Many organizations are in the final stages of their annual performance review process. According to an article in today’s Wall Street Journal, up to 60% of Fortune 500 companies use a forced ranking system in that review process (though only 14% of all companies do).
Simply put, forced ranking requires employee performance to be categorized into exceeds expectations, meets expectations, or needs improvement, with only a set percentage of employees allowed in each category. The WSJ article describes forced ranking this way:
“Critics of forced ranking say that it demoralizes workers and fosters backstabbing and favoritism. … Proponents of forced ranking say that it fosters meritocracy. And because employees are generally told where they stand during performance reviews, layoffs and dismissals bring few surprises…”
What does forced ranking look like in reality? A member of my team related this story to me last week of her husband’s performance review (I’ll call him Jim). Jim filled out the self appraisal form, only to have his words returned to him verbatim in his manager’s “appraisal” of his performance. But that’s not the real story here. This Fortune 100 firm conducted several rounds of layoffs in the last year, resulting in Jim’s team being diminished by about half with only the true stars remaining.
Jim was informed by his manager that, since the team was so much smaller now, there could only be 1 “exceeds expectations” employee on the team. All the rest would be marked “meets expectations” because senior management was also not allowing any “needs improvement” out of fear even more employees would walk out. Even worse, the lack of managerial skills on this team results in each employee simply keeping his or her same ranking designation year after year.
So, despite the fact that every member of the remaining team is a true star in the organization, each pulling double the work after the rounds of layoffs, only one could be marked as exceeding expectations for the year. How is that an accurate assessment of performance, much less fair?
Even GE doesn’t practice forced ranking anymore (again from the WSJ article):
“GE has since dropped forced ranking, according to spokesman Andrew Williams. He says the company continues to ’embrace differentiation,’ though he declined to give details on the current process. The company phased out forced ranking during the mid-2000s.”
Should employees be differentiated based on their performance? Should managers have the opportunity to consider employee performance based on the exceeds/meets/needs improvement paradigm? Yes, of course. The failure of the forced ranking model lies in requiring percentages of employees in each category.
Perhaps the Fortune 500 should start observing the management practices of the vast majority of organizations of all sizes.
Does your organization practice forced ranking? Do you think it’s fair?
About Derek Irvine
The VP of Client Strategy and Consulting at Globoforce, Derek Irvine is one of the world’s foremost experts on employee recognition and engagement, helping business leaders set a higher vision and ambition for their organizations. As a renowned speaker and co-author of "The Power of Thanks" and "Winning with a Culture of Recognition," he teaches companies how to use recognition to proactively manage company culture. Derek holds a B.Comm and Masters of Business Studies from the Smurfit Graduate Business School at University College Dublin.