Time to Say Goodbye: Are You Keeping the Bad and Terminating the Good?

Any manager who takes an honest look at individual performance knows all employees are not created equally. About 20% of employees rise to the top of the heap; 20% drop to the bottom; and the rest hang around in the middle doing only enough to attract attention.

Employee-productivity differences have attracted their share of researchers. Most agree that folks in the top half of workers out-produce the bottom half by about 2:1 (i.e., it makes no difference if people are shuffling papers or making widgets). And, when managers and knowledge workers are examined separately, the productivity ratio rises to 3:1, 4:1, or higher (i.e., responsible jobs have bigger ratios).

Productivity is more than a mental exercise. It shows up as absenteeism, errors, reduced throughput, turnover, low morale, rework, an excess number of employees, and so forth. Productivity losses are also sneaky because they are not easily seen; yet, they translate into hard cash: between 20% of base annual payroll leaked for unskilled workers to 50% for skilled and managerial employees — enough to separate a successful organization from a flop.

Converting payroll leakage into gross sales can be an even bigger eye-opener. Twenty percent leakage, for an organization that pays out 1/5 of its gross sales in salaries and benefits, would require a 500% sales increase to balance the books. Want to do more scary math? Calculate the incremental sales necessary to offset a 50% leak in managers and professional salaries!

Enter Financial Chaos and Uncertainty

We are in serious financial times. Opinions vary, but experts estimate our financial stress will last throughout 2009 and perhaps into 2010. The prosperity party is over. Like the dot-com bust, the world changed virtually overnight.

We cannot do much about external economic factors except dig in and wait. But, we can do something about employee productivity, especially when it comes to intelligent downsizing.

Ah’ll be Baack!

There are two ways to downsize. Most managers are accustomed to the Rambo model: plunge into the organization armed with rocket launchers, machine guns, and grenades terminating anyone in the line of fire. At the end of the rampage, the gross payroll body count is reduced; but, since both high- and low-producers are terminated without regard to skills, the organization continues to live with its 20% to 50% cash hemorrhage. Rambo-sizing is the norm.

What about examining employee performance before making termination decisions? Everyone knows performance recommendations are part fact and part fiction. Promotions and performance ratings are almost always based on personality and popularity — not specific skills. Just examine organizations that Rambo-sized their workforce in the past. What effect did it have other than forcing fewer people to spend more time at work? Termination decisions done without future planning are like bloodletting to rid the body of bad humours … they are more likely to kill than cure.

Planning Ahead

If management takes the time and HR is able to competently manage the solution, downsizing can actually help the organization get healthy and stay that way. It’s more like Mr. Spock than Rambo. It is rationally based. It begins by clearly defining the skills the company wants to leave in the past and acquire in the future. Here is an example.

We’reAllThatMatters is a legend unto itself. Employees generally want to work there because they can brag about the big-name. Unfortunately, people (read customers) outside the organization have a different opinion. Employees often treat customers rudely and without respect. For example, even if We’reAllThatMatters’ buggy bookkeeping system overcharges a customer 400%, employees treat anyone who complains as if it was his or her fault.

Now the organization must cut back its workforce due to economic conditions. Should it Rambo-size its employees? Should it ask managers for their subjective opinions about who stays and who goes? Should it amputate whole divisions? Since We’reAllThatMatters’ has been around some time, a majority of terminated employees may be over 40, raising the possibility of a nasty class-action suit. What to do?

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Rambo-sizing would be a serious long-term mistake. The payroll would shrink, but both skilled and unskilled employees would suffer the same fate. Customer-sensitive as well as customer-insensitive employees would be terminated equally. We’reAllThatMatters’ payroll would shrink, but payroll hemorrhage would continue unabated. Logical-sizing would be different.

We’reAllThatMatters would a take hard look at itself and honestly calculate the financial impact of poor customer service on future business. It would then develop some key job profiles containing both technical competencies to do the job as well as customer service competencies it wants to build and retain. When this is complete, it would move on to the next step.

