ongoing battle to improve performance management effectiveness, more
and more companies are turning to forced ranking. A recent Fortune
article, for example, indicated that 25 percent of the Fortune 500 use
some form of forced ranking (Matthew Boyle, Performance Reviews:
Perilous Curves Ahead. Fortune Magazine, May 15, 2001).
Different from absolute rating approaches, where employees are assessed
against defined standards and typically rated as “meets, below, or
exceeds” expectations, a forced ranking process assesses employee
performance relative to a peer group and often includes quotas or
forced distributions of ratings (e.g., 10% low, 70% middle, 20% high).
Why has forced ranking become so popular? What do we know about its
impact? Perhaps most importantly, what should companies be watching out
for in considering this controversial approach?
In our view, many
organizations today are jumping on the forced ranking bandwagon too
quickly and carelessly, allowing the practice to hijack their
performance management system. Forced ranking—a process that has been
around for years—has seen new life in the era of tight labor markets
and a struggling economy, with companies such as GE touting great
success with their “take no prisoners” approach to differentiating
their A, B, and C players. These companies have described their ranking
processes as critical to achieving a high performance culture and
driving enterprise results.
A new crop of top
companies, looking for ways to drive improved business results, have
adopted forced ranking with a noble purpose in mind: to take a more
rigorous approach to managing talent and weed out poor performers.
However, somewhere along the way, many of these organizations have
allowed the forced ranking process to become a central pillar of their
performance management efforts, placing too much emphasis on quick
assessments and too little emphasis on the other aspects of good
performance management, such as expectations setting, ongoing sharing
of performance information and meaningful development. The result is an
assessment tool that wields considerable power over other tools in the
performance management system, overshadowing the business need for and
stated purpose of performance management as a key business process.
especially those with rich histories and strong cultures, cannot
realistically expect to achieve a cultural change in performance
orientation overnight, especially through a highly uncomfortable
process such as forced ranking. Imagine thousands of highly tenured
employees finding out that after 20 or 30 years of being assessed as
good, hard workers, they are now just “B” players, or even worse, “C”
players. Imagine managers who have been providing less than robust
evaluations through a somewhat rote process suddenly being asked, with
very little training, to rigorously assess and rank employee
performance. The implications of this shock are very clear in terms of
morale, productivity and loyalty.
In addition to
the employee relations, risks are the potential legal ramifications.
Indeed, Ford, Microsoft and Conoco have felt the legal pain from
ranking processes gone awry, while others, such as Capital One, have
just recently entered legal battles over forced ranking. In these class
action lawsuits, employees have alleged that the forced ranking methods
used in their organizations had a disparate impact upon particular
groups of employees. These employees have not been limited to the
protected classes that typically file employee discrimination cases.
And much to the dismay of the executives who have championed forced
ranking, their intentions while implementing the process have provided
little legal comfort. Both in and out of the courts, the effect of
forced ranking on employees is what matters most.
Are we suggesting
that organizations not use forced ranking? Not at all. Admired and
successful companies—GE, Intel, Cisco, Pepsi—have used forced ranking
for years, with success. What appears to set these organizations’
application of forced ranking apart from the others is that either it
is one tool in an integrated toolbox utilized by the organization to
gain another perspective into performance management or, it is a
separate process that is used in concert with performance management.
In these organizations, forced ranking is not a tool used to mask a
broken performance management system, spineless managers or managers
who “grade” too hard.
So how can an organization avoid the pitfalls of forced ranking and at the same time make it a useful tool?
1. First, assess the performance orientation of the culture. While
forced ranking can be useful in some organizations, the very nature of
the process generally leads to greater degrees of success in
organizations with a high-performance culture. A high-performance
culture can be defined as one where employees are engaged in the
business; required results are clearly defined; employees demand and
have access to performance information; and rewards and consequences
are aligned with performance results. But be careful here to avoid the
“silver bullet” trap. Too many companies today use forced ranking as a
means to becoming a high performance culture. The echo in the hallways
is: “Let’s raise the bar and knock out the bottom 5 percent.” However,
a strategy for driving a high-performance culture needs more than just
“rank and yank” assessments. Forced ranking has not been proven on its
own to drive enterprise performance, while other, more constructive
Consider a recent
study by the Corporate Leadership Council that found among the 13
drivers in a performance management system, use of employee ranking
scored next to last in direct impact on employee performance (Corporate
Leadership Council/Corporate Executive Board. Building The
High-Performance Workforce: A Quantitative Analysis Of The
Effectiveness Of Performance Management Systems, 2002). The research
also suggested this “D Level Performance Driver” actually decreases
employee performance. Regardless of the performance orientation of the
organization’s culture, the use of forced ranking exercises should be
eased into and monitored carefully.
