The Risky Business of Hiring Stars

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.