I’ve recently finished Work Rules by Laszlo Bock and it’s easily one of the best books I’ve read in 2016. One of the insights that truly impressed me was the “pay unfairly” principle, which at first came off as counter-intuitive, and potentially a seed for discord among employees. (How is that fair?! Is that guy really contributing five times more than I do?!)
But Google does just that — top performers are paid disproportionately compared to the average performers, sometimes five to 10 times more. Statistically, as Bock argues, this is actually more fair because human performance doesn’t follow a normal distribution, but a power law distribution in which a small number of employees contribute disproportionately large amount of output. Outliers happen far more often than a normal distribution would predict. In fact, “the top 1 percent of workers generate ten times the average output, and the top 5 percent more than four times the average.”
This phenomenon isn’t limited to the workplace either. It’s observed in just about every other field ranging from science/research, entertainment, and sport. Examples from the book:
- 66 percent of researchers are below average in the number of published articles.
- 84 percent of Emmy-nominated actors are below average in total number of nominations.
- 68 percent of US representatives are below average in the number of terms they have served.
- 71 percent of NBA players are below average in the number of points scored.
Pretty amusing, isn’t it? And yet most companies’ compensation structures (including salary, bonus and raise) subscribe to a normal distribution where the top pay is also adjusted for market rate, (and capped at 30% above market) due to cost control. Salary increases are distributed in similar fashion, with top performers getting 5%–10% versus a 2%-3% for an average one.
The result? Top performers, being exceptional as they are, hit the ceiling pretty fast and then their only rational choice is to quit, in pursuit of a more fair compensation. And Bock rightly points out that a system designed to encourage departures of its best people is simply broken.
So given a fixed budget, the way to fix this system is to cut down on raises and rewards for poor and even average performers, and reward your top people “unfairly.”
Onto perception of unfairness — Bock didn’t specifically explain in detail how to manage it, and I guess it’s contextual to each organization anyways. He does stress that having managers understand the allocation well and explain it with data to those who question is extremely important to avoid a “culture of jealousy and resentment.”
It could well be that the end justifies the means — after all you have a higher chance of retaining your best people. In fact, they may be worth five or ten of your “average” other guys.
Work Rules is a brilliant and entertaining read. Check it out, and you won’t regret you did.
