In my relatively brief tenure as a VP at a Fortune 500 tech company, I struggled a bit dealing with the processes, systems and bureaucracy.   But in the time since, I’ve mellowed a bit and realized a lot of the processes actually made a lot of sense, especially when you have 15,000+ employees.  You have to have good systems and processes at scale.

One that was most interesting to me, and one I recommend adopting in the New Year (or really, ideally in December of each year), is the Annual Top 5% and Bottom 5% identification.

At Big Companies, it’s hard to fire anyone.  HR makes it tough.  So each year, most big companies instead go through an annual reorg of sorts.  All the VPs get together and identify the Bottom 5% of the team.  And then separately, they also meet to do equity awards annually.  Equity often gets stingy in older, public companies.  So most of it again flows to the forcing function of whomever you decide is in the Top 5% of your team.

What I learned from these exercises is even identifying the Top 10% and/or Bottom 10% can be fraught with politics, divergent opinions, and more.  But just identifying the Top and Bottom 5%?  Very easy, very simple, very fast.  Everyone knows.  There was very little debate here.  It took each VP about 90 seconds to come up with a list of their Bottom 5% employees.  And when it came time to hand out equity, forcing the larger grants to just a handful of folks in the Top 5% of each team and department turned out to be a much simpler exercise than expanding it even to 10%.  Once you expanded it to 10%, that really became 15% (who is on the line / bubble?), and all of a sudden, it becomes a much more complicated process.  It can be argued every decent employee might maybe sort of be in the Top 15%.  But Top 5%?  You know.  And in a smaller company, everyone knows.

So do this 5%-ers exercise.

Identify the Top 5%-ers on your team.  And give them a raise and more equity — this week.  They deserve it.  And it won’t cost all that much.  This extra comp is only going to 5% of your team, after all.  And talk about a promotion, if appropriate.

And the Bottom 5%?  Maybe it’s time for them to move on.  You won’t miss them.

This works even better with your management team.  There will be debates and dramas about who is Good and Who is Great.  But everyone will be able to identify their top 1-2 performers.  And their top 1-2 weakest performers.  Even on a fairly small team.

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