(Editor’s Note: This post was written by Jeff Hyman, bestselling author of Recruit Rockstars and professor at Kellogg School of Management.)
When assembling your team, you want to hire winners – not mercenaries. No matter how great the performer, never hire someone who is in it just for the money. This is easier said than done.
The sports world is rife with athletes who ignited a bidding war for their services, selected the highest offer, and then rewarded their new team with poor performances. Contrast that with athletes who took less than market value or even agreed to pay cuts to give their organizations the financial flexibility to sign other top players and build a championship team (witness Kevin Durant or Tom Brady).
Ideally, you want a team of Rockstars who are inspired by the mission and culture of your organization and derive deep satisfaction from crushing their goals and driving the enterprise forward. Money is an important part of the equation, but if that’s an employee’s prime motivation, they will bail when a headhunter calls. (I know: that’s my job.)
In my 25 years of experience in executive search, I have concluded that paying at the 75th percentile level of the industry-wide salary range is ideal. You want to pay significantly above the market average, but avoid paying top scale.
To ensure you’re on track, maintain a database of compensation ranges for positions in your geographic region and update those ranges annually. This task should be the purview of your Human Resources department, but if you’re a young company with limited resources, there are websites such as Salary.com that provide compensation guidance. Not perfect, but far better than nothing.
Rockstars are a different breed than other employees. They don’t want to simply meet expectations and get on with their lives; they know and expect they will overperform. Rockstars crave meaty challenges and compensation packages that are directly tied to performance.
To be effective, bonus compensation should be based on clear performance markers over a defined period of time and should be paid on a specific date. While the parameters may be revised annually or quarterly, the bonus system should be transparent and chiseled in stone for a given period. Don’t change the rules halfway through the game.
Although many organizations cap their variable compensation payout, this is misguided. If a person delivers three times what you expect from them, why should their bonus reflect a lesser level of performance? Capping bonuses diminishes motivation and increases the chances that a top performer will leave for a better offer.
Similarly, Rockstars generally do not respond well to a black box system where bonuses are paid based on an undisclosed financial model or a system in which an individual or committee decides who gets what at the end of the year. No matter how well an employee does, he or she will have no idea what they’ll earn. There’s no explicit link between performance and compensation, and that’s dispiriting to top performers.
The Peanut Butter Approach
If you want to foster mediocrity (or worse), I suggest applying what I call the “peanut butter” approach, in which everyone receives approximately the same percentage salary increase each year. Seriously, spreading annual pay increases equally is my greatest frustration with compensation. It diminishes motivation at all levels and sends a message that individual performance is unimportant to the organization.
Everyone should not be treated equally. Rockstars should receive far better raises, promotions, and recognition than B- or C-Players. Rather than giving everyone a 2 to 5 percent raise, why not give a 20 percent raise to top performers and no raise at all to your worst performers? That sends a powerful message. Your Rockstars will be motivated to stay, and your C-Players will be motivated to move on. In my view, that’s the perfect outcome.
It’s Not All About the Money
I like to say that compensation is just one of the five Cs that are vital to getting the most out of your Rockstars and providing them with the fulfillment and growth experiences that will encourage them to stay with your company. The others are:
Challenge: Provide Rockstars with interesting work. Give them a problem to solve, like how to do things faster, better, and cheaper. Countless studies show that challenge (not compensation) is the most important factor to job satisfaction for high performers.
Career Path: Rockstars want to progress to higher levels of responsibility and take on more important roles. Understand their aspirations and provide them with a viable path upwards. In some cases, that might mean lateral moves to broaden their experiences or putting them into a role that they may not be quite ready for yet and providing them with intense mentoring to get them up-to-speed.
Candid Coaching: Most Rockstars respond well to candor because they recognize that continual improvement is key to rising in the organization. Provide feedback frequently – I prefer monthly – and focus on just two or three things they need to develop for their next career move.
Contacts: Open up your personal network of contacts to your Rockstars. Introduce them to people outside the organization who might be great mentors or role models. Your Rockstars will appreciate that you are helping them to broaden their knowledge and introducing them to people who may prove very helpful to their careers. This builds loyalty.