The Risky Business of Hiring Stars

The Idea in Brief

Are you hiring industry stars, no matter what the cost, to defeat rivals? If so, beware: fighting--and winning--the star wars could be the worst thing you ever do for your company.

Why? Top performers resemble comets more than stars: once they're lured to another firm, their performance plummets by as much as 20%--permanently. That's because just 30% of a star's performance stems from individual capabilities. 70% derives from resources and qualities specific to the company that developed him--such as reputation, information technologies, leadership, training, and team chemistry.

When you hire a star, he leaves all that support behind--so his performance flags. Worse, his group's performance slips, as resentment over the star's spectacular hiring package corrodes morale and productivity. Meanwhile, your company's market valuation erodes, as investors decide you overpaid to bag your star.

The lesson? Grow your stars, don't buy them. Recruit bright people through disciplined hiring strategies. Use training and mentoring to develop them. Then strive to retain them--by helping them broaden their skills, publicly recognizing them, and easing their work/life tension.

By applying this formula, investment bank Lehman Brothers kept many of its stars--despite paying them 25% to 30% less than what rival companies paid similar high performers.

The Idea in Practice

To grow your own stars:

Recruit Good People

Use disciplined hiring practices to attract promising candidates. In Lehman Brothers' research department, multiple interviewers looked for specific qualities in each job candidate--particularly intellectual capacity and work ethic, the ability to represent these qualities to clients orally or in writing, and likeability. Interviewers decided candidates' fate by consensus: if any interviewer had irresolvable concerns, the firm passed on the applicant.

Establish Supports

Encourage high performance by creating supportive structures, such as:

• Systems and processes. Establish procedures and routines that fuel individuals' success. Lehman Brothers, for instance, developed processes that help analysts evaluate research rigorously, deliver reports ahead of rivals, and keep up-to-date on their performance.
  
• Leadership. Even talented employees need coaching and mentoring to excel. When Lehman Brothers' equity research department was the best on Wall Street, its star analysts attributed their success predominantly to their bosses' nuts-and-bolts guidance.
  
• Internal networks. Encourage people to forge relationships across functions; they'll deliver better results. Investment firm Sanford C. Bernstein became renowned for its research by teaming analysts with salespeople, who communicated analysts' recommendations directly to clients.
  
• Training. Offer programs that accelerate talented employees' development. In Lehman Brothers' training program, veteran analysts offered sessions on subjects like analyzing balance sheets, "creating something special in your research," and "how not to say stupid things to the press." The program not only benefited learners; it granted recognition to expert analysts and made them feel part of a fraternity.
  
• Teams. Working with smart colleagues sparks ideas that stimulate productivity. Encourage high performers' teammates to counsel and coach them. Ingrain a team mentality: legendary Goldman Sachs coleader John Whitehead once cautioned an analyst that "at Goldman Sachs, we never say 'I.'"
  

Use Savvy Retention Strategies

Retaining stars requires more than salaries. Understand what motivates your high performers, then take steps to satisfy their interests. For example, investment firms Sanford C. Bernstein and Lehman Brothers, understanding their stars' need for a sense of achievement, publicly recognized high flyers' contributions. Aware that top analysts wanted to broaden their skills, both companies invited them to speak on behalf of their firms at conferences.

Copyright 2005 Harvard Business School Publishing Corporation. All rights reserved.

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Further Reading

Articles

Let's Hear It for B Players

Harvard Business Review

June 2003

by Thomas J. DeLong and Vineeta Vijayaraghavan

In the much-heralded war for talent, it's hardly surprising that companies have invested a lot of time, money, and energy in hiring and retaining star performers. For most CEOs, recruiting stars is simply more fun; for one thing, the young A players they interview often remind them of themselves at the same age. For another, A players' brilliance and drive are infectious; you simply want to be in their company. Besides, in these troubled times, when businesses are so vulnerable, people who seem to have what it takes to turn around a company's performance are almost irresistible. But our understandable fascination with star performers can lure us into the dangerous trap of underestimating the vital importance of the supporting actors. It's true that A players can make enormous contributions to performance. Yet, as the authors have found, companies' long-term performance--even survival--depends far more on the unsung commitment and contributions of their B players. These capable, steady performers are the best supporting actors of the corporate world. They counterbalance the ambitions of the company's high-performing visionaries. Unfortunately, organizations rarely learn to value their B players in ways that are gratifying for either the company or these employees. This article will help you to rethink the role of your organization's B players.

Leadership in Your Midst: Tapping the Hidden Strengths of Minority Executives

Harvard Business Review

November 2005

by Sylvia Ann Hewlett, Carolyn Buck Luce, and Cornel West

Another reason that companies look outside for top talent is because they often don't recognize the hidden stars in their own organizations. The authors of this article report on research that identifies a prime internal source of star power: minority managers who hone their leadership talent in significant community service roles. These "invisible lives," argue the authors, can be a source of competitive strength if companies can learn to recognize and further cultivate the cultural capital they represent. But it's hard to convince minority professionals that their employer respects and values their off-hours responsibilities. A lack of trust keeps many people from revealing much about their personal lives. The authors outline four ways companies can leverage hidden skills: develop a new level of awareness of minority professionals' invisible lives; appreciate the outsize burdens these professionals carry and try to lighten them; build trust by putting teeth into diversity goals; and, to finish the job of leadership development, help minorities reflect on their off-hours experiences, extract and generalize the lessons, and apply what's been learned in other settings.