Meritocracy in business

Meritocracy is a system in which those who deserve it most rule. However, merit is determined / measured / observed by objective factors: achievements, like performance rankings, competition victories, or cash generation. These in turn are all subject to effects like:

  • Compounding;
  • Accretion;
  • Network effect; and
  • Luck.

If you take a function with a standard Gaussian distribution, like intelligence or physical beauty, and overlay it with other bell-curve forms for things like economic starting condition, you get a combined curve where the intersection of all the high points represents a rare commodity even before anyone starts the race. Then, when you overlay that with the power of compounding, accretion, and network effects, you intensify the skew further over time, year after year. Finally, when you add in a function that says that if you have a lot already it’s because you deserve it, which means you should be rewarded using a different scale altogether, you ramp up the speed at which the spiral occurs.

The systems dynamics here is a separation into a hyperbolic curve: A tiny fraction of people will develop vastly more merit than the next ones down the ladder, and in turn they have vastly more merit than the ones below them. We can measure this with income and wealth in society at large, or within a given business.

Note that this separation into logarithmic merit layers won’t correct on its own: it will continue to pull apart.

Within a given business, that’s fine: classic management practice says to disproportionately reward the ones who succeed the most, fire the ones who don’t, and you’ll be fine.

We’d like to posit a slightly different approach. We think it’s possible to create merit, to enhance peoples’ existing merit, including within people you already have. It can be cheaper and has lot of add-on benefits, like loyalty. And it creates a model that works better for society as a whole, because you can’t just fire from society everyone that can’t clear the merit bar.