I never liked forced ranking systems to "measure" employee performance and thin out the ranks. For those of you not familiar with this kind of employee measurement or rating system, basically the group leader, manager, or whoever makes a list of his or her people, ranking them based on their performance. If you find yourself in the bottom 10% of the list, there's a chance you may be shown the door. This process apparently gives organizations a basis for getting rid of the "low performers."
The problem with this kind of system is that it comes with significant disadvantages. It forces people to compete rather than collaborate with each other, defeating the purpose of real team building. Why would I share something with you if I thought it would give you an advantage over me during performance review time?
Apparently I'm not the only one thinking this way. An article in the January 9, 2006, issue of Business Week magazine seems to come to the same conclusion. The article, entitled The Struggle to Measure Performance, says that the practice of forced rankings is increasingly coming under fire. Following a number of discrimination lawsuits from employees who felt that they were ranked and yanked based on age and not just their performance, fewer companies are adopting the controversial management tool.
The article talks at length about GE's culture that, under former CEO Jack Welch, used force ranking to rate its people. However, in moving toward a culture of innovation under its new CEO, the company is injecting more flexibility into the system. Innovation is one of the incredible byproducts of collaboration and teamwork, so removing barriers to them should help the company create the innovative culture it desires.
Apparently Yahoo is moving in the other direction, having recently implemented a "stack-ranking" system. In this system managers are required to rank their people from 1 to "X". In other words, if a manager has 20 people, she would rank them from 1 through 20, distributing pay raises accordingly. Some managers feel this new system is going to "kill morale." It will be interesting to watch Yahoo, a company that has grown on the engine of innovation, to see if growth or performance is affected.
If you know someone who was affected by this kind of employee ranking system, tell us about it. I'd especially like to know if companies that are using forced ranking also espouse team building concepts. Thanks...Peter
3/20/06 - Addition to BLOG The March 20, 2006, issue of Business Week magazine in discussing a new book entitled Hard Facts, Dangerous Half-Truths & Total Nonsense related the following: "Practiced by as many as one-third of companies today, the authors say [forced ranking] has many flaws. A 2004 survey of more than 200 human-resources managers found that even though more than half of them used forced ranking, they felt it resulted in lower productivity, skepticism, reduced collaboration, and impaired morale. Breaking up teams by automatically firing the bottom 10% of workers can even be dangerous: Citing a National Transportation Safety Board study, the authors note that 73% of commercial airline pilots' serious mistakes happen on crews' first day together."