Why Performance Trumps Tenure

In a hot job market, you can’t retain every one of your people, which is why it’s important to think about who you really need to keep and why: and it’s important to be deliberate in your approach.

First, think about the people who are exceptional individuals. Now, be careful here: exceptional means they produce exceptional results, create innovation and opportunity, and lead others to be better, delivering a multiplier effect.

It’s not just the person who everyone likes… or the person who knows the most… or the person who’s been there the longest… 

I see leaders all the time mis-classifying solid performers as exceptional individuals, because the halo effect dominates—particularly the knowledge halo. “John knows so much… how could we possibly survive without him?” 

Don’t be misled here. Performance is the yardstick, and it has to be assessed clinically and dispassionately.

How should you treat exceptional individuals, if you’re fortunate enough to have one or two? I’ve always found that it’s worth paying exceptional people more money… 20%, 30%, or more above the going market rate. Why? Because people like that don’t outperform the average person by 20% or 30%… they outperform them by 200%. 

Second, think about any critical roles that might be hard to replace. Some skills are difficult to find, and that’s just the way it is. Your judgment, as a leader, is to think about how critical a role actually is. 

Not everything that’s done in your company is critical, even though you might feel as though it is. I have two questions that provide a simple acid test.

1. Does the long-term health of the business rely on this function being performed consistently well over time? and…
2. If I were to remove that role tomorrow, how long would it be before I could see material degradation in the performance of the business?

This normally helps you to identify a critical role. Then it’s just a matter of having a plan for who populates that role and how easily they can be replaced.

The third consideration, is to think about anything that’s core to your strategy, and the fundamentals of doing business. These are typically things that you should be doing in-house. They can’t be easily outsourced. 

You would typically outsource something to get economies of scale, to  take advantage of a specialist company’s process maturity, or to provide flexibility to ramp demand up and down.

The rule of thumb is that you should never outsource anything that’s core to your business, or that provides you with competitive advantage.

This summary should give you everything you need to make decisions on the people you really need to keep. Look at individual performance first, then understand the critical roles and, finally, be clear about the core functions that enable your business to compete.