Employee-Level Evaluation

Individual employees would have his or her performance objectively evaluated using the list of necessary competencies as a target. For example, customer-centric skills might be evaluated by gathering past examples of service (e.g., similar to behavioral event interviewing), reviewing performance appraisals (to the extent they might include relevant information), giving tests, administering surveys, and so forth.

The secret to success would be to evaluate the skill set of every employee using an objective standard based on the organization’s tactical plan. Results for each employee would be anonymized and independently reviewed by a few highly competent managers. Employees who matched the profile would be retained, and those who did not would be reassigned or laid off.

Smart-sizing could be done with competencies such as analytical skills to develop better problem-solvers, initiative to encourage operational improvements, teamwork to develop better internal working relationships, creativity to foster new ideas and designs … the list goes on.

Final Question

However, there is a price to pay. HR has to develop the skills to help managers analyze and clarify the skills needed. It has to become proficient in accurately measuring competencies (real ones, not garden variety stuff), and it has to professionally manage the process. Managers have a price to pay too. They must have the patience to work through the details of smart-sizing, dedicate the energy and commitment to making sure the process is followed, and be able to clearly define the future at the employee level.

The outcome of this initiative is a smart-sized operation; in other words, the skills of the employees are intelligently aligned with the objectives of the organization. Overall, this should result in fewer employees doing more work (because each employee will be more skilled), less turnover (because employees will be more satisfied), fewer mistakes, better quality, and so forth.

The final question faced by everyone in the operation is whether saving 20% to 50% of base payroll is worth abandoning Rambo-sizing for smart-sizing.


13 Comments on “Time to Say Goodbye: Are You Keeping the Bad and Terminating the Good?

  1. Hi WW, it’s been awhile since I darkened one of your comment sections…..

    When you say that “productivity is more than a mental exercise” I have to disagree, because thats EXACTLY what it is in many cases.

    Leaders influence states of mind, perceptions, and expectations; all mental excercises and all essential to victory in highly competitive situations. Leaders are found at all levels of organizations. Leaders are not generally measured by their own personal output, although sometimes they are.

    Lastly, you will never convince me of the efficacy of individual assessment in many, (but not all), work situations. Where work is done in groups or teams, assesing indivduals without regard to group dynamics can only give a partial picture, and a possibly damaging one at that.

  2. Hello, Martin..we are in violent agreement!
    -Individual productivity is often difficult to measure because of mitigating factors
    -Leader skills are generally best measured by feedback from subordinates
    -The only way to accurately evaluate an individual person’s skill-set is to isolate and measure them…individual skills often get lost in the fog of group dynamics…Do you know of any other way to separate the two?

  3. Yes: do the vastly more difficult and expensive work of assessing groups as dynamic systems- the current model is like trying to do weather forecasting using temps or pressures by themselves; you can describe OK, but you won’t be able to predict very well….

    Keep in mind that this applied to team and group work-some jobs are highly individual and can be assessed on that basis.

  4. That is comparing an apple with a smoothie containing an apple. One cannot accurately evaluate the attributes of an apple when it becomes part of a bigger whole. There are too many other factors confounding the mix. Just as one cannot evaluate whether someone has specific skills (such as intelligence, problem solving, planning, and so forth), by observing the activities of a group. That is what causes stereotypes, prejudices and hiring mistakes. Google Aristotelian vs. Galilean logic to see what I mean.

  5. I believe that Martin has some very good points. Also, if the 80-20 rule applied to work, wouldn’t it make sense to increase the productivity of the top 20% by 25%, then fire the bottom 80%? With the savings involved, companies should come out ahead. Question: how does a top 20% janitor, receptionist, A/P clerk, engineer, HR coordinator, teacher, marketing manager, tech support, or bus driver differ from those in the bottom 80%? Some skills are hard to quantify. Also, this premise assumes that the “ends” (productivity) are supreme and the “means” to the ends are insignificant. Finally, at what level in the organizational hierarchy does incompetence and inefficiency become immune to scrutiny/punishment? Clearly, a sizeable number of our failed corporate leaders are doing quite well despite the fact that their companies’ have lost billions of dollars and ruined thousands of lives of their customer/clients, employees, and their communities.

