Firing the bottom 20%

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My group has policy to fire the bottom 20% of people every year to allow new talent in and reduce complacency. This does an excellent job of removing people who only do the bare minimum. However, it reduces moral as many you build relationships with won't be around. Does your firm have a similar turnover, and what are the effects of it?

Comments (53)

 
  • Associate 2 in CorpDev
Nov 4, 2019 - 2:29am

My previous firm had turnover >100%, no joke. So many would join and leave within months thanks to the toxic old senior gargoyles there that in a given year, the number of people who left would exceed total office headcount.

Was a pretty fucked up place, if you pardon my French

 
Nov 3, 2019 - 9:20am

Seems like a terrible policy. I can't imagine it's easy to recruit talent to a company with that kind of policy. At my company we have good people--if you fired the bottom 20% you'd be getting rid of the B+ performers. You don't need a company full of superstars.

Array
 
Nov 3, 2019 - 12:21pm

I understand the logic, but ultimately it sounds like you’d end up with a group full of workaholic psychopaths who have no problem shoving their competition into that 20% bucket. And are there clear definitions of bottom 20%? If this was trading/ hedge fund, sure your PnL statement doesn’t lie. But otherwise this seems much more subjective. It could get down to stupid metrics like face time in the office. What it boils down to is who is willing to give up everything just to stay on this team?

Also, if you look at wealthy tech companies (like Google), their work/ life balance is outstanding. Even in more intense places like Netflix, the right personalities have a blast there. Your policies dictate what type of personalities you want. Firing the bottom 20% subjectively sounds like attracting highly intense, workaholic people who will play status games to appear at the top. If that’s what you want to breed, then fine. If that’s not the goal, sounds stupid.

“The three most harmful addictions are heroin, carbohydrates, and a monthly salary.” - Nassim Taleb
 
Nov 4, 2019 - 10:59am

Those companies are not able to deal with turnover as effective because of the scarcity of top-grade programmers/developers in the market considering supply/demand for proven talent. However, finance firms can get away with annual analyst turnover in industries like CRE capital markets/brokerage if talent scarcity doesn't exist and they save hundreds of thousands of dollars in not paying market salaries/bonuses instead hanging a false carrot over your head while working you like a mule.

Totally agree with you that this behavior breeds sociopathic behavior but unfortunately sociopathic behavior is too often rewarded in finance...

 
Nov 4, 2019 - 11:24am

InVinoVeritas:

Totally agree with you that this behavior breeds sociopathic behavior but unfortunately sociopathic behavior is too often rewarded in finance...

This is true, I would even extend this statement outside of finance too.

“The three most harmful addictions are heroin, carbohydrates, and a monthly salary.” - Nassim Taleb
 
Nov 4, 2019 - 9:55pm

Malta Monkey:

I understand the logic, but ultimately it sounds like you’d end up with a group full of workaholic psychopaths who have no problem shoving their competition into that 20% bucket. And are there clear definitions of bottom 20%? If this was trading/ hedge fund, sure your PnL statement doesn’t lie. But otherwise this seems much more subjective. It could get down to stupid metrics like face time in the office. What it boils down to is who is willing to give up everything just to stay on this team?

Also, if you look at wealthy tech companies (like Google), their work/ life balance is outstanding. Even in more intense places like Netflix, the right personalities have a blast there. Your policies dictate what type of personalities you want. Firing the bottom 20% subjectively sounds like attracting highly intense, workaholic people who will play status games to appear at the top. If that’s what you want to breed, then fine. If that’s not the goal, sounds stupid.

Not all the tech companies are like that. FB and AMZN is known to shed 10% every year. And FB pays more than GOOG.

 
Nov 4, 2019 - 10:43pm

Very accurate. FB is known for being pretty brutal and harsh. Netflix is known for firing people under a year. Just wanted to throw out an example.

“The three most harmful addictions are heroin, carbohydrates, and a monthly salary.” - Nassim Taleb
 
Nov 8, 2019 - 2:21pm

I'd caveat that statement with the fact that someone can only code for so long before going braindead whereas there is a lot more time spent working that can be handled in the finance world, both as general statements, so it's not really apples to apples. I think that component gets overlooked when people make the statement that tech companies have great work life balance.

 
Nov 8, 2019 - 2:31pm

I think coding is a lot like working in excel. It's just writing in another language. BigLaw Associates write briefs/ memos/ etc for 12-14+ hours a day, IB talks about Excel and PowerPoint for just as long (if not longer), coding is pretty similar. It's just writing something in a specific language.

