Employee Ranking Can Be Dangerous

The commonly-accepted practice of employee ranking can be dangerous to company culture.

Ranking employees, also known as stacked or forced ranking, is a process which compares individual employees to each other, typically associated with annual performance reviews. Employees are usually forced into one of three buckets: A (top 20%), B (the middle 70%), and C (the bottom 10%). Conceptually, this process rewards the organization’s top performers and weeds out the lowest performers (who are put on performance improvement plans or fired). This weeding out effect is why the process is informally known as ‘rank and yank.’

Ranking systems became popular partly due to Jack Welch, the former CEO of General Electric, who in the 1980’s suggested forced ranking was a key part of GE’s growth. Unfortunately, employee ranking systems create more challenges than benefits.

The goal of performance management should be to help people improve performance, focusing on individual development or adjustments in behaviors. By comparing an employee to everyone else, we’re ignoring the fact every employee starts from a different place. As the Red Queen effect teaches us, we should focus on rate of improvement, rather than absolute performance. A C employee who is improving quickly but still behind others should be rewarded, not punished. The forced ranking system discourages this employee from trying.

Worse still, the forced ranking system encourages unhealthy competition between employees and can damage organizational culture. Since most employees will end up in the middle B bucket regardless of what they do, it’s to their advantage to make others look bad to ensure someone is in the C bucket. The failure of one employee is the success of another. Undermining others might make one individual look good temporarily but it harms team performance.

This internal competition can be subtler than cheering for others’ failures. Employees might curry favor with management through complements or birthday presents. More visible employees are given credit for successes, even when they are the result of several peoples’ efforts. Or, unsubstantiated gossip and back-office rumors create a toxic culture.

Luckily, there’s some evidence that employee ranking has become less popular: one study revealed a drop from 49% in 2009 to 14% in 2011. Even GE abandoned the process. But ranking is still common; from sales contests to 5-star performance systems. Most recently, the controversy around Facebook’s “cult-like” culture was partially a result of its stack-ranked based employee performance management.

While people inevitably compare themselves to others, it is much more effective to compare your current self to your potential self. Instead of just focusing on accomplishments, true performance management builds individualized development plans and measures whether employees are making progress towards self-improvement goals. In this environment, employees are encouraged to help each other and learn from each other.

Comparing people to each other through forced stacked ranking can be dangerous to an organization’s culture. On the other hand, comparing people to their potential selves is an effective way to build a collaborative performance improvement culture.