Why Google Quietly Uses the Power Law Rule to Pay Its Superstar Employees “Unfairly”

Imagine you have 100 employees and I ask you to graph them in terms of performance. Most likely, your graph will look like a bell curve: a small percentage of high performers on the left, a few mediocre performers on the right, and a ton of average performers in the middle.

Yet, as Laszlo Bock, the former Senior Vice President of People Operations at Google, writes in Business rules: Insights from inside Google that will transform the way you live and lead:

Organizational researchers have shown, similar to the 80/20 rule, that the majority of your company’s output comes from a minority of “superstar” performers: what’s called a power-law distribution.

In terms of performance, think of the power law distribution as a long tail of progressively lower performance. In visual terms, like this.

    picture online

Yet the standard bell curve underpins most HR systems. According to Bock, this means that many leaders “undervalue and under-reward their best people, without even knowing they are doing it.”

For example, I once categorized all of my employees as “top” and for good reason: they were the most productive team in the factory. HR rejected my reviews and said I needed to distribute my reviews more “fairly”.

“Enough”, of course, meaning “bell curve”.

This resulted in a few exceptional employees being undervalued and therefore underrewarded. Because pay was tied to job evaluations, they didn’t get the raises they deserved.

Put your best people under a microscope

Instead of focusing on what makes poor performance poor, Google has taken the opposite approach.

Take the lead. Google has used its analytics power to determine how great teams are built and led. They discovered that good managers produced reasonable results, but exceptional managers produced exceptional results. The result was a list of attributes shared by top performing managers. (Interestingly, only one attribute involves a manager’s knowledge, skills, and experience. The others were soft skills: communication, feedback, coaching, teamwork, respect, and consideration.)

Then Google used these attributes, and the resulting assessment tool, to develop more successful managers, and in particular to help those who were struggling.

This is one of the benefits of adopting a power law mindset for employee performance. Instead of seeing superstars as outliers whose skills can’t be replicated, identify what they do differently. Then use this information to move the curve further to the right.

After all: Helping top performers become 5% better will pay dividends. But helping average employees increase their performance by 10% makes a bigger difference.

And helping relatively underperforming performers increase their performance by 20% makes an even bigger difference.

According to Bock, working to develop low performers can not only improve productivity and quality, but it also serves another purpose. “People are improving dramatically,” Bock writes“or they leave and succeed elsewhere.”

So pay your best employees more

Most companies have pay scales. Each position is “worth” a certain amount, and eventually even the best performers come out on top. Logic. The salary must be “fair”.

But “fairness” means that superstars earn only slightly more than average employees. And then, as Bock writes:

In a misguided effort to be “fair,” many organizations underpay their best people, producing the very injustice they are trying to avoid.

And, most importantly, create a rotation of top talent.

Instead, your goal should be to pay employees fairly…by tying their compensation to their contributions, results, and accomplishments. “Fair” shouldn’t be based on “it’s the most the work pays”.

“Fair” should be based on “that’s what you’re worth”.

Like in this story by David Halberstam game breaks.

In 1974, eventual Hall of Famer Lynn Swann was the seventh pick in the NFL Draft, but his agent negotiated the second-highest starting salary among rookies that year. Later, his agent was dismissed by Art Rooney, the owner of the Steelers.

“You think you fucked us, don’t you?” Rooney asked the agent. “You are wrong. We have you. My son says he’s not a good footballer, he’s a great football player. Probably the best draft pick we’ve ever had. Maybe better than Terry Bradshaw or Joe Greene.”

“Let me teach you a lesson, young man,” Rooney continued. “You can never overpay a great player. You can only overpay a bad one. I don’t mind paying $200,000 to a big player. What bothers me is paying $22,000 to a $20,000 player.”

It is the same for you. Good employees are worth far more than average employees to your teams, your customers, and your bottom line. Superstar employees are worth much more.

Do what Bock recommends and pay them unfairly. Pay ’em not just like you want to keep ’em… but like you desperately want need to keep them.

Not only because they drive results, but also because putting their skills, attributes, and qualities under a microscope can also help other employees perform better.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.