“The three most harmful addictions are heroin, carbohydrates, and a monthly salary.” - Nassim Taleb
 
Nov 3, 2019 - 12:48pm

Unless this is pure sales or something this is a horribly inefficient policy. Replacing that many people each year is expensive. It also implies your recruiting can’t find qualified candidates. Lastly who’s to say the new crop of hires is actually better than the ones just let go?

Recruit, hire and train competent people in the first place and this isn’t necessary.

Array
 
  • Associate 2 in CorpDev
Nov 3, 2019 - 1:40pm

Sounds like you're in a solid shop OP. Question is though, why do they keep the bar so Low? Might be worth considering firing 80% instead - You'll have even less complacent people and retain the true TOP guys!

Jeez some firms...

 
Nov 3, 2019 - 4:42pm

Jack Welch made this famous at GE . . I think his number was 10%.

Personally the policy sounds very naive and simplistic to me. Seems to not be much thinking about what the unintended consequences will be. As other commenters have said, does anyone think about the negative impacts on morale, teamwork etc.

My biggest concern is the laziness it will create in the decision makers, the ones who do the firing. Successful companies usually find more sophisticated ways of measuring each employee's value . . i.e. what do we want out of this employee, what targets should they hit, what metrics are appropriate, etc. . . in other words, a custom evaulation that makes sense for each person. And that takes time to develop. Who's going to develop that if they're instead just focused on locating the worst 20% and getting rid of them? Seems like it would distract a lot from developing the top 80%.

BTW, I've learned about Jack Welch in college, b-school, work discussions and on TV. All this exposure to Jack and Ihave yet to be impressed by any of his ideas. I'm sure he was doing something right but among revered business thinkers he stands out as someone whose genius I'm not grasping at all.

 
Nov 4, 2019 - 11:11am

PteroGonzalez:

Jack Welch made this famous at GE . . I think his number was 10%.

Personally the policy sounds very naive and simplistic to me. Seems to not be much thinking about what the unintended consequences will be. As other commenters have said, does anyone think about the negative impacts on morale, teamwork etc.

My biggest concern is the laziness it will create in the decision makers, the ones who do the firing. Successful companies usually find more sophisticated ways of measuring each employee's value . . i.e. what do we want out of this employee, what targets should they hit, what metrics are appropriate, etc. . . in other words, a custom evaulation that makes sense for each person. And that takes time to develop. Who's going to develop that if they're instead just focused on locating the worst 20% and getting rid of them? Seems like it would distract a lot from developing the top 80%.

BTW, I've learned about Jack Welch in college, b-school, work discussions and on TV. All this exposure to Jack and Ihave yet to be impressed by any of his ideas. I'm sure he was doing something right but among revered business thinkers he stands out as someone whose genius I'm not grasping at all.

Funny, I share the same sentiments. I originally bought into the hype, but once I read his autobiography, I came to the conclusion that he is just a pompous dick.

 
Most Helpful
Nov 4, 2019 - 1:40am

Your team is run by an underperforming, value-destroying sociopath. Read this and watch the TED talk:

https://www.inc.com/scott-mautz/a-biologists-study-of-superchickens-rev…

A good hiring manager will make mistakes a good 5-10% of the time-- you do need to get rid of your F, D, and maybe even C- employees. But this is kind of a one-time filter that happens a couple years in And if there is a recession or the firm starts losing money, a 20% layoff based on performance is appropriate.

But often the strongest teams are made up of a bunch of quietly competent A- employees who are not primadonnas, and don't let success get to their heads. They acknowledge the contributions of their coworkers, and try to be more ambitious for the people around them than they are for themselves. In a 20% layoff culture, you don't get those kinds of attitudes and synergies from an effective team-- usually everyone is too competitive internally.

I can't speak to IBD, but in systematic strategies, we have QRs, we have traders, we have technologists. We have a lot of different subject matter experts. And everyone brings their own contribution to the alpha. You need to get these people talking and working together and sharing ideas-- and critically, sharing credit. And when you're doing merger strategies, you even need to get some investment bankers in the room if you're doing it right. Somehow you have to get a statistical programming geek and an investment banker to play nice, to respect each other's contribution, and to not turn this into Game of Thrones or House of Lies.

