There are three golden rules of people management: Rule #1 If left free to their own devices, employees will do the minimum possible work, and organizational productivity will take a nosedive, so Rule#2 All employees must be given tough (stretch) goals so they are encouraged to go ‘above and beyond’ the normal call of duty, and Rule #3 Managers must closely manage and motivate employees so that the stretch goals are achieved.

Do these three rules seem logical? In fact, they sound so logical to most people that a bulk of people management practices are based on them.

Unfortunately, they are anything but logical. In reality, the reverse is true i.e. if employees are set free to choose how much and when to work, organizational productivity increases rather than decreases; and encouraging everyone to write stretch goals is an exercise in futility because of something that has not been debunked since 1906—the 80:20 rule which says that 80% of effects are caused by 20% of the causes. Let me explain.

In terms of human performance, the 80:20 rule says that 20% of employees in any group will be exceptional performers, 60% will be average, and 20% will be low performers. The 20:60:20 bell-shaped distribution is a derivative of the 80:20 Pareto Principle, and it has held true ever since the Italian sociologist Vilfredo Pareto coined it over 100 years ago. Rule#2 above is therefore clearly wrong because we know from experience that only about 20% of employees will achieve stretch goals. But year after year, managers continue to do the same thing repeatedly—setting stretch goals for all 100% of employees—and hope for a different result. In doing so, they ignore not one but two geniuses, Pareto and Albert Einstein. The latter famously told us a long time ago that trying the same thing again and again while hoping for a different result is an exercise in futility.

Now let’s come back to Rule #1 and Rule #3. What if employees could freely choose where on the 20:60:20 curve they want to operate, and agreed to be compensated/rewarded accordingly? What if, instead of supervising them closely, managers would get more productivity by leaving employees well alone to self-manage? If 80:20 and the resultant 20:60:20 is true, the top 20% highest performing employees will produce 80% of the results regardless of whether they are given stretch goals or not. For these people, their work is their main purpose, and they are naturally wired to do their best. So, if 80% of the organization’s results are in the hands of these highly motivated people, why would overall performance suffer? And if we replace artificial stretch goals for the remaining 80% employees with honest contracts based on their unique circumstances, even they will work with less stress and more happiness, thereby producing more rather than less.

An example of such contracting exists in academia. It is called contract grading. In some universities, a student can go up to a professor at the beginning of a semester and ‘pre-contract’ his grade for the course. Assuming a student is taking four courses in a semester, three of which are core components of his major, and the fourth is an elective. Assume further that the three core courses are extremely tough, but it is important to the student to get an A on all three of them. To manage his workload, he can go to the professor of the fourth course and say, “Hey Prof, I need to get a B on this course. I don’t need an A because I have to manage my workload. As long as I can get a B in this course, I’ll be able to manage my overall GPA. So, what do I need to do to make sure I bet at least a B?"

Such conversations are quite common in universities that allow contract grading. By doing so, they empower students to self-manage their work loads. Imagine if similar conversations took place at the workplace. “Hey Boss, you know I’ve worked really hard for the last 5 years, and thanks for rewarding me as a top 20% employee for that. You’ve been very fair, thank you. But I’ve just become a parent, and I’d like to take my foot off the pedal for a bit. Is it OK if I shift to the middle 60% for a while? I am perfectly aware that you will pay in at the 60% level and not at the top level that I’ve enjoyed over the last five years. Can we agree to this Boss?"

A similar honest conversation can take place if someone wants to do minimum work in return for minimum pay. By making such contracts honest, the company can better manage its compensation costs by paying based on performance. Regardless of whether such contracts are established or not, performance will take the 20:60:20 bell shape, so why not make it legitimate. Employees are happy, overall productivity goes up, and managers are freed of the burden of close supervision. It’s a win-win-win!

21st Century Leadership is a column that rewrites the rules of leadership and management for the all-digital open source era . Rajeev Peshawaria is the author of Open Source Leadership and Too Many Bosses, Too Few Leaders. He is currently the CEO of The Iclif Leadership and Governance Centre, Malaysia

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