Even companies that understand what their strategic advantage is have the hardest time aligning reward structures to match the strategy.
In many cases a firm may break away from the pack in manufacturing with superior customer service but maintain higher rewards for engineers and backoffice functions due to industry conventions. Similarly a service company shifting to productize its offerings may still reward their professional services staff better than their newfound development or engineering staff.
Many of the same companies believe that they are paying market rates but that may not be enough. If they are pursuing a differentiation strategy than they will have to attract and reward the most differentiated (best) employees and suppliers in that category to maintain competitive advantage.
It means that in areas where you want to have competitive advantage you will have to pay top dollar and in other areas you will pay the “going market rate”.
Jack Welch in the book Winning pointed out time after time that companies have a hardest type assessing talent and retain the highest performers and get rid of the lowest performers. In this sense it is true of employees and suppliers.
I have yet to meet a company that does not believe that they hire only A-players... Who is hiring the B and C players? It is an unfortunate and inefficient myth. As a motivational speaker told us in our first partner meeting in my E&Y days: “Half the people in this room are below average”. It is true and not necessarily a bad thing. You will not be able to reward and motivate the A-players in non-strategic areas and similarly you have to create great opportunities and rewards for A-players in strategic areas.
Companies that under-reward players in strategic areas will eventually erode their competitive advantage which holds true for most companies with one size fits all compensation structures and procurement procedures.
To win, you have to reward the real A players in your areas of strategic advantage and happily hire and retain the B and C players everywhere else and keep those motivated with specific performance metrics.
The following table may serve as a strategy guide for building the right teams. My earlier post also describes characteristics of A-players in any successful environments.
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