We’ve all heard the saying, “80% of work is completed by 20% of employees.” But how true is it? According to recent research by Professors O’Boyle and Aguinis, it appears to be surprisingly accurate: job performance does in fact appear to follows a Pareto distribution. Their results revealed that the top 5% of employees were responsible for 26% of an organization’s productivity while the top 1% produced 10%.
When superstar employees disproportionately add to your company’s bottom line, benchmarking your top performers in order to hire similar ones just makes sense.
How to identify who your top performers are and calculate how much value they add
Summarizing this informative article by Dr. John Sullivan, here’s how to do it:
Step 1: Calculate the annual revenue produced by the average employee
In order to create a baseline against with to compare your top performers, calculate a measure of the annual value produced by the average employee. A standard method for doing so is dividing the total annual corporate revenue by the number of employees.
Step 2: Define what a “top performer” is for specific roles in your organization
Pick an agreed upon definition of a top performer at your organization. This can be partly guided by your company’s actual performance data. For example, maybe your sales reps’ quota attainment clusters such that top performers rank in the top 5%. Or if you don’t have these metrics on hand, you can go with the widely accepted industry standard of the top 20% in performance.
Step 3: Determine the top performer multiplier
For sales, ranking your employees from best to worst in terms of who produced the highest total economic value is usually simple. For other positions where output isn’t as easy to quantify, you can still do it by identifying employees’ tangible contributions and estimating the economic value of each one. If possible, collaborate with colleagues when doing so to add rigor to the process.
Based on the best-to-worst rankings, calculate the percentage difference between the value produced by the average employee and the value produced by the top performing employee.
Step 4: Calculate the added revenue contributed by a top performer
To calculate how much a top performer actually contributes to your bottom line, multiply the average revenue per employee by the top performer multiplier to get an average dollar impact. Keep in mind that the estimated dollar value of other contributions like relationship building, attracting new customers, and problem solving can be added to your “revenue per top performer” calculation.
Dr. Sullivan recommends, “[W]hen you find a high multiplier in a job family, that means that you should prioritize and direct the best HR resources towards hiring and retention in those jobs.”
When the performance of a sales team can make or break a company’s fortunes, the results of these calculations should help convince you why you need to invest in hiring salespeople similar to your top performers.
Agree? Disagree? Anything I didn’t touch on? Let me know in the comments or send me a tweet @ji_amin! I’m always interested in learning how your hiring practices have shaped the way you hire today.
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