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Do companies really want to hire the best employees?

Many pages of business books are filled with advice on how to hire employees. If someone said “hire the best employees and you’ll have the best company”, it wouldn’t be a recommendation that would raise any eyebrows. Someone has probably said that exact same thing.

But mathematically, it’s impossible for all companies to have the best employees. If we say that the “best employees” comprise the top 10%, that means at the most only 10% of companies could have all their employees be “the best.”

Furthermore, it’s mathematically impossible for all companies to have good employees. If we say that half of employees are “good” and the other half “bad”, this means that only 50% of companies will be likely to have more good employees than bad employees.

Yet you will rarely hear a company say that it has bad employees. In fact, I would say you’ll never hear a company admit to such a thing, except that “never” is too absolute of a word. Somewhere out there, there must be a company outside of a Dilbert cartoon that admits they have bad employees and they’re proud of it.

In one industry I’m familiar with, government contracting, I would say that companies definitely do not want to hire the best employees. This is because the best employees demand higher salaries than mediocre employees. And in most of the contracts I’ve seen, the money billed to the government is based on how much experience the employee has. A lousy employee with many years of experience will get billed out at a much higher rate than a superstar employee with little experience. So a government contractor would lose money by hiring better employees, because they’d have to pay them more but would get reimbursed the same amount of money. Even worse, if it’s a time and materials contract, the best employees might complete the work faster than mediocre employees, causing the contractor to make even less money from the contract. Clearly, government contractors have a lot to lose by hiring the best employees!

For a consulting or contracting company, it’s much more important to create the perception of having the best employees than to actually have them. The most profitable company would have the perception of having the best employees, but would actually have the worst, and thus lowest paid, employees. The only problem is that maintaining such a perception is difficult if the employees are really that bad. But the point, nevertheless, is that perception trumps reality. (Read my essay about the marketing economy for my further thoughts on the importance of marketing in today’s economy.)

Clearly, a government contractor is better off with mediocre employees and the best account managers, who are able to create the perception, in the clients, that they are getting the best employees. But probably, government contractors won’t even get the best sales people, because the best sales people will be in most profitable industries where they can get bigger commissions.

The highest profit industry in the United States is investment banking, and that is where they very best people work. (The investment banking industry maintains its high profitability through an illegal gentleman’s agreement whereby no investment banks compete with each other on price—but that’s surely a tangent best fleshed out in a future post.)

Even outside of government contracting, there are many reasons why the best people aren’t hired. If an organization is comprised of mediocre people, such an organization probably doesn’t desire to hire a superstar who wouldn’t fit in. Most managers probably avoid, either consciously or unconsciously, employees who might outshine them.

Unless a company puts forth effort into cultivating a philosophy of seeking the best employees, the forces of entropy will result in the mediocre being hired. At most companies, finding employees willing to work for the least amount of money seems to be given a higher priority than finding the best.

Many companies, through lack of foresight, laziness, or other reasons, wait until the last minute to hire people. At the last minute, the need to hire someone fast becomes more important than finding the best person. To pick on the same industry again, this seems to happen a lot in government contracting. If there is a time and materials contract, the contractor can’t bill the government for an employee unless there is a warm body to fill the position. If it takes three weeks to hire a mediocre employee, or eight weeks to hire the best employee, then five weeks of billing would be lost by engaging in a lengthier hiring process. Once again, the government contractor has the financial incentive not to hire the best. This problem is further exacerbated by the government itself, which often waits until the last possible minute to award a contract, giving the contractor little time to fill positions.

When I had to fill a position at a government contractor that I recently worked for, the HR department wasn’t especially pleased at my rejection of so many applicants. Yet HR refused to place an advertisement in at the premium job sites or in the newspaper, because they were too expensive. I’ve never dealt with an HR department in any industry that didn’t rewrite ad copy submitted to them; and the rewrites were always worse than the original. At most companies, HR definitely seems to stand in the way of hiring the best employees.

This essay doesn’t address the issue of whether companies know how to identify which job applicants will become the best employees. It’s not clear that companies can identify the best employees even after they’ve been on the job for a year! But these are issues for a future post.

The conclusions today are: (1) many companies don’t desire to hire the best employees; (2) the perception of having the best employees is often more desirable than actually having the best employees; and (3) government contracting is an example of an industry that doesn’t usually gain anything by hiring better employees.

posted Thursday, May 13, 2004