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The ABCs of Rank and Fire Management
By Mark Edmondson
Ford Motor Company once dictated that 10% of its managers would get A grades, 85% Bs and 5% Cs. Those who received a second consecutive C could be fired.1 This was supposed to motivate people to do well on the job.
It made me think of my high-school chemistry teacher, Mr. Sproul. He told us we would be graded on a curve. "The top 10% of you will receive an A, and the bottom 10% will get a D or F," he said. "This will preserve the integrity of the grading system and prevent grade inflation."
My buddy Neil raised his hand. "Mr. Sproul, if you do a good job as our teacher, more than 10% of us will learn from your lectures and ace every exam. How will you choose who receives an A and who doesn't?"
"It's an objective process of ranking by points earned." Mr. Sproul said. He told us about normal distribution and how it applied to the physical sciences, human intelligence, and our grades.
"But Mr. Sproul, what if you do a poor job as our teacher and none of us learn much, and no one earns many points? Will one in 10 of us still get an A?" Neil asked.
Mr. Sproul went on the offensive: "Neil, no matter how poorly you learn in my class, all I have to do is award an A to the 10% with the most points. It's simple."
"Mr. Sproul," Neil then asked, "It may be simple for you, but does grading on a curve represent how much the class learns from you?" I thumped Neil on the back of the head to save him from himself, but the damage was done. Neil and I had just learned about the sting of performance ranking.
In the workplace, performance ranking becomes employee ranking. Is it useful for motivating your employees?
Employee ranking systems are known by a variety of monikers including "performance review ranking," "employee ranking," "employee grading," the "ABC system," the "20/70/10 system," the "forced-ranking process," and "rank and yank management." According to one study, about 34% of firms rank employees.2
GE may be the most high-profile company using employee ranking -- 20% of salaried, managerial and executive employees are rated "outstanding" each year, 70% "high-performance middle" and 10% "in need of improvement." In the 2000 annual report, then-CEO Jack Welch wrote, "GE leaders must not only understand the necessity to encourage, inspire and reward that top 20 percent ... they must develop the determination to change out, always humanely, that bottom 10 percent, and do it every year."
Enron (before they imploded) put employees in one of five categories: 5% were identified as "superior," 30% "excellent," 30% "strong," 20% "satisfactory" and 15% "needs improvement."
IBM ended their 60-year "full employment practice" in the early 1990s when they adopted an employee ranking process. Management was directed to classify 10% of employees as "needing improvement". These employees were later targeted during IBM's first-ever involuntary layoffs.
Is employee ranking consistent with lean thinking principles? Here's what some experts say:
"Consider the impact on morale and trust. Employees often become suspicious of management's motive -- is it about improving performance or downsizing the organization? This suspicion can create unhealthy competition among employees, and rapidly erode the trust employees have with management."3
-Nina Atwood, Executive Coach, Vistage International,4 and LEAN Affiliate
"Forced ranking systems do just that -- they force your management to make arbitrary decisions about their people. Instead of ranking, focus on mutual goal setting, employee involvement, and ongoing coaching with feedback and measurement of progress."5
-Lee Colan, President of The L Group, a management consulting firm in Dallas, Texas
Deming lists "evaluation by performance, merit rating, or annual review of performance" among businesses' 7 Deadly Diseases. "Performance ratings build fear and leave people bitter, despondent, and beaten. The effects of these are devastating -- teamwork is destroyed, rivalry is nurtured."6
-W. Edwards Deming, educator and author
"Just having this arbitrary rule of letting go the lower 10% at the end of every year doesn't really accomplish that much. It mostly stirs up a lot of fear, and a lot of managers working under fear."7
-Robert W. Hall, Professor Emeritus of Operations Management, Indiana University
"We [at GE] had a system where 90% of employees felt demoralized."8
-Bill Conaty, GE Senior VP, human relations
My recommendations for you:
Hire correctly to avoid low performers. The best companies recruit the cream of the crop. To say that every year a targeted percentage of them are poor performers doesn't make a lot of sense.
Avoid employee ranking systems that have quotas for each level of performance. Don't create an environment where the success of one employee is a lost opportunity for others. This destroys teamwork, trust, and morale.
Direct your management team to work with each employee individually. Make training of employees a priority, set improvement goals for them, and then motivate them to achieve those goals. You can then identify which employees are exceptional, which are performing satisfactorily, and which are under-performing.
Understand whether a performance issue stems from a poor process, poor leadership, or a few poorly performing individuals. Know the difference. If you recruit quality people, the cause is rarely individual performance.
As a lean leader, what does this mean for you? Gary Convis, President of Toyota Motor Manufacturing, Kentucky, states it powerfully, "The human side of lean is understated and probably underestimated. [A] pillar of the Toyota Way is respect for people...if you don't have respect for the people that work for the company, you are in the wrong business."9
Our clients have learned that a performance management system that reinforces a culture of engaged employees can be a tremendous competitive advantage. While at least one-third of your competitors are alienating employees with some sort of dysfunctional ranking practice, you're creating a high-performance culture by leveraging your most valuable assets -- the minds and hearts of your people.
About the author
Mark Edmondson is President of LEAN Affiliates http://www.leanaffiliates.com/, a network of lean enterprise transformation consultants across North America.- Hymowitz, Carol. "Can Ranking Employees Do More Harm Than Good?" The Wall Street Journal Online.
A June 2004 study by HR consulting firm, Development Dimensions International.
Interview conducted by the author, November 2004. See www.NinaAtwood.com.
Vistage International is a community of chief executives.
Interview by the author, November 2004. See www.theLgroup.com.
Walton, Mary. "The Deming Management Method," Putnam Publishing, 1986.
Bodek, Norman. Interview, "Kaikaku, The Power and the Magic of Lean," PCS Press, 2004.
Ibid., Hymowitz.
Ibid., Bodek.
Copyright © 2010 Society of Manufacturing Engineers
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| July 10, 2006 Issue: |
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