More and more companies recognize that stack rankings can increase internal competition, thereby fuelling office politics and discourage employees to stab each other in the back
Marissa Mayer seems to be on a roll. Yahoo’s CEO hit the headlines in the beginning of the year when she barred work from home for employees and in June banned telecommuting. Recently, Mayer launched into another contentious human resources practice – asking managers to rank employees on a bell curve and then fire those at the low end. Predictably, this move had employees gasping.
An AllThingsD report said and I quote “According to a multitude of top-ranking posts used by Yahoo to vent their frustrations to top staff, employees there are becoming increasingly upset by an evaluation system instituted by CEO Marissa Mayer that has apparently resulted in the firings of more than 600 people in recent weeks”.
Interestingly, Yahoo timed the move exactly around the time Microsoft decided to shelve its longstanding “stack rankings” or “forced rankings” on November 12, 2013. Just when one thought that this would be the obituary for one of the world’s least popular workplace practices, Yahoo comes up with it again.
So, what is so contentious about it? The forced bell curve ranking, which was introduced by Jack Welch, asks managers to rate 10 per cent of your people “superior performers”, 40 per cent as “exceeds expectations”, 40 per cent as “meets expectations” and the remaining 10 percent as “below expectations. Forced rankings were popularized in the fast-growth years of the 1980s and 1990s by General Electric’s Jack Welch, whose management tactics were replicated throughout the world. The competitive system is also sometimes known as “rank and yank”.
Forbes contributor Peter Cohan called the move “Marissa’s Second Epic Fail” and wrote in his column “Forcing managers to make up bad performance ratings and using them to fire people is not the way to motivate talented people”. He called stack ranking “an incentive system that rewards the wrong behavior”. This kind of performance review will not only reward poor performers, but it will also under-praise the good performers.
In a study of forced rankings, several MIT professors came to this conclusion: “If maintained below a certain level, can lead to higher performance. However, with lay-offs, constant pressure demoralizes employees, leading to drop in performance. As the company shrinks, the rigid distribution of bell-curve forces managers to label a high performer as a mediocre. A high performer, unmotivated by such artificial demotion, behaves like a mediocre. Further, managers begin to reward visible performance over the actual. Finally, the erosion of social capital could cripple the company”.
The consensus now seems to be that stack ranking does not help at all. Just over 5 per cent of high-performing companies used a forced ranking system in 2011, down from almost 20 per cent two years earlier, according to a report in Bloomberg Businessweek. The Washington Post quoted research by Institute for Corporate Productivity (I4CP), a research network that studies management practices, saying that just 14 per cent of companies surveyed in 2011 reported that their performance evaluations included a “forced ranking,” down from 49 per cent in 2009.
More and more companies recognize that rankings can increase internal competition, thereby fuelling office politics and discourage employees to stab each other in the back. It can also demotivate employees and end up demoting high performers when managers are forced to rank. It also stifles innovation, something that Marissa Mayer should watch out for.
“Recent research has suggested that ranking employees on a bell curve can actually hurt performance and employee sentiments and hence productivity. As all are not top performers, employees who are ranked low often feel demotivated and inferior to the employees at the top. Such a method may create fear in the minds of the employees harming their potential to perform. Companies seek no help from such an evaluation method, as it tends to lose even those employees who have the potential and zeal to learn, if given proper training and the right motivation,” said Bhupender Mehta, CEO, ChangeYourBoss.com.
It puts a lot of pressure on supervisors and employees, which is not healthy for the organization, said Rajiv Burman, Managing Partner, Lighthouse Partners. Arguing that it is best to shelve the practice, Burman said, “Corporates can simply assess those employees who consistently perform below expectations or show no improvement and ask them to leave. This is the humane way to ensure that non-performers are eased out of the organization. There is no need to rank them against their colleagues!”
Defending Microsoft’s performance review system, Mancer Consulting CEO Satya D. Sinha says, “Microsoft’s noble intention was to make employees work with a spirit of togetherness and encourage the fair play.” Agreeing with Sinha, Mehta says, “This can be a game changer if taken in the positive spirit and guided well by managers. This formula can lead to a healthy competition where hard working individuals can rise above the level of mediocrity.”
In India, performance appraisal is usually an annual activity, where a person is s/he is assessed on the basis of duties, the performance is reviewed and feedback given. It also evaluates the individual’s attitude, personality, behavior and stability in his job profile.
Sinha says, “India has very strongly followed the review and assessment system. Under the new system in consideration, managers will no longer be required to rate workers on a fixed scale of performance rankings. Awareness of ill effects of employee review is rising, how well the Indian corporate sector opens up to this trend, only time will tell. With the rising popularity of start-ups and flexible work cultures, this trend is surely here to stay for long.”
However, everyone seems to agree that this system will benefit high performers a lot. Mehta said that high performers have always benefited from stack-ranking as such encouragement boosts their morale to a different level altogether.
“Everyone wants high performers in their team and examples of exemplary services. Critics argued that the rating system deemed to peg one employee lesser than the other and created a unhealthy work environment. Under stack-ranking, that had meant helping people find the door, whether they were doing good work or not. Hence high performers should be positive about this new development as it would lead to healthier work environment and merit based assessment.”
The thing is organizations are not just made of high performers! If the bell curve had been so successful, then all organizations today would be filled with high performers and the streets would be filled with those who didn’t make the cut. No nation can ever hope to scale the development index, if only one set of the population is granted all the right things. Likewise, no organization can hope to become successful no matter how many high performers it has because then the battle would be for egos, rather than innovation and success.