Why Are Some Companies Yanking Forced Ranking?

Money is an important tool for both attracting and

motivating talent. If you owned a company or were

its CEO, you would likely agree and choose performance

management practices to deliver such outcomes.

You would probably also favor rewarding

high performers and having an effective means

for removing low performers. For decades, forcedranking

appraisal practices have helped organizations

and their managers differentiate employee

performance and achieve both objectivesrewarding

top performers and providing grounds for terminating

the low performers.

BROAD APPEAL

These qualities made forced ranking (also known as

forced distribution or "rank and yank") a popular performance

management tool for many marquee companies,

such as Ford Motor Company, 3M, and Intel. GE,

for instance, made the approach famous using its

"

vitality curve" to rate employees into three categories

top 20 percent, middle 70 percent, and bottom

10 percent. The top often received raises two to three

times greater than the next group, while the bottom

group was often put on probation or fired.102 Microsoft

also used forced distribution to ensure it was always

raising the bar on talent and performance. It replaced

its lowest-performing employees with the best in the

market and ensured there was always more exciting

work than it had people to do it.103

One argument in support of forced ranking is increased

accountability. It requires managers to do the

difficult work of differentiating performance. While nobody

likes to be the bearer of bad news, not confronting

performance issues is an underlying cause of score

inflation (grade inflation in school) and mediocrity. The

implication is that not everybody can be a top performer,

and it is management's job to know and acknowledge

the differences. Forced ranking also can

be used to remove "dead wood." Employees who

aren't as driven, capable, or competitive are driven out

and replaced with those who are.104

Another central supportive argument is that resources

are constrained, notably people and money.

Culling the workforce based on performance is a way

to be sure your best employees are able to work on

the company's most important and valuable projects,

products, and services. And it allows companies not

only to allocate more to their best employees, but also

to create clear and often substantial differences between

different levels of performance and associated

rewards.

THIS ALL MAKES SENSE, BUT WHY

ARE MANY COMPANY'S YANKING

THE PRACTICE?

Performance management practices have compounded

the challenges faced by Yahoo and Amazon.

According to a spokesperson at Yahoo, the company's

programquarterly performance review (QPR) recommended

by McKinsey Consultingis intended to

"

allow for high performers to engage in increasingly

larger opportunities at our company, as well as for low

performers to be transitioned out."105 However, problems

arose when managers and employees accused

the company of using it to fire employees "for performance"

instead of laying them off. The scale of this

issue

is substantial, given that nearly one-third of the

company's workforce left or was terminated in

2015-2016, though the law requires at least 30 days'

notice for mass layoffs.106 Similar practices also were

linked to discriminatory dismissals at Ford, Goodyear,

and Capital One and caused them to change their

practices.107

Amazon has embraced forced ranking to foster internal

competition and drive employees to always improve.

Its organizational-level review (OLR) process

requires managers to select which employees to support

and which to "sacrifice" (not all employees can

pass). Even after an incredibly rigorous hiring process

intended to select the best of the best, employees are

distributed into high, average, and low performers20,

60, and 20 percent, respectively. This means 80 percent

of the company's employees have stopped being

stars by the time of their first performance review. The

process is challenging for managers too, who must

continually select talented subordinates to fire at every

performance review.108

RANK AND YANK AT ADOBE

Another company that championed forced ranking

was Adobe. It had a rigorous, complex, technologydriven

process for ranking its employees each year.

Performance expectations were set and performance.

was measured, documented, reviewed, and rewarded.

The goals were to help the company improve employee

performance and ensure it had the best talent.

However, what the company actually achieved was

quite different.

Adobe calculated that its process of reviewing its

13,000 employees required approximately 80,000

hours from its 2,000 managers each January and February.

This massive time commitment actually reduced

employee performance, because this time wasn't being

spent on productive work like developing products

or cultivating and serving customers. And while the

system was meant to ensure manager accountability, it

actually allowed many to avoid confronting low performers

until the annual review. This meant low performers

were terminated only once a year.

Donna Morris, Adobe's global senior vice president

of people and places, described the PM flaws this way:

"Especially troublesome was that the company's 'rank

and yank' system, which forced managers to identify

and fire their least productive team members, caused

so much infighting and resentment that, each year, it

was making some of the software maker's best people

flee to competitors."109 Moreover, the performance

management practices did not align with the goals of

employee growth and team work, both fundamental to

Adobe's success. It instead focused on past performance

and compared employees to each other.

The shortcomings of the process were underscored

by internal "employee surveys that revealed employees

felt less inspired and motivated afterwardsand

turnover increased."110 This last point compounded

problems by causing the wrong employeesthe highperforming

onesto quit.

Assume you are Donna Morris, Adobe's global senior

vice president of people and places. How does

the information in the case inform your recommendations

about PM practices at Adobe?

What is the main problem?

What is the root cause of the problem?

Can you give any recommendations?