Promoting Mediocrity: Why Employers Don't Always Reward the Best Talent

You know the guy I mean.

He's competent (mostly), but never brilliant. He turns his work in by deadline, makes pleasant water-cooler conversation and walks out the door at the stroke of 5. He is emphatically mediocre.

Why, then, does he get the praise, the promotions, the raises? Research by economist Marko Terviö offers a possible explanation: Companies spend too much hiring known talents -- even if they aren't actually particularly, well, talented -- rather than taking a chance on untested up-and-comers.

This is how it works:

A hiring manager needs to fill a position. It's a job above entry-level, and the sort of position in which it is clear from the outside how well the employee is performing. Think journalism, sports, performing arts, investment banking. The choices include a limited number of people with proven, if not outstanding, skills and a larger pool of candidates whose abilities are entirely unknown. 

Some of the untried might prove to be exceptional. But, "among the untested there will inevitably be many people who are worse than mediocre," Terviö wrote in an e-mail.

If the company hires an unknown quantity who ends up being a bad bet, it has wasted time and money. If it uncovers a hidden talent, other firms are likely to lure the new recruit away with a higher salary. 

"The firm taking the gamble doesn’t have so much to gain if the untested person turns out to be good," Terviö said.

So in the end, it just makes more sense to hire the candidate with a track record. And as employees move up the career ladder, there are fewer and fewer proven talents to choose from, being offered jobs with bigger and bigger compensation packages. 

Overall, this phenomenon is a failure of the market to ferret out and properly reward the best talent, Terviö's research concludes. 

Long-term contracts could lessen the problem for entire industries, because hiring companies could take a risk on a potential new talent without having to worry that their rising star will be stolen away by a competitor. But there is little incentive for individual companies within an industry to switch their approach, Terviö said. 

"There isn’t much that an individual firm can do to avoid this, because the problem is a market failure at a broader level," he said.

The dynamic is less significant for positions that are not, as Terviö puts it, "publicly observable." If it is not obvious from the outside that a worker is achieving great things, he or she "cannot quickly renegotiate up their salary, because they cannot go to competing employers and show that they really are so good."

We hope you've enjoyed this article. As a bonus. the Salary.com editorial staff would like to recommend the following books you might find helpful:

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