Jack Welch: how he justified his famous ‘fire the bottom 10%”

Last week saw the passing of one of the twentieth century’s most celebrated CEOs, Jack Welch, at the age of 84. Welch joined General Electric (GE) in 1960 as a junior electrical engineer and progressed rapidly through the organisation reaching the top job in 1981. He served as CEO and Executive Chairman of GE until his retirement in 2001.

Welch’s fame was largely based from GE’s enormous increase in market capitalizstion, from $12 billion in 1981 to $410 billion when he retired. Total shareholder returns, including dividends, rose 70-fold, more than three times as fast as those for the S&P 500 index of big corporations

Welch’s post-retirement image took a battering when the details emerged of the financial settlement with his second wife, Jane, after she  discovered her husband had been having an affair with his biographer, Suzy Wetlaufer (soon to become his third wife).  These financial details revealed how many perks had not previously been publicly detailed as part of Welch’s enormous severance package from GE ($417 million).

There are many aspects of leadership that Welch was famous for and the many books he has written, or the books and articles that have been written about him, detail these principles.

One of Welch’s most famous leadership dictums was the active removal of the bottom ten per cent (“the C players”) of each business unit’s employees each year.

According to Welch a company will broadly have 20% A players, 70% B players and 10% C players.

As Welch details in his book Jack: What I’ve Learned Leading a Great Company and Great People (Warner Books, 2001, pages 159 & 160):

A players are people who are filled with passion, committed to making things happen, open to new ideas from anywhere, and blessed with lots of runaway ahead of them. They have the ability to energise not only themselves, but everyone who comes in contact with them. They make business productive and fun at the same time.   

The B players are the heart of the company and are critical to its operational success. We devote lots of energy towards improving Bs. We want them to search every day for what they’re missing to become As. The manager’s job is to help them get there.

The C player is someone who can’t get the job done. Cs are likely to enervate rather than energise. They procrastinate rather than deliver.  

Welch is also very clear about the remuneration difference between each of the categories (page 160):

The As should be getting raises that are two to three times the size given to the Bs. Bs should get solid increases recognising their contributions each year. Cs must get nothing.

Welch vigorously defended his attitude to C players (page 161 & 162).

Some think it’s cruel or brutal to remove the bottom 10 per cent of our people. It isn’t. It’s just the opposite. What I think is brutal and “false kindness” is keeping people around who aren’t going to grow and prosper.

There’s no cruelty like waiting and telling people late in their careers that they don’t belong – just when their job options are limited and they’re putting their children through college or paying off big mortgages.    

The critical context to Welch’s apparent Darwinian attitude to his underperforming employees is almost always left out whenever there’s any mention of the ‘fire the bottom 10 per cent’ topic.

As Welch is at pains to explain (page 162):

“..(removing the bottom ten per cent of employees) works because we spent over a decade building a performance culture with candid feedback at every level. Candor and openness are the foundations of such a culture. I wouldn’t want to inject (this approach) cold turkey into an organisation without a performance culture already in place.”  

I experienced a confronting encounter with my own “false kindness” in the mid 1990s when I was about two years into my first leadership role.

I had hired a new recruiter into the team (let’s call him Sam) and by month four it was clear that he was struggling. I invested some more time and training in Sam but the results did not improve.

The managing director and I had a coffee across the road from the office to discuss where the team was at. I provided my outline of where I thought the team was sitting, not mentioning Sam.

The MD was right onto me. “What about Sam? Where’s he at?” he asked.

I prevaricated with some motherhood statements about him needing more time or some such fluff in the hope that the MD wouldn’t press me further.

The MD looked me in the eye and asked me a string of questions to which my (honest) answers were easily found

“Have you been clear with your expectations?” (Yes)

“Have you delivered the training you promised?” (Yes)

“Have you been out on visits and otherwise observed him in action?” (Yes)

“Have you been clear about the areas needing improvement?” (Yes)

“Are prepared to invest more time in him, time that would be at the expense of another member of your team?” (No)

“Given all of your answers, do you really believe Sam has what it takes to be a successful recruiter in this company?” (No)

Then the MD said something unexpected and something I have never forgotten because it completely reframed the way I was viewing the decision I needed to make about Sam.

“Well, Ross, you’re being unfair to Sam. You’re his leader and you are keeping him in a job at which he is not succeeding and, according to you, he’s not likely to succeed at.

What do you reckon that’s like for him?

Would you like to go home every night knowing you’re not succeeding and not seeing any likelihood of that changing? You’re holding Sam back from finding a job that suits his strengths and one that he is likely to succeed at.”

The MD was completely and utterly correct: I was preventing Sam from finding a job that he would succeed at. I was being unfair by not making the obvious decision on Sam’s future with the company.

Crucially we had a performance culture in the company. There were clear benchmarks that everybody understood. Candour and openness, as the MD was demonstrating in his conversation with me, were hallmarks of our culture.

I had the necessary conversation with Sam. He seemed was almost relieved. He left with his dignity intact and I learned a very valuable lesson about the importance of ensuring people were in a job that they had the required competencies and motivation for success.

Jack Welch’s stature as an outstanding business leader is still a matter of debate, 19 years after his retirement, however the impact he had on the thinking of a generation of his peers, MBA students and business journalists has surely only been matched, or exceeded, since by Bill Gates, Steve Jobs, Larry Page, Sergey Brin and Mark Zuckerberg.

 

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1 Comment

  1. Wendy Mead on 10/03/2020 at 8:53 am

    Hi Ross,

    Great article Rosss! I am a big fan of JW, we often use his legendary quotes around Pinnacle People.
    Another quote I like is from the late Richard Pratt, anther no nonsense old school leader ” if i cant fire my staff with enthusism, I will fire them with enthusiasm”

    Thanks for sharing.

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