How much more revenue do good employees generate per year?

How much more revenue do good employees generate per year?

Organizational success hinges on the individual successes of its employees, making high performers a valuable commodity in the labor force. Naturally, if one high-performing employee creates the same value as two average employees, with approximately the same remuneration as one average employee, this represents a huge return on investment for the organization. However, the Pareto principle would typically hold that 80% of an organization's value is created by the top 20% of its workforce, suggesting that high performers are actually even more productive than this example would suggest.

In this article, I will outline the research behind employee performance and the quantitative value that high performers generate in the workplace.

The Numerical Value of Performance

Much research has been conducted on the variability and value of performance in the workplace, but it can be quite nuanced. The best way to imagine the numerical value of performance is in reference to the average performer and their salary. In an efficient market, the greater the salary, the greater the potential for value creation, else employers simply wouldn’t justify their price. Consequently, the value an employee creates can be seen as a function of their salary, along with the variance in job performance.

Here is a worked example: We have three employees, each earning $50,000 per year. The first employee is exactly average in performance. The second employee is 1 standard deviation (SD) above the mean for job performance. The third employee is 2 SD above the mean for job performance. For this specific role, each SD above the mean results in 32% more value created as a function of their salary. Consequently, the second employee creates $16,000 per year more value than the average employee ($50,000 x (0.32 x 1)). The third employee creates $32,000 per year more value than the average employee ($50,000 x (0.32 x 2)).

By this same token, someone who is 1 SD below the mean would create $16,000 less than the average employee, and so on. The actual value created by the average employee is comparatively harder to estimate, but we can assume it to be greater than their salary, else the organization would collapse. Additionally, the value of 1 SD varies considerably between roles, generally increasing with job complexity. From the research, sales roles have a particularly large SD, likely a result of how reliably performance can be measured in a sales context.

Why High Performers Create More Value

There are three main reasons why, in practice, high performers tend to create significantly more value than average and low performers. The first and most obvious reason is that high performers do more work than low performers. High performers typically show favorable personality traits, such as industriousness and resilience, which enable them to just do more work than most people. This could be by working more hours, or by being more productive during their working hours, or some combination of the two. This greater output naturally benefits the employing organization, allowing them to complete the work of several average or low-performing employees singlehandedly. Not only does this create more revenue for the organization, but it also allows the organization to operate with fewer staff, saving further costs.

Higher-performing employees also do better quality work, showing a higher standard in their work output. Generally speaking, high performers have higher levels of cognitive ability, allowing them to acquire skills both faster and to a higher standard. This is particularly important for work where errors are costly or quality is highly regarded and comes at a premium. By showing improved quality of work, high performers can help save costs down the line when it comes to quality assurance and testing, requiring less effort from other employees. Additionally, better quality work can command a higher price from customers or clients, increasing revenues for the organization.

The last benefit of high performers is that they generally stay longer, showing superior employee retention. Research shows that low performers are substantially more likely to quit and that high performers show significantly higher levels of employee retention. If you think about performance from a total employee lifetime value perspective, high performers create tremendous value across their tenure, both per year and especially overall. That being said, organizations should still do everything they can to retain top talent, and never take high performers for granted.

Conclusion and Recommendations

High performers, depending on exactly how high-performing, can provide significantly greater value for their employing organizations. The quality, quantity, and duration of work output are substantially greater for high performers, and from the research, we can roughly estimate by how much. Conversely, low performers will underperform relative to average performers, and their lower productivity is equally calculable. Ultimately, these findings drive home the fact that organizations must do everything they can to hire the best people and dedicate the time and resources required to improve their selection processes.