When handing out pay rises Kiwi bosses focus on equality, pouring more time and resources into bringing under-performing, developing and average "solid citizen" employees up to scratch, at the expense of their high achievers. But by doing this, firms risk losing their top performers - the ones who are driving their businesses through high innovation, commitment and productivity.
Research reveals that staff rated as "developing" receive higher salary increases, get the bulk of the boss' attention and are more likely to be promoted within a two-year time span, than those rated "exceeding expectations" or "exceptional".
Using the formal language of our industry, this means some of the base systems that drive remuneration outcomes are "norming towards the central tendency".
In other words, it's a race to mediocrity.
These firms are confusing equity - where everybody is assessed against the same criteria and set of standards - with equality, where everybody gets the same.
The likely result? Our high performers will "self-select" out of their jobs - or be headhunted by competitors who recognise their talent.
Low and average performers may also quit, for a variety of reasons. But the real damage to the organisation comes when no attention is paid to the high-achieving 20 per cent of the workforce who return 80 per cent of its performance.
Because these employees are doing a great job, companies tend to leave them alone rather than doing some prime interventions to ensure they're recognised and retained effectively.
Every organisation says it wants the same thing - a high performing, highly motivated organisation. There is plenty of empirical evidence to indicate differentiating base pay and incentives - that is, paying high performers more through base pay and incentives - produces those outcomes that drive a high-performing culture.
Instead, the business' time, money and resources are being spent disproportionately on the 70 per cent of staff who get an average three out of five rating at performance reviews.
Part of it is New Zealand's tall poppy syndrome. We feel uncomfortable about singling out our high performers and making them special.
When we speak to business groups, we hear a sharp intake of breath when we tell them they've got to differentiate - to pay a lot of their staff less and give more nil increases - in order to pay more to their high performers.
They're really worried about unsettling the average.
At the same time, they say they want a high-achieving culture. But are they prepared to do what it takes to get there?
Some even say they want to pay high performers well and want an appropriate return on investment so they're spending the right money on the right things. But the reality is somewhat different.
We see the same practices, over and over again. These organisations need to realise if they always do what they've always done, they'll always get what they've always got.
That's a key differentiator for those prepared to take that next leap to become a high performing business throughout the organisational landscape.
But most are still using the same performance management systems and processes.
They still have a group of managers who are either unprepared or unable to have conversations that say "you're a great performer but she's an average one". These managers are still hiding behind tools and systems rather than having those difficult conversations.
Because these companies don't have good manager capability and have issues around systems, they're not shifting the dial on business performance. They're always sitting in that "average land".
Today the real definition of a high performing organisation is one that is willing to take a bit of risk, not only with low performers but also to have the right conversations with high performers and be brave enough to say "you are a special group and we want to do things differently".
Companies not willing to do this face losing their key talent - the people with institutional knowledge, and the best customer relationships and revenue streams.
New Zealand's problem is it's very egalitarian in these things. We often go into organisations and say "tell us about your culture". Our hearts sink when we hear things like "our CEO treats everybody as a family" or "we share the lollies with everyone".
If you go into an organisation that's more commercially-led, the concept of fairness is all about employees being differentiated according to their contribution.
Are you up for the challenge?
Susan Doughty and Una Diver are partners at EY specialising in talent and rewards.
