Since our firm does consult with major companies on compensation issues, I
feel obliged to respond, and to hope that it wasn’t us that was hired by
Mjoll’s or Foghorn’s firms.
When we classify a large group of employees based on performance, the curve
is usually slightly skewed from bell-shape. A lot of the very low-performers (technical term: deadwood) are culled from the group one way or another (including being unhappy or unsuited for the job and leaving voluntarily, as well as dismissal.) So we typically see 5% to 10% classified as low-performers, and 10% to 15% classified as high performers, and the great mass (75% to 85%) in the middle.
The performance measures should have been determined in advance, and then you can see how the curve comes out against them. To try to design the performance measures so they fit a curve – whether bell-curve or J-curve
or logarithmic – is arse-about, IMHO.
And, of course, it is absolutely NUTS to be trying to apply any sort of curve to a small sample size. We deal with hundreds or thousands of employees to get reasonable statistical kinds of correlations.
Once the performance measures are designed and communicated, the time period goes by, then you can map performance to see how things went. Granted, there is usually a “subjective” piece or intangible element to the performance, but still, the idea is to measure where things are. Then upper
managment looks at the pot of money that is to be divided over this performance curve, and sets merit increases, performance bonuses, long-term stock options, or whatever. The most common approach is a pool, distributed over the performance curve. Sometimes the rewards are leveraged for the top performers to really get lots more; sometimes not so much.
A company should be using performance-driven pay (whether merit increases, performance incentives, or long-term incentives like stock options) to deliver a message about performance. For most employees, that message is usually, “You’re doing just fine, keep it up… and by the way, here’s what
you can strive for if you want to do better (both in performance and in pay).” For the bottom 5% or 10%, the message is, “Hey, you’re under-performing, do something.” And for the high-performers, the message is usually, “Great show, keep it up!”
Hope that helps, there are volumes of material on how to set compensation,
and you’re not going to get an MBA course here.
On the question of the usefulness of consultants… well, that’s tough. There are certainly some circumstances where the consultant points out the obvious and the company decides to do it (or not to do it.) As a consultant, those are not the situations that make me feel good, but it is
a fact of life – sometimes bringing in the outside consultant is necessary for political reasons rather than for content: getting the expert opinion of an unbiased outsider.
Often in consulting, I’m reminded of Dorothy about to be sent back to Kansas by Glinda: she tells Glinda what she’s learned, the scarecrow says, “I should have thought of that with my brains” and Glinda says, “No, she had to learn it for herself.” I sit in a meeting, I hear the problem, I know what they need to do and how they need to do it, but they won’t listen to me – they have to go thru the reasoning process themselves. Sometimes takes weeks, I could have short-cutted it if they’d listen, but they won’t
accept my say-so until they track the process.
So those are situations where consultants are not as effective or as efficient as they would like to be… or as an outsider looking at the process might judge them. It may not be the consultant’s fault. And the consultant may be just as unhappy about the
process as you (the outsider) are.
On the plus side, there are lots of times where I bring new ideas, new perspectives, broader concepts of what others have tried (or not tried)… and those are the situations where I feel good about helping the client, and the client (usually) feels good about paying our fees.
Sorry for the rambling, it’s a slow day.
