“The problem with socialism is that you eventually run out of other people’s money.”

– Margaret Thatcher

“Problem with corporate Socialism is that you eventually run out of performers. Worse, you stop attracting them.”

Several Indian organizations and international companies operating in India should have done better business. There are numerous reasons for organization’s poor performance in business, government, and non-governmental organizations. These include insufficient capabilities, inadequate training and development, a lack of leadership, incorrect risk assessment, and an ineffective strategy or business model.

Various businesses are afflicted with one or more of these problems. We all know that outstanding execution is the key to success, even if the strategy or business model is slightly flawed or the risk is not appropriately addressed. However, most businesses lack execution excellence. What is the root of the problem?

The main reason for the lack of execution excellence is “Socialism at Work,” which affects most of the companies in Asia, particularly in India. What is the incentive to perform if organizations reward both high and low performers equally? Worse, in terms of opportunity, resources, recognition and appreciation, organizations do not treat high performers differently.

In the worst situation, this leads to high employee engagement amongst non-performers. The high performers are disengaged and eventually leave. Believe me, I would have seen at least 100 surveys with inverse co-relations between performance and engagement. Most of these organizations do not exist.

One of my clients wanted to attract and retain high performers.

Conversation for socialism

I asked the CEO: Does your organization differentiate between high performers, performers, and below average performers.

ME: How?

CEO: The increment and bonuses are different?

ME: How much?

CEO: Last year we paid 11% increment to high performers, 9% to average performers, and 7% to below average performers.

ME: What do you think was the difference in targets achieved between high performers and below average performers?

CEO: High performers achieved 125% target and below average achieved 70% of the target?

ME: .. and the difference in effort of the two groups?

CEO: 30 to 50%

ME: and difference in rewards? 4%! What is the employee engagement score of high performers?

CEO: I have just joined. We have not been measuring employee engagement.

Folks, don’t you think that employee engagement score of high performers in this organization will be low? And they will finally leave. Eventually the word spreads in the market and high performers avoid joining this company.

Please appreciate that this was not a unique client or unique situation. The story is true in a lot of companies. Put your hand on your heart and ask yourself are you not guilty of corporate socialism.

I was also guilty of not differentiating enough.

I recalled that in one of the consulting firms that I worked for, my team had to work the hardest. A very high performer wanted to leave my team and join some other team. I asked him Why?

HE: We have to work hard in your team.

ME: So? I ensure that my team is rewarded the most.

HE: Yes 4% higher increment and 25% higher bonus. We have to be on the client site in some remote area 8 months in a year. The others are in their chummery in Bandra at 7 pm. Then they are sipping beer at some bar in the hep and happening suburb of Mumbai.

Of course, this led to low employee engagement in my team and consequent attrition. I was bound by the corporate policy and the increment and bonus bands by HR. The CEO would want me to be a better manager and improve employee engagement in my team. My options were to tolerate average performance or lower employee engagement survey score, as my influence on rewards was restricted by policy framework. Eventually I also decided to quit.

Over the 5-year period that I worked for the firm; it grew 7 folds. I was told subsequently they were not able to attract high performing consultants and the firm shrunk.

Marcus Buckingham in his book “First Break All the Rules” highlights the need for managers to differentiate between performers and non-performers.

6 things businesses should do to improve organization’s performance through differentiation:

• A very transparent PMS process with measurable objectives.
• Manager’s capability to call a spade a spade.
• Differentiation of performance owned and driven by leaders throughout the year.
• Significant difference in variable pay and increments between top and average performers.
• Separate growth opportunities for exceptional achievers.
• Better resources for high performers to enhance productivity and effectiveness.

Differentiation helps improve engagement among high-performing teams, while motivating others to aspire and grow. This leads to overall improvement in employee engagement across the organization.

Differentiation is minimal in the government sector, resulting in lower motivation to perform. Even if employee engagement is measured, it is likely to be low.

Some public sector organizations in India, particularly banks, have used differentiated opportunities and resources to incentivize strong performers and deliver superior results despite limitations in compensation.

All these levers are available in the private sector. However, most organizations lack the will to differentiate. When CEOs refuse to differentiate, they often overlook the impact on business performance and, ultimately, their own success.

High performers become frustrated in a corporate socialism environment and leave for better opportunities. This leaves behind underperforming talent, resulting in weak organizational performance.

Leaders must choose between socialism and high-performance organizations.