A controversial employee ranking system made famous by Jack Welch when he led General Electric is back in the news. Stacked ranking forces managers to rank employees from high to low, with the bottom five to ten percent potentially losing their jobs. A manager at the video game company, Activision Blizzard, left the company because he would not rank an employee as poor who didn’t deserve it, even though the company needed to fill the quota of low-ranked employees.
Sometimes called “rank and yank”, it is estimated that nearly a third of Fortune 500 companies use this methodology, though Ford, Capital One, and Microsoft have stopped using it. Bloomberg notes, “There have been dozens of research papers on stacked rankings, also called forced rankings. They’ve found that while the process can boost productivity in the short term, it chills collaboration and creates a dysfunctional, stressful, top-down work environment that could “cripple the company.””
Stacked rankings don’t evaluate employee performance against a standard but instead rank employees against one another. According to Dick Grote, who wrote the book on forced rankings in 2005, “The catch is that it’s very possible for someone to be rated as a good performer, but ranked in the bottom 5% or 10% if their peers are exceptional. Likewise, a poor-performing employee could avoid the ax by working in a group of laggards.”
One of the most typical approaches to stacked rankings is the 20-70-10 model. In this model, there is a top 20% of employees, another 70% in the middle, and the bottom 10% of performers. While this methodology can help companies identify their top performers and increase productivity, it also carries several problematic possibilities.
One is the effect on morale. Per Grote’s example above, no matter how hard an employee works, they could still end up at the bottom of the rankings. This may make employees feel disengaged and lower their engagement. This can also impact the organization’s culture and become a long-term problem in talent retention and attraction.
Another is the subjective nature of the rankings. Without defined performance metrics, each manager that is ranking employees might be using different criteria and have biases, conscious or not, that affect their rankings. How are employees ranked outside of their department from a performance point of view?
There are better, more modern employee evaluation approaches. According to Factorial HR, “Instead of pitting your employees against each other, as with forced ranking, focus on undertaking regular employee performance reviews in order to actively nurture company growth in a healthy and balanced way. Create employee recognition programs and fairer performance reviews for remote employees. This will help you create a high-performance culture made up of motivated and happy individuals.”
A continuous performance management approach is an option that focuses on real-time feedback and ongoing interactions to enable employees to adjust quickly to operate at their highest potential. To be successful, it requires a culture of open communication, trust, and accountability.
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