THE CASE: When Top Performers Feel Undervalued
Gaurav pays "market rate" for roles. A "senior engineer" gets $X regardless of impact. His top performer delivers 10X, but earns only 20% more. Result: Top performer leaves for competitor offering better comp tied to impact.
The reality: Traditional comp = role-based. New paradigm = impact-based.
Top performers feel undervalued when they know they deliver 10X but get paid 1.2X more.
McKinsey: Top 10% of performers deliver 2-10X more value, but are paid only 20-30% more.
When 89% of employees say they left for "better compensation," the real reason is often feeling undervalued for their contribution.
The Evidence
89% leave citing "better comp"—real reason: feeling undervalued (LinkedIn)
Top performers: 2-10X more productive, paid 1.2X more (HBR)
Impact-based comp: 50% higher retention of top talent (Deloitte)
Variable comp tied to outcomes: 40% higher performance (McKinsey)
The Impact-Based Compensation Framework
Step 1: Identify Your Top 10% Performers
Who consistently delivers outsized results? Use metrics, not just manager perception.
- Revenue generated/influenced
- Efficiency improvements
- Innovation and problem-solving
- Team impact and mentoring
Step 2: Assess Measurable Impact
For each top performer, quantify their contribution:
- What revenue have they directly influenced?
- What efficiency gains have they created?
- What innovations have they driven?
- What would it cost to replace them?
Step 3: Create Performance Bonus Tier
Design compensation that ties to outcomes:
- Base salary: Market rate for role
- Performance bonus: Tied to measurable impact
- Equity/profit sharing: For sustained contribution
Signal: "We value impact, not just presence."
The Experiment: Impact-Tied Bonus
For one high-performer, test: "If you reduce churn by 10%, you earn ₹5L bonus."
Track:
- Engagement level
- Retention (do they stay?)
- Performance improvement
- Team perception of fairness
Expected outcome: Higher engagement, better retention, and proof that impact-based comp works.
Sources & References
- LinkedIn. Talent Trends Report. 2023.
- Harvard Business Review. The Compensation Gap. 2022.
- Deloitte. Retention Through Compensation Strategy. 2023.
- McKinsey. Variable Compensation and Performance. 2023.
Key Takeaways
- Role-based pay ignores the reality that top performers deliver 10X
- When top talent feels undervalued, they leave—even if "well paid"
- Tie compensation to measurable impact, not just job level
- Create performance bonus tiers that reward outcomes
- Signal clearly: "We value impact, not just presence"