Performance Management Economics: Regression to the Mean of Top Performers…

regression to the mean

I’ve got a theory I’ve written about before: EVERY MANAGER and INDIVIDUAL CONTRIBUTOR HAS A SHELF LIFE AT A COMPANY.

What’s a shelf life? Shelf life means that you come into a new opportunity with lots of fresh ideas, and you’re engaged and ready to kick some ass. And you do that. Just as importantly, the people around you—the receptors of all that wisdom—view you as at least somewhat fresh and innovative.

Like the Eagles once said, you’re the new kid in town.

Until you’re not. I think every manager has a period of about 2-3 years in the company, then they either need to get a different team in the same company, change companies or do what is hardest—reinvent themselves and the personal value proposition they bring to the company and their teams.

I call it shelf life. Others might call it regression to the mean, and smart people realize it impacts companies as well individuals. Here’s some notes from a while back on how a VC thinks regression to the mean is the biggest threat to Facebook:

“What’s the biggest threat to Facebook?  Some things leap to mind: GoogleTwitter, the shift to mobile, government regulators.  But a top Facebook executive says those aren’t the real problem.

Instead, it’s reversion to the mean, according to Chamath Palihapitiya, who’s now a venture capitalist at the Social + Capital Partnership. Reversion to the mean, or regression to the mean, is a concept from statistics. It basically says that exceptional performance can’t last forever.”

Here’s how that works according to CP:

“When companies work, the biggest thing that happens is you revert to the mean. The mean is every crappy company out there. And we all work at crappy companies. We’ve all done it. We all look at our boss and think, “This guy’s an idiot. How does he have this job? This company is so stupid. I hate my job. Is it time to leave yet?”

We’ve all been in that position.

And so the real question that I was asking myself at Facebook was, ‘What happens and how do companies end up in this situation?’ And my realization was every company gets there eventually. But that last word is the most important.

And the challenge of a senior executive team is to prevent that regression to the mean. And culture is the only thing that does that.”

Regression to the mean for companies and shelf life for managers. It’s going to happen eventually. Your job is to prevent the regression from happening as long as possible. When you think about it, preventing good talent from that regression is probably the most important thing an HR pro can do, right?

Unfortunately, it’s also one of the hardest. If you’re a manager, think about your own shelf life.

If you’re an HR Leader, think about where regression to the mean and shelf life dates coming due are happening—that’s where you have turnover risk.

What you do once you locate the regression to the mean?  That’s what you get the big bucks for…

FOT Note: This Rant is brought to you by the good folks at Halogen Software who like us enough to be an annual sponsor at FOT for all content in our performance management track (and don’t expect that we run any of this by them ahead of time). 

FOT Background Check

Kris Dunn
 Kris Dunn is Chief Human Resources Officer at Kinetix and a blogger at The HR Capitalist and the Founder and Executive Editor of Fistful of Talent. That makes him a career VP of HR, a blogger, a dad and a hoops junkie, the order of which changes based on his mood. Tweet him @kris_dunn. Oh, and in case you hadn't heard the good word, he's also jumped into the RPO game as part owner of a rising shop out of ATL, Kinetix. Not your mama's recruiting process outsourcing, that's for sure... check 'em out.

2 Comments

  1. Greg says:

    Another name: “The Golden Boy Curve.” It may take awhile to climb to the top, but the ride down the other side is usually swift and severe. Then we do a comp review and say “Why are we paying this guy so much?”

    Reply
  2. Kris Dunn
    Kris Dunn says:

    Hi Greg –

    Right – what’s the replacement cost for the same talent, or for 90% of the performance we get out of the role?

    KD

    Reply

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