1% more vs average performer will only motivate them so much.

What Jules said.

The notion that you can provide meaningful performance differentiation with a 2-3% budget is fanciful, and attempting to do so is likely (in my experience, anyway) to produce more discord and disruption than benefit.

Besides, why would you want to annuitize last year's performance?

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