When it comes to employee development, most companies traditionally follow the 10/80/10 rule: The top 10 percent are promoted, the middle 80 percent are nurtured and the bottom 10 percent are let go.

At my company, Mu Sigma, we followed this advice at first too. But we found that we were losing too many from the middle 80 percent: people who had great potential were leaving because they weren't getting promoted quickly enough. We had accidentally created a culture where promotions and raises — extrinsic rewards — trumped all the intrinsic factors that make a job worthwhile.

So in 2010 we began to model our development after Montessori schools, whose principals include "an emphasis on independence, freedom within limits, and respect for a child's natural psychological development, as well as technological advancements in society." Since then we've applied these basic tenets to our workforce.

For example, new hires (most straight out of college) all come in with the same title — Business Analyst — and start at the same salary. They all go through a rigorous training course we call Mu Sigma University: a mini-MBA program where they learn not just about how we do business and service clients, but also review mathematical, communication, and business fundamentals to ensure they have the proper foundation for serving our clients. Then at the 18-month point, the new hires are promoted as a group to Senior Business Analyst, again all at the same salary.

During the first three years, managers regularly provide employees with one-on-one feedback, discussing areas for improvement and growth opportunities. It's only after this period that we begin to differentiate (and reward) employees based on their now-proven abilities.

Prior to the Montessori model, our managers used promotions as carrots. Now they are challenged to motivate employees in other ways — by giving them interesting projects to work on, public praise for their work, and the right guidance and encouragement.

The end effect is that employees develop a longer-term vision for their place at our company — it's the genesis of a career, rather than just an entry-level job. There will inevitably be some turnover, as there is in any firm, but we believe this intrinsic motivation — an employee's love for what she does — is better than money and promotions. We've already seen the results in terms of lower turnover among the entry-level employees who have been through the program. Our retention rates were noticeably higher in 2011 than they were in 2009-2010, and are trending steadily upward.

If you are considering implementing a similar program at your company, I'd offer the following advice:

When it comes to new employees, focus on nurturing, not labeling. We deliberately give all new employees the same title and salary because we wanted to remove extrinsic measurements of success. You could try this, or find a more subtle way to avoid prematurely labeling an employee's talents.

Be sure to give employees room to grow. Provide them with challenges and let them rise to the occasion. Make it clear that failure is okay as long as they learn something.

Emphasize striving for a personal best. You don't want new hires to compete with each other. Instead, encourage them to continually strive for a personal best — constant improvement of their own skills.

It's important to note that Mu Sigma is a services company, which is well-suited for this approach. In the services industry, clients are not buying a product — they're buying people. So like a product company strives to produce the best products, a services company should strive to produce the best people. And the Montessori model focuses on keeping the right people for the right reasons.

Employees' long-term commitment facilitates higher retention, boosts average skill level, and ultimately translates into better service for clients. When employees have gone through the hard work and taken the time to find the right position that leverages their best skill sets, they develop a passion for delivering the highest quality of service for their customers.

As the economy improves, competition for the best employees will become much more heated. Competitors will throw money and promotions at your best people. What are you doing to help them resist the temptation?

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