2. Be clear on intent. Clarify
the purpose of forced ranking within the context of the company's
broader human capital and talent management strategies. For example,
forced ranking can be used to determine the top 5 percent of employees
based on performance and potential, to pay out a higher percentage
bonus to the top 20 percent of contributors, or to identify the bottom
8 percent for wanted turnover. As these examples indicate, forced
ranking is more often than not used to determine some sort of
consequence, positive or negative. Also consider whether the exercise
will be used as a one-time event or become a “way of life.” Defining
and communicating intent can lead to tough questions, the answers to
which are critical to the success of forced ranking.
3. Integrate forced ranking into other talent management processes. The
forced ranking process and its outcomes should be well integrated
into/aligned with other people processes. The data received from the
exercise should supplement and provide additional perspectives to the
other areas of talent and performance management. All people-related
systems—performance evaluations, development activity, high-potential
identification, salary planning, succession planning, advancement
discussions and managed attrition—should place people in roughly the
same position as would a forced ranking exercise. In other words,
consistent performance messages run throughout the various
people-related systems. If forced ranking is being used solely as a
means to understand which employees fit into which performance buckets,
and it is the only tool to do this, then its use is simply a band-aid
put in place to correct other deficiencies in the performance
management system. The implicit messages from the results of the
process should not contradict the explicit performance messages
employees are receiving via other channels. Likewise, there should be
clear alignment between the outcome of the forced ranking process and
consequences received through other performance management means.
4. Develop an appropriate methodology.
The type of forced ranking methodology adopted should match the needs
of the organization. The first step is to determine the criteria that
will be used and the strategy for segmentation, including the employee
population, the number of groups, the type of groups, and rating types
(e.g., potential, performance, readiness). The second step is to
develop the appropriate ranking process and distribution. The outcome
of this step could be, for example, a decision to include only middle
and senior management in the process.
By its very
nature, forced ranking means that individuals are forced into specific
placement categories. Regardless of the methodology, emotions will run
high and haggling will occur during the process. The exercise is
usually straight forward within a specific department or functional
area. However, the roll-up across the organization is where discussions
become challenging. “My top performer is a higher caliber performer
than yours and shouldn’t be placed lower.” As you choose or develop a
methodology, test it against the original intent of the ranking
exercise and the organization’s overall purpose for performance
5. Monitor activity and results.
Measure the investment levels in the different activities and practices
associated with the performance management system, at the unit and
enterprise levels of the organization. Re-visit the goals established
for using forced ranking and test the outcomes. Ask how the forced
ranking process has added value to the organization’s overall talent
and performance management system, and if the organization is better
off with it or without it. Assess the tool against others in the suite
of performance management tools and question the amount of weight
forced ranking carries in comparison. Pay close attention to the
desired and actual balance between assessment and development
activities and raise the red flag when imbalances begin to emerge.
Lastly, assess potential legal implications and risks by auditing the
forced ranking exercises and outcomes with other performance management
tools and messages.
In the end,
organizations need to be careful that they do not let forced ranking
hijack their performance management efforts. It is often true that
segmenting the workforce based on criteria such as performance,
capability and/or experience is important for talent management and
investment decisions, but in most cases allowing this practice to
become central to performance management will undermine other
activities the company is taking to achieve increased levels of
employee performance. Organizations that use the tool successfully have
developed clear intent, integrated/aligned the tool with other
performance management tools and developed a methodology that works for
them. Blindly following another company’s success with forced ranking
without careful consideration of the unique factors that might be
critical to your company’s success is a costly proposition in terms of
dollars, goodwill and time that may take years to undo.