Tuesday, May 10, 2005

20 70 10

I heard Jack Welch speak at the Commonwealth Club in San Francisco last week. He was better than I expected. Funny, bombastic, insightful. He talked about a lot of things, but the topic he approached with considerable passion was one that has landed him in some controversy, but really ought to be a no-brainer: Any good leader should lavishly reward high performers and get rid of chronic low performers.

In fact, Welch uses a little yardstick for this: his 20 70 10 rule. Locate the top 20%, tell them where they stand, and reward them profusely with significant compensation, lucrative career mobility, and lots of loving attention. The great gray "middle" 70% should also be told where they stand: and then rewarded with approval, job security, training and development, and the enthusiastic opportunities to get into the top 20%. The bottom 10% should also be told where they stand, given opportunities to improve, and if they don’t—they’re out. A failure to let people know where they stand, and act differentially, says Welch, is not only lousy leadership, it’s immoral.

Welch is no simpleton. He knows that performance is multi-faceted. He emphasizes that a leader has to insure that high performers are living by the corporate values and doing their work honestly and ethically. And I’m sure he would categorically oppose a system that becomes an Enron-type of “rank and yank” culture where performance reviews degenerate into power plays and backstabbing. But at the end of the day, a leader must differentiate between high and low performers, or the organization will decline.

And he’s right. I just came back from a visit to two of my clients. One set of discussions revolved around an acquisition. The other around marketing. In both cases, the executives I worked with agreed that neither the acquisition nor the marketing efforts would bear fruition unless their best and brightest people were unleashed to make it happen with innovation, competence, and passion. As Welch would say, it’s all about people, and it’s all about making sure that the best and brightest are the most developed and most rewarded—or else they won’t want to perform at peak for long—and there goes your carefully planned acquisition and marketing initiatives.

The 20 70 10 equation has a lot of implications. But let’s start with three simple questions.

• Do you have leaders, systems and processes that identify your top 20% and bottom 10%? (Nothing sacred about these numbers; make it the top 10% and bottom 5% if you wish).
• Do you clearly tell these people where they stand?
• Do you absolutely insure that your top 20% are significantly happier with their pay and career than those in the bottom 10%? (If not, I guarantee you that your top 20%, as your most marketable assets, will soon be polishing their resumes).

I don’t mean to be melodramatic, but if you can’t answer these three simple questions with an unequivocal yes, your organization is in trouble.


Post a Comment

<< Home