When it comes to rewards, sports probably  offers the starkest examples. While it’s not quite ‘winner takes all’ thankfully, it comes the closest to such an approach. Consider the just concluded  Wimbledon tennis championships. Out of a total pot of 38 million pounds, the men’s and women’s winner got a cool 2.35 million pounds each. Or just over 6% of the total pot each. Compare that to say, the first round loser, (45,000 pounds) or the quarter finalist ( top 8 player) at 294,000 pounds. The winners purse is  8 times the quarter finalist, and 56 times the first round winner. In a game where the difference between the best and the rest is a matter of very small percentages, those numbers sound almost cruel, but you won’t find anyone protesting.  And if you thought that is unfair, then just consider the pinnacle  of the superstar culture and pay scales, the movies. 

Corporate life of course is a little more different, with its focus on the team, company objectives, sustainability,  following a process and many other metrics. But the influence of ‘star’ culture, and the need to  adapt, has never been more important for corporates. For good reasons.

For starters, corporate teams are a lot more leaner today, leaving firms much more dependent on each individual’s performance, with little backup or redundancy built in. 

Secondly, top performers command top dollar in a competitive market today, with new firms in a hurry to make an impact, desperate to get the benefit of their experience or energy, sometimes at significant premiums. Terms like fail fast to succeed have an inherent bias for paying top performers whatever it takes to make an impact in the market. 

Most importantly, holding back rewards from a top performer, at the risk of losing the person, risks becoming an even more expensive decision, when you consider the challenge of finding a quality replacement, and that too, at a comparable cost. Today, we find that even in slow, or traditional sectors, firms do everything, from fixing a quota for the top performers , like say, 5% of all employees or more, to rewarding even bosses for nurturing top performers.  

A Study by payscale, a compensation focused firm in 2018 compared the compensation practices of top performing firms, and guess what? They found that top performing firms consistently gave more frequent incentives,  tried harder to make counter offers to their top performers, and allowed their managers higher discretion and say in compensation. 

So if a performance premium is a given for top performers, what could go wrong? Much, if the firm doesn’t handle it right. The most important issue is of course the fairness of the rewards. 

Your appraisal and rewards system doesn’t just need to be fair, it needs to be seen as fair. That means informing those missing out exactly why they are missing out. Making key people available to answer queries around the process and system. Making your rewards policy as clear as possible, so that there is almost zero element of surprise when the top performers  do get their rewards.  In doing this, firms today are also realizing that it is no longer a good idea to go with a fixed structure . 

To accommodate your top performers, be prepared to add an element of flexibility, without losing out on the issue of transparency.  Some firms today reserve a specific part of the ‘pool’ for top performers. Others consider one time bonuses as an option, to keep their regular pay bands in alignment.  Most are shying away from non-monetary rewards, or perks, due to their questionable perception for different people. A Harvard Study seals this argument, with the finding that variable pay was an even beter option than share of profits, ie, even in lean times, your top performers need to be rewarded. 

Much has changed to enable these changes, when it comes to your top employees. Today, employees  are far more open to  reporting to a younger boss for instance. Shorter average stints with firms , coupled with even shorter term performance metrics (quarterly targets) tilts the scales even more in terms of faster, and outsized rewards at times.   

Fighting this trend or reality for most, is not just a risk, it can be downright disastrous for firms in sectors that see a high level of competition. Besides obvious ones like media, FMCG’s, healthcare and others in the services sector, sectors that are attracting strong investor interest also make a very strong case for upping your rewards policy for top performers.