The Downside of Forced Ranking

"Microsoft Abandons 'Stack Ranking' of Employees"

A large company with a high number of employees is in a business in which the market and technology that drives it is changing. There is a need to keep employee costs under control, reward prized workers who are the best performers and make room for younger ones. To keep the company competitive, there is pressure put on the profit centers to stay productive which translates into identifying and ranking employees by their relative value in the organization.

As stated, this may resemble the method for assessing and compensating employees that occurs in most businesses with more than 50 employees or so. However, an added twist that came about was to assign a quota, or number, to each level of rank. It was meant to be a way to identify top performers but also those who were below average. Imagine the attitude of an arborist chopping the branches of a tree, "by cutting away I am ultimately making what remains stronger and more likely to survive."

This approach to personnel management was adopted and implemented by General Electric. Because that company showed financial wherewithal that others could not replicate, its method for trimming under performing workers was popularized as a key factor propelling the company's success. Without a view into the internal processes, others could only believe when GE touted forced ranking and the associated culling as the real deal.

Other large American companies, such as Motorola and Microsoft, adopted schemes similar to what worked at GE. At Motorola, it was initially called RPA, Relative Performance Assessment, while Microsoft's is referred to as Stack Ranking. I have also heard the term, "Rank and Yank" used to describe a similar method. The key element in all of these programs is a requirement to identify a certain number of employees for each layer of the stack, including those deemed under performing.

But when it is a policy in place during a downturn and layoffs have already trimmed a team, a manager is forced to be creative when coming up with reasons for assigning poor rankings. In situations like these, the justification for a Did Not Meet Expectations is often less than convincing. Perhaps this is due to the inarticulateness of the manager or because the choice of this individual to be ranked in this way was not theirs.

One other factor is that the criteria for measurement become retrospective; that is, because objective measures are not useful, the solution is to look back and see if there are other behaviors which can be examined. This breaks the link of relevance between what the stated goals were at the start for the individual or organization and how ranking ended up.

During my early days at Motorola, a firm was hired to examine communication within our team. One overarching aspect of an organization, they said, was the natural tendency for team members to gravitate away from cooperation their work and toward isolation. Because the firm was hired, it would follow that techniques used to improve communication and foster teamwork would be in the best interests of the company. Over time, however, this atmosphere of teamwork began to fade. And when forced ranking was adopted its impact was to remove the motivation that many workers may have had to assist coworkers. The feeling became more like every man for himself.

Through the first couple of years of its use at Motorola, forced ranking was, at least in name, a means to distinguish the top performers and justify differentiated compensation. A corresponding feature is that it was also somewhat punitive toward those consigned to the lower echelon of performance. But despite this, in these early days, it was seen as more a scolding, albeit a financially painful one, than a target.

But even during this time, the process for determining ranking was not always fair. Similarly, the outcomes were not necessarily convincing and could reflect not so much a deficiency to be corrected as a suggestion for making your work better known among the other managers. And the financial cost was painful: no raise for those given the lowest ranking and a much below average share of the variable pay given based on company and personal performance for the prior year.

In later years, when the company was honing their skills at letting people go, a low ranking was a near guarantee for a later dismissal. In retrospect, it made perfect sense from the company's perspective; it created a ready supply of headcount to be offered when cutbacks were announced and these were individuals already identified as poor performers. In essence, it became a way to hide things like age discrimination or even personal vendettas. These could be embodied in the ranking process which remained hidden from outside view.

In a larger sense, these actions are part of the prerogative a company has in how they want to run their business. Illinois is an "at will employment" state, so just as an employee is not bound to stay at a company, they are not compelled, except for some notification regulations, to provide excessive justification for laying off an employee.

One other point regarding Motorola, is that they did provide severance payments and job training. Ironically, at least from the perspective as one let go more than once from Motorola, the provision of this money toward employee dismissals and the placement service made the whole process seem part of a normal business practice.

But despite the right of a company to lay off an employee because of economics and the efforts made to soften the landing of discarded workers, the process of ranking was disruptive and exacerbated the negative tendencies inherent in humans. This came about mostly because of the need to find candidates for the lowest echelon when no one objectively merits such a ranking.

Faced with such a situation, I have known managers who have resorted to citing a measure of productivity which was not a stated metric for the department, impugning someone for the way they spoke, claiming ineffective communication and blaming an employee for not being voluble in meetings when a goal of the department was to have more effective ones.

My take on the increased disuse of forced ranking is that it may have started with a veneer of effectiveness that was glossed by the favorable economics of the time but over the years fell into being a device favored by the managers of resources whose compensation was predominantly in stock and who had little regard for the human toll and concurrent disruption of morale and teamwork it spawned. In other words, I am glad to see it go.