By Michael Kanazawa

Very often you’ll see companies slip into a mode where they start growing by the averages, benchmarking expense ratios, setting “competitive” pricing, and “market-level” salaries. It’s not necessarily bad to play by the averages unless it leads to being an average company. Great companies are built and run by great people. How can you get there?

The Container Store is a story in corporate success. They have been consistently growing at double digit rates and have been listed as one Forbes’ Top 100 companies to work for, eight years in a row. In the tough business of retailing, especially with bigger rivals such as Target, Sears, and Walmart, The Container Store is setting it’s own standards for innovative products and great customer service.

One of the most innovative ideas at The Container Store is their formula for talent management. It provides a great lessons for all of us. The idea is to follow a model of “1/2 x 2 = 3.” Half the amount of staff per store compared to average retail competitors, twice the pay per person to attract top talent and that results in three times the productivity so your investment more than pays for itself. A more specific way they talk about their strategy was explained in an interview of one of Container Store’s executives, saying, “One average person equals three lousy people; one good person equals three average people; one great person equals three good people. With one great employee, you get three times the productivity, meaning that you can afford to pay that person twice as much. The employee wins because he or she gets paid twice as much. The company wins because it gets three times the productivity at two times the payroll costs. And the customers win because they get exceptional service.”

Too often, leaders try to conserve budgets by paying just “competitive” salaries that are benchmarked to all other competitors. Then, people manage by exception in a way where 80% of the time is spent on working with low performers. The top performers are largely ignored. And as a reward, the top performers simply keep getting assigned more and tougher projects. When it comes time for pay for performance, these high fliers are given a 5% raise while all others receive say 3%. This method perpetuates a pattern where you hire average people and work to get the most out of them. If you pay your people the same as every other competitor, do you really think that you’ll be getting significantly better sales and customer service people than the competition? On the other hand, the Container Store approach is to truly hire the best talent and then work to get the best out of them.

Beyond just direct compensation, I also read a very practical and and highly discussed blog post that focuses on how to invest in the right assets like buying great chairs and “so-so” tables at start-ups by Michael Arrington on TechCrunch. It describes the right ways to invest your precious few dollars and hiring only the best and spending more on the assets that enable and are valued by them the most. All of this applies to both start-ups and large companies alike, just at different levels of scale and budgets.

In our book, BIG Ideas to BIG Results, we point out that a critical success factor in driving transformation and strong strategy execution is to engage employees in taking a “half step up” and thinking more strategically about their roles in the company. If each layer of management does this, the leadership and operational capacity of the company is expanded overall. Next time you are looking to grow your team, consider hiring fewer people, paying each new hire more, investing the the right infrastructure to support them and then cultivating great performance from a team capable of delivering three times more value.

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