The Loyalty Question
Doesn’t differentiation—the system of paying top performers much more than everyone else and moving out the weak performers every year—destroy employee loyalty?
Look, loyalty is no magic bullet. In today’s globally competitive world, you can’t survive, let alone thrive, without satisfied customers. Do “loyal employees” make that happen? Sure— sometimes. But for satisfied customers all the time, you need employees loaded with talent, energy, and passion. You need people who aren’t with your company because you take care of everyone all alike and the dental benefits are good, but because your mission turns them on, the work is fun and meaningful, and the opportunities for growth are thrilling. You need people who are happy to stay but ready to leave if the environment isn’t buzzing. Those are your winners.
We’re not against employee loyalty, of course. It’s sure better than hostility or apathy! But the concept of employee loyalty as a corporate and societal virtue went out the door with lifetime employment, which had to go when foreign competition arrived. Differentiation was the antidote.
It has its flaws but works better than any other system we know. One reason: It makes clear that employees can only stay as long as they’re performing. If that causes some people to be disloyal, let them go. You need employees sticking around for more than security—namely, opportunity and growth.
This question and answer originally appeared in Business Week magazine on December 18, 2006.
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