When you first start out you may be the only employee your company has, but with growth, you might have to hire help.  Employees are one of the most costly assets you will have, so you will need to make sure you are getting the biggest possible bang for your buck. 

In his book Topgrading:  How Leading Companies Win by Hiring, Coaching, and Keeping the Best People[i], Bradford Smart divides labor talent into three levels:  A, B, and C.  Most companies hire A talent for about one-fourth of their jobs.  A talent is defined as those people who are in the top 10% of the available labor pool for the pay level.  The remainder are Bs and Cs.

It is Smart's contention that each company should strive to hire only A talent, should promote only A talent, and should have only A talent in management.  He acknowledges, however, that as business needs and people change over time, most companies will probably achieve 90% rates of A talent in new hires, promotions, and management.  Moving from 25%, where most companies live, to 90% where topgrading companies perform, is attainable, in part because top talent attracts more top talent.

Once you have an A-level manager in place, that manager should be able to recognize, hire, and coach employees at the A level.  However, if you have a C manager doing the hiring, he may not be able to impress the top talent from the interview pool sufficiently to encourage them to accept a job offer from your company.

Cost / Benefit Analysis of Topgrading

When the wrong person ends up in the wrong job, it can cost a company as much as 15 times the base salary for the job.  This takes into account such costs as hiring the person, paying the salary which is higher than the value of the work you are getting from him, giving him a severance package when you can off-load him, correcting his mistakes, missing out on certain opportunities you wouldn't have missed if the right person were in the job, and paying for the lost productivity and disruption when the person finally leaves the company.  In Smart's view, half of all employment decisions result in mis-hires, meaning that the cost of bad employment decisions might be as large as 15 times half of your annual salary budget.  Is that something your company can afford?

Smart also points out that hiring the best is not cheap.  Based partly on the law of supply and demand, salary ranges must be set by conducting compensation surveys to determine the market rate for various jobs.  If you offer too low a salary, you will get people who are very competent in that salary range, but not necessarily competent at the salary range commensurate with the expectations of the job.  If you offer too high a salary, you are in danger of having bored employees who flee at the first chance they are given to make a difference at another company.

While topgrading is not seen as a guarantee of success, Smart claims that it "can give any company the best chance of success."  Clients such as General Electric, Allied Signal, Dell, 3M, Goldman Sachs, and the American Heart Association would seem to be the proof in the pudding.

Still not convinced?  Check out these statistics from McKinsey War for Talent Research and Bob Eichinger:

• Paper plants managed by A-level talent have 94% higher profits than other paper plants.
• More talented investment banking associates are twice as productive as those who are average in talent.
• Return to shareholders for companies with top talent practices averages 22% above industry means.
• The top 3% of programmers produce 1200% more lines of code than the average.  The top 20% produce 320% more than the average.
• The top 3% of salespeople produce up to 250% more than average.  The top 20% produce up to 120% more.[ii]
  

According to no less an authority than management guru Peter Drucker, "The ability to make good decisions regarding people represents one of the last reliable sources of competitive advantage, since very few organizations are very good at it."  Smart takes this one step further, stating "The single most important driver of organizational performance...is talent."