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Be Disloyal to Your Employees

Be Disloyal to Your Employees

Erik Samdahl | i4cp

September 17, 2010

Are you loyal to your employees? If so, stop it.

The New York Times recently published an article on Goldman Sachs. Call them pariahs or financial wizards, the 35,000 employee Wall Street firm is a money-making machine.

And becoming a partner is, as the Times put it, “the equivalent of winning the lottery.”

The problem is, unlike most firms with a partnership model, once you become a partner you aren’t guaranteed to always be a partner. In a secretive process conducted each fall, Goldman Sachs determines which of its executives should become partners. Oh, and which ones should be “de-partnered.”

Talk about a lack of loyalty. Employees work their butts off for years to make partner, only to be shown the door or at the very least a demotion? They may be doing a perfectly good job, but there’s always someone newer and better just around the corner.

Business results are important, but is this practice ruthlessly brutal or a just business necessity? Or both?

At first glance, the process is simply brutal. If you become a partner, then being demoted to something less is downright harsh. But Goldman Sachs isn’t a private firm where partners are truly partners; it’s a public company, albeit with a unique, hybrid structure, where “partner” simply implies an upper echelon of vast rewards – but not a birthright. The company still has to report to shareholders and maximize profits.

Goldman Sachs kept its partnership system as a way to motivate top talent. The selection and de-selection process, based primarily on financial contribution to the firm (though not exclusively), is intended to reward the best employees. The process allows Goldman Sachs to continuously and actively reward employees while simultaneously strengthening its succession pipeline. Effectively eliminating some partners – even if they remain with the firm – avoids cronyism and keeps the firm pushing upward as new talent looks to supplant the old.

It may be harsh, but this sacrifice of loyalty to the few benefits the many. Employees are motivated beyond simple stock ownership, the company isn’t bogged down by out-of-touch executives who are content riding the wave of past accomplishments, and shareholders ultimately see returns on their investment. For that matter, keeping the company strong benefits the larger employee base as well.

The truth is that certain types of loyalty to individuals can dull a company’s competitive edge. And being loyal to one employee shouldn’t mean being less loyal to another who may be better suited for a job. That type of loyalty tells employees that, no matter how good they are, they may not get that position they want or deserve. At the same time it tells others that, no matter how much their performance has dropped off, they’re safe. There’s no room for complacency or entitlement in this day and age, but there’s still plenty of it.

In fact, i4cp’s new member-requested study on Time to Optimal Productivity shows that over half (55%) of respondents from low-performing organizations report that employees often remain in positions after their productivity has begun to wane. That’s true for only about a fifth of those from high-performing firms.

How loyal do you want to be to your employees?

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