The following article was originally written by Jonathan Tabah, a senior executive advisor with CEB’s Sales Leadership Council, for a sales executive audience.
An article recently published in Business Insider talks us about Google’s “unfair pay” policy. Under this policy, Google will pay up to 500% more to a high performer than they will to other employees in the exact same role, and their explanation is unapologetically calculated.
Laszlo Bock, Google’s SVP People Operations, explains that their employees’ performance variance does not follow a bell curve in the way that most people think it does, but rather that of a power-law distribution, where one quantity varies as a power of another.
In other words, Google’s employee productivity varies as a power of those employees’ performance rank: the top performing 1% are responsible for 10% of the company’s total productivity, and the top 5% generate 26%—more than a quarter of the entire company output!
The thinking follows that if your best performers are generating as much output as 4 of their peers combined, then, naturally, they should be compensated accordingly.
Put plain and simply, this pay strategy is about the talent war.
Google is willing (and able) to pay top performers so much that money is no longer an issue for them. Those they aren’t willing to fight for are allowed to churn out naturally. Combine this with Google’s ability to attract great talent to start with, and you can start to see an aggressive talent strategy designed to arm Google with the industry’s top talent and leave their competitors fighting over everyone else. It’s an expensive play, but Google is betting that the resulting talent advantage will pay off.
Does this mean we should all drive up our pay range to compete in the same manner? Not necessarily. Let’s first keep in mind what challenge this approach is designed to solve and what it isn’t. This is just one element of Google’s talent strategy, primarily designed to address the issue of high performer retention. A complete talent strategy, however, must also account for driving attraction, development, and productivity with the right people as well.
In preparation for these strategic talent discussions, many companies start by asking exactly what is the nature of their work. Dan Pink’s book Drive succinctly summarizesinsightful work coming from the academic sector that examines variable compensation as a performance driver. This work uncovered that variable compensation is only effective at driving results in simple or mechanical tasks.
When the tasks got more complex and require a substantial cognition effort and problem solving—like in complex sales—high ratios of variable compensation actuallyreduce performance. To drive performance with those tasks, Dan Pink asserts that performance is best driven by self-direction, the opportunity to achieve mastery, and a sense of purpose.
We’ve seen one company, Microchip, embrace this philosophy wholeheartedly, completely removing variable compensation from their sales rep pay package.
At first pass, though, this seems to fly in the face of Google’s strategy. However, while they use different methods of achieving it, the end result is that both Google’s and Microchip’s approaches succeed in taking the issue of money off the table for certain employees.
What does this mean for us?
There are many ways we could interpret these moves by Google or Microchip, and discussing any of them will stimulate powerful internal debates about culture, performance, and what gets the most out of our best people. But no matter how you read these moves, one thing is undeniable: these are clear signals from very smart organizations that the next battleground in business is all about winning with top talent.
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