Most people prefer the view from a mountain—not a flat plain. In fact, the only people who like the view of a plain are the people on top of the mountain.

By the same reasoning, not everything is equal in a company, nor should it be. Entrepreneurs sometimes treat employees like children. They feel this sense of responsibility for all of them and the desire to treat all of them as equal.

But parity among all employees in an organization is not a virtue, and in fact is often a company’s worst problem. When there are no differences in position, compensation, recognition, opportunity or ownership, it can cause dissatisfaction, low morale, turnover and just poor atmosphere in a firm.

This approach can frequently affect larger owner groups where “partners are equal” even though their contribution clearly is not. It actually damages morale and career development among advisors when the career progression is too “flat.”

Founders of advisory firms that desire to build these “flat organizations” are driven by the desire to be democratic, treat people equally and differentiate themselves from the cultures of banks and brokerage firms. But unfortunately, while the intentions are good, the lack of differentiation in careers, compensation and opportunities can ironically create questions about fairness and foster dissatisfaction among the ranks.

Why Differences Are Important
One of the reasons it’s important for companies to treat people differently is that, again, it ironically fosters a better sense of fairness than if they didn’t. If all people in an organization are treated exactly the same, a time will come when those that perform the best will feel that the system is not fair to them—that they contribute the most but do not receive adequate rewards for it. Great performance might come from somebody’s talent, but it is also the result of effort and passion, and those that apply the most effort usually expect it to be recognized and rewarded. If it isn’t, they feel they are being treated unfairly.

Without that better treatment, staff can’t tell whether they are making progress in their careers. There are no milestones to tell them whether they are any closer to their goals. In fact, they can’t even tell what the goals are. Such an environment tends to discourage rather than encourage. What’s worse is that people start developing their own goals and milestones, often the wrong ones: They want to know who the CEO talks to the most and who was invited to what meeting. These things become unreasonably important.

Finally, some hierarchy, while it does not have to be permanent, helps get things done. There is a reason cars have one wheel and one driver. If every seat had a wheel and pedals, the car would go nowhere. Yet this is what we often create when we build “flat” organizations—groups and committees with no leadership. Even if it’s just at the temporary project level, some hierarchy helps get projects completed faster—and often better.

The differentials can take many forms—in actual hierarchical differences, in diverse forms of compensation, in special employee recognition and even in the pieces of ownership offered. Each of these has its own advantages, but they tend to work better together.

Who Are The Top Performers?
The first mistake organizations make is not making it clear what constitutes a “top performer” and who those top performers are. Firms are often reluctant to acknowledge the top lead advisors for fear of upsetting the others. The result is counterproductive—the ones at the top are frustrated and those who aren’t performing are not inspired anyway.

Ignoring that problem is naïve. It is very clear to everyone that some partners work with more clients than others and some professionals generate more revenue. Some partners train people better. People already know who is different. When bosses don’t acknowledge it, they destroy the sense of fairness and miss the opportunity to define clearly what matters.

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