Continuous Bar Raising

Companies, GE being the most notable one, tried to raise the employee bar continuously. They prune the bottom 10% of the employee pool and replace them with better new hires. This should roughly raise the average by about 5% with each iteration. If talents are the most important factor in productivity, this practice will steadily make the company more competitive and eventually becomes the leader in whatever arena it participates.

It simply does not work.

The labor market is efficient enough that talents are subject to the market influence. If the company does not pay better, its new recruits will conform to the general distribution. Else it will simply lose 10% of the employees without replacements. Put differently, without a compensation policy as the foundation, the “prune and replace” practice will yield no productivity improvements.

Secondly, some talents are not subject to general statistics. The CEO, for example, cannot really be replaced with someone 10% better each year, and the same for most leadership positions. If the practice does not work for the most critical talent pools. What’s the point?

Lastly, company-level performance is much less to do with employee individual productivity than decision making processes, culture, or infrastructure investment. A man cannot out-dig a backhoe, nor can he improve manual trench digging by 10% continuously. Companies are better advised to achieve success with leadership training.

Most companies compete with others. That’s the iron guarantee that there is no certainty to winning. Employee performance management and recruiting effectiveness are part of it. Compensation policy is also a critical element. “Prune and replace” is flawed in logic and proven to be not working.

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