I once heard Jack Welch, well-known former CEO of General Electric talk about employee performance clauses during his time at GE. He gave details on how he would reward/promote the top 10% of his employees based on certain metrics, and then fire the bottom 10% of his employees. There would consistently be new employees being hired, and then the next year the top 10% of the entire pool of employees would be rewarded/promoted, and then the bottom 10% again would be fired, etc.
Some, however, have questioned whether this is the best way to get the most out of one’s workers. After all, if you knew that out of 10 people on your team one of you would get fired you may be tempted to sabotage or just do the minimum so that you wouldn’t get fired. Prospect theory is a theory on loss aversion developed by Daniel Kahneman and Amos Tversky. The basic idea is that humans hate losses more than they love to win. If their research is correct, rather than striving to be the best or be in the top 10 % the focal point of most of the employees will be on not being in the bottom 10%. Of course if that’s the focal point, then the workers will be doing the minimum rather than the maximum for the company. And of course, nobody wants a company filled with minimum effort workers.