    Keith “What’s good for the Goose is good for the Gander” Halperin keithsrj@sbcglobal.net 415.586.8265

  6. WW, when you say “One cannot accurately evaluate the attributes of an apple when it becomes part of a bigger whole” are you not making my point ?

    Real world examples that I have personally seen:

    A five person sales team where one of the five has lower call volume, lower sales volume, and is assessed as having weaker organization skills, weaker product knowledge, and more sensitivity to rejection. Your article would say: dump her. In the real world, she is an elegant phrase maker who spends just a little time coaching the others and editing their proposals, providing the edge that helps make any number of sales.

    A six-person admin staff where one of the six misses more work, comes in late, makes more mistakes, and seems to spend half her time chatting with sales and tech folks. Your article says: dump her. In the real world, she is the one who remembers birthdays, who brings in donuts, who organizes off-hours company gatherings, who sooths annoyed callers, and otherwise supports the social web.

    Get rid of either person and lose a subpar performer ON PAPER. In the real world, you hurt yourself in a meaningful way.

    Do the right kind of assessing, and then seek a better salesperson with the same language skills, and a better admin with the same social drive, and you might make a moderate improvement. Fail to understand what’s really important, and move backwards.

    Likewise, hiring a second social connector or a second editor is a waste of time and money, since those informal, unspoken roles are already covered.

    Likewise again, if the other four salespeople were all english majors and the other nine admins are all facebook fiends, those informal roles have zero value.

    You cant count on just anybody or just any assesment to fill you in…..

  7. I really don’t understand what this argument is about: 1) decide what you want your company to be; 2) decide what skills each individual needs to be successful; 3) measure people fairly and accurately; and, 4) make your retention decisions accordingly.

    What part of that do you disagree with?

  8. The “measure people fairly and accurately” part WW.

    It should read “measure teams fairly and accurately” and then “measure leadership fairly and accurately”, as keith points out….

  9. Wendell, your article grabbed my attention and kept it – I thought it was a great read and very informative, and found myself nodding in agreement.

    I’ll be the first to admit that I’m certainly no expert in measuring performance however I’d like to make a few comments in response to Martin’s examples. Having people who remember birthdays and bring in donuts is nice to have – but shouldn’t those behaviours be encouraged of the team as ‘the way we do things around here’ in addition to doing their job to a high standard? Having worked alongside, then managed (and managed out) a support person who was fabulous at the fun stuff but continually let his colleagues down by not doing his core role well – I’ve seen firsthand the effect on the team. Morale and trust drops. Overall productivity drops. If he’d brought in donuts they probably would have loved to tell him where he could stick them – they just wanted to rely on him to do his role so they didn’t have to carry his workload.

    If being a great social networker or brilliant phrasemaker is important to the team – then make it part of the job description. But I don’t think being great at one aspect of your role while non-performing in other crucial areas is something we should find acceptable.

  10. Cindy no doubt that when performance is too far off the curve, all the donuts in the world make no difference. But how many times have we seen in the worlds of sports and politics (as examples) where teams gel because non-performance factors- or more to the point, of factors that help a group perform but are not the usual metrics ?

    How many times does a player get traded, with no change at all to his or her individual attributes, and we see a team or a season get remade ?

    Heck, I can recall cases where a player is actually hurt and not performing at all, and yet still driving a team to greater results….

    We have to remember that human beings and human interactions are so very complex- yea I know all about I/O psychology and the science behind much of the assessment industry; it has its place, it can be very effective, but in the context of WW’s article today, you can assess yourself right out of business.

    Moneyball has its uses, but it’s not the final answer and assessment needs to begin to deal with hypercomplex group dynamics.

  11. Thanks Cindy…sometimes I feel like the only one looking out for both the organization and the individual.

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