Can forced ranking create high performance cultures? (Guest commentary)

Recognizing limitations and making appropriate changes can make high performance curves work

The relativity of performance, distinctively rewarding high performers and aggressively managing low performers or replacing them with external talent, is the thinking behind forced distributions for creating high performance cultures.

It forces leaders to intelligently differentiate higher performance and make decisions they otherwise would not have made in a conventional performance management system that only compares employees against their individual objectives.

Forced ranking performance management systems (subtly referred to as “high performance curves”) are often lauded as the foundation for creating high performance cultures. But this approach doesn’t always work. Both Xerox and Pepsico have tried and rejected it.

But there are a number of implicit assumptions in high performance curves worth exploring to determine in which type of environments it sustains higher performance and how practical it is to implement in a Canadian context.

First, in forced ranking systems, performance is relative and the standard against which an employee is measured is the average standard of the team at the end of the year, rather than against the originally stated individual objective. Therefore, when the performance bar rises continually throughout the year, even if an employee met or exceeded her individual objectives, she may still be lower than the average level of performance. Consequently, she’ll end up as the lower performer and, in some systems, labelled as “partially meeting expectations.” It is this acknowledgement of relativity of performance that induces action to continuously create breakthroughs and overachievement.

Second, most companies have limited funds to reward superior performance. Forced ranking curves free up funds to reward high performers to reinforce the message that overachievement is valued. If an employee significantly exceeded her objectives, but received the same bonus as others who didn’t, then the subtle message is that her overachievement didn’t really matter. An implicit assumption is that distinctively rewarding the higher performers motivates others because they also want the high bonus payouts.

Third, high performance curves force leaders to identify and act on lower performers. In more aggressive organizations, lower performers are terminated and replaced with the best and brightest outside the organization, which automatically drives up the performance standard when they join the organization.

But there are a number of practical dilemmas facing the adoption of such performance management systems.

First, relativity of performance is often criticized because it creates internal competition. Therefore, only performance management systems that place equal value on objectives and the behaviours (the “what” and the “how”) will effectively mitigate the risks associated with internal competition. In other words, employees who seek to boost their own stature by hoarding information from their peers are very likely going to receive a “needs development” rating on their behaviours, thereby reducing their overall performance rating.

Second, performance ratings are mostly confidential so others do not really get to see whom they should be emulating. A way around this is for leaders to articulate and advertise the high performance differentiators and describe the contexts and situations in which high performers excelled while retaining the confidentiality of performance ratings.

Third, employees who are newly promoted or new to a team often fall short since they are still learning the ropes compared to their more tenured peers and therefore could easily be defaulted to the category of lower performer. A more intelligent approach is for leaders to adjust their expectations of performance for each employee based on the level of experience, the impact of the position, the different environments, previous performance ratings and relative salary. Generally a higher level of performance should be expected from employees with more experience and higher salary.

Fourth, terminating low performers simply because they are lower performers is very difficult to implement in a Canadian legislative context and often involves severance payments. Paying someone to leave may actually be interpreted as a reward for low performance. Forced ranking also assumes there is better talent externally than the lowest performers internally. That’s not always the case, especially in situations where it can take years for a new hire to acquire the organizational context to drive up performance.

Finally, rushing to get rid of low performers does not necessarily encourage leaders to coach and develop these employees to a higher level of performance. As a result, it could potentially create a climate of “sink or swim.” A more disciplined approach is to recognize that some employees have strong capabilities but are not in a role or environment that harnesses their full potential.

High performance curves undoubtedly cause anxiety amongst employees, but this should not deter organizations from adopting the strategy. Breakthroughs and revolutions are often accompanied by anxiety because growth and change are uncomfortable. When the above-mentioned adaptations are incorporated with forced ranking systems, employers can embrace such an approach for inspiring higher performance.

Malcolm Gabriel and Pierre Robitaille are senior HR professionals and can be contacted at (416) 735-0504.

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