You have to do some selection on hens. The hens that don't lay any eggs do need to get tossed out of the coop. But the hens that create more value than they cost (usually 90-95% of them if management hires well) should generally stay.

I'm curious about which firm this is. From a recruiting perspective, this is actionable intel-- not to recruit the apparent rockstar but to recruit the quietly competent people next to him that he is siphoning a lot of credit from. Karma is often very slow, but sometimes it works in mysterious ways.

 
Nov 4, 2019 - 1:24pm

I regret that I have but only one SB to give.

Truly great teams share success and share hardship. This is why the best teams (sports dynasties like the Patriots or OG 49'ers, elite military units, unicorn startups) have a tight knit culture and live and die together as a team.

Having "rock stars" is perhaps at best a necessary but not sufficient condition for long term success.

Be excellent to each other, and party on, dudes.
 
Nov 6, 2019 - 2:04pm

What I love is that management loves to apply policies like this to subordinates, but never to themselves, especially if it can be shown visavis the data that their policy has destroyed a bunch of value for the firm.

If the firm is publicly traded, not majority owned, and data is available (and it supports your view), there is a clear route to accountability for-- and fixing-- a policy like this... but it involves significant career risk. (And this is coming from a guy who flies hang gliders.)

 
Nov 4, 2019 - 3:40am

Bottom 20% in Sales could be understandable but IBD/advisory/PE wouldn't want to do that since the cost of acquiring new employees (training, onboarding, paying severance of the old peeps) is so much more and it is too time consuming to be effective.

Some firm wouldn't fire D or even F grade employees just because getting a new one is hard enough plus they might affect the overall team morale (esp that specific employee is on more a senior role). This is especially true for LMM companies where getting one employee who's competent is hard enough

 
Nov 4, 2019 - 2:27pm

And then you end up paying 25-50% extra in severance, not to mention headhunter recruiter costs (1 year salary up front). And / o you have a giant HR department that does nothing but interview constantly and fly candidates out and not to mention waste 10-20% of the entire team's time to interview. That or you work at a pyramid scheme / call center and the interview process is just a formality.

Firing the bottom x% assumes that the average person out there looking for a job and willing to join your firm is decent. However, most people looking for jobs are crap, that's why they are open to new positions. The top talent is happily employed already and you'll need to overpay them for them to even take a call. It's like dating, yes there's a lot of single people out there but there's usually a reason they're single and not already taken.

Not to mention all the lawsuits you risk from firing even a handful of people for legitimate reasons. Even if they don't win, you end up spending a lot in legal fees. Trust me, unfortunately we have experience here.

Firing the bottom 5% (GS says this but it's really 1-3%) due to performance makes sense if you have a free funnel of being the #1 in the space and talent flocks to you. 20% is a joke number.

 
Nov 4, 2019 - 3:24pm

I've never run a company with beyond 100 employees (and most of those were in production) but this does not sound like a good idea.

The cycle has always looked like this for me:

  1. Build as good a team as you can afford.
  2. Scale.
  3. Remove anyone who failed to who scale adequately or wasn't what you wanted but had to settle for in step 1.
  4. Rinse & repeat.

There's never a hard %...so arbitrarily deciding to remove that many people seems really counter-intuitive to me.

With a lot of finanace positions too, it seems easy enough to figure out if they are paying for their own seat or not too - and that should ultimately decide who stays and who goes.

 
Nov 5, 2019 - 11:55am

Most finance companies that are posting jobs and interviewing people all the time are of this type. There is often a core group of seniors who has been there forever, and a revolving door outside that group. My old quant fund seemed to fire 30%/year on average, with no clear definition of a top or bottom performer. You could get a great performance review and be out the door a few months later. In constrast, some of the best funds out there have very low turnover and rarely hire anyone.

 
Nov 8, 2019 - 1:33pm

You are going to have a hell of a time recruiting good talent if this policy is actually real and you are not making this up. Why would anyone besides the most desperate people would want to work for your company, if there is a 20% chance that they get fired every year?

Maybe in I-Banking, there are enough new grads and not enough job opportunities for this to work, but any other company, they would be out of business pretty quick

 
Nov 8, 2019 - 11:14pm

They don't necessarily tell you when you join, and just say what a great career you will have. You only find out the reality after being there for a little while. Some of the quant funds have over 1000 applicants for each person they hire (many are foreign students who are desperate for an H1B/GC), and they can afford to keep burning through people.

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