Marking staff on a bell curve

Interest grows in forced ranking systems that identify poor performers

When Alec Baldwin’s character in the film Glengarry Glen Ross announced the month’s sales contest to a team of demoralized and distracted real-estate salesmen, he got just the kind of attention he needed.

“As you all know first prize is a Cadillac Eldorado,” said Baldwin’s character. “Anybody want to see second prize? Second prize is a set of steak knives. Third prize is you’re fired.”

While not always nearly as brutal, this approach to performance motivation isn’t wholly foreign in today’s corporate world. Take the “vitality ratings” made famous by General Electric’s former CEO Jack Welch, which ranks people along a bell curve (see box). Speaking of the bottom 10 per cent, Welch told the Wall Street Journal in his trademark bluntness, “We’ve got to get rid of them. We don’t want to see these people again.”

Critics call it Darwinian. Proponents say it’s about “doing the workers a favour.” Despite the debate, however, forced ranking, as this performance management approach is sometimes called, seems to be on the rise. In a Conference Board of Canada study on performance management systems, 25 per cent of responding organizations said they use some form of forced distribution, and four per cent are considering it for the upcoming year.

At Maple Leaf Foods, a Toronto-based food processing company, vice-president of human resources Wayne Johnson said his company uses forced ranking on its 5,000 salaried employees (the bulk of Maple Leaf Foods’ 18,000 workers are unionized) because “we firmly believe that unless you do forced ranking, you’re not going to raise the talent bar.

“Straightforward performance appraisals have some pretty fundamental problems,” said Johnson, adding that managers tend to overrate their employees. “And the reason for that is they don’t want to deliver the tough messages.”

Johnson stressed that forced ranking has to be rolled out as part of a package of staff development.

At Maple Leaf Foods, managers rank their employees on the basis of 21 values called the Maple Leaf Values, placing an emphasis not just on employees’ performance but on their behaviour with respect to such things as risk-taking, teamwork, and integrity. Potential within the company also plays a part, measured by the employee’s experience and ability to learn.

While critics of forced ranking raise the argument that the system pits employees against their peers, thereby corrupting team spirit, Johnson said that such aggressive competitiveness would score poorly on the Maple Leaf scorecard.

“We’ve always said that values trump results, so if we have somebody who’s a top performer in terms of results, but who isn’t living the values, we frankly don’t have much time for him. We’re that strong on the values,” said Johnson.

At Maple Leaf Foods, A’s make up the top 20 per cent, B’s the middle 70 per cent, and C’s the bottom 10 per cent. Employees can appear on the C list only once, and when they do, what they get during the year is a high-intervention strategy, said Johnson.

“When we first started out, the C players left the organizations, and were glad to do so. They were uncomfortable. They knew they weren’t performing. And invariably, they ended up in organizations where they were doing much better because there was a better fit.”

But these days, three out of four C players typically move into a different job within the company. “You still want to treat them well because it’s a reflection on the organization.”

Far from depleting morale, employees like the system because they end up working with more talented people, said Johnson, pointing to a three-per-cent turnover rate as proof of the positive atmosphere.

ATI Technologies, a Markham, Ont.-based chip manufacturer with 2,100 employees, operates in a paid-for-performance culture. The company links quarterly feedback to twice-a-year bonus payments in January and July, one stock options payment in the spring and merit pay in the fall, said Michel Cadieux, vice-president of human resources. The bonuses are tied to what ATI calls “milestones.”

“In an engineering company, you’re developing product right now that’s going to come out in a year, sometimes two years. If you don’t hit your key milestones now, you’re in trouble one year down the road. So it’s based on the hitting of those milestones that we pay out the bonus twice a year, in January and July.”

Describing the company as a “high-performance culture,” Cadieux said ATI uses a ranking system as a tool for managers to identify top performers.

He declined to divulge the actual percentages of each grouping, but said the bell curve assumed by this ranking process is “softer” than that used by ATI’s peers such as Intel and Sun Microsystems, and “more generous on the top side” than GE’s.

As for the bottom-ranking set, there’s no “cookie-cutter” approach to dealing with them, he said, adding that the newly hired or newly promoted would be treated differently from “those who are just not performing.” These latter are put on a performance improvement plan that includes the possibility of coaching, progressive discipline, as well as a re-assessment to see if the non-performer is assigned to the right role. The amount of energy and time invested into giving these non-performers a chance to improve depends on such factors as their history with the company, the duration of the problem and the attitude of the employee

“But if someone is hired in a technical area, and they should have the technical skills but they don’t, well, we would probably have to make a change. We would hire someone who does,” said Cadieux.

“The people at the bottom aren’t my focus. The people who are important to the company are the people at the top. If the company focuses on mediocrity, you’re dead. We focus on excellence. If you’re going to put all your effort somewhere, are you going to put it in the people at the bottom or people at the top?”

That said, “we do not exclude the bottom performers from training. In fact, they probably get a fair bit of attention from their managers, but the point is, where do you put your emphasis?” Cadieux added.

Echoing Johnson’s critique of performance appraisal, Cadieux said the system forces managers to confront underperforming staff.

“I’ve had managers tell me, ‘All my people are superstars. I can’t find the poor performers.’ We’ve actually told these managers, not everyone is equal. ‘And if you can’t identify the high performers out of your team, then we challenge your ability to be a manager. Then you shouldn’t be a manager.’”

On the other hand, because managers share their employee assessments with a small number of their management peers, what effectively takes place is also a management feedback process. “I’ve seen it happen, when you get a tough manager. They would be getting feedback from the other managers who say, ‘Wait a minute, this person did a good job for us.’ And I’ve seen a manager change a review because he gets feedback from outside his silo.”

But opponents of forced ranking say that the approach signals an inability within the company to spell out the objective measures of good performance.

“What you’re really saying to everybody in the organization is, ‘We really don’t know what performance looks like, but we’ll let you know, because we’ll do performance ranking, and some of you will be at the top and some of you will be at the bottom. I think it’s a cop out,” said David Neilly, a Toronto-based consultant at Towers Perrin, who has worked at offices that use forced ranking.

“The real reason why organizations use forced ranking is they get sick and tired of the organization not implementing their absolute standards.”

As for the underperformers, Neilly added that it’s not always an apt solution to simply move them out. “Organizations are complex systems with culture and manager behaviour and leader behaviour.”

Forced ranking is useful when a company has to downsize, he said, adding that even then, an organization would still need to do an objective analysis of what skill sets and what characteristics would work in the new business model.

“It’s not enough to say, ‘When we had 1,000 staff, here are the highest contributors and the lowest contributors.’ Those people who were the highest contributors in the old business model may not be the high contributors in the new model.”

The cost of moving people out and replacing them with people who have to be trained all over again, Neilly added, is a “much more expensive way of doing business than to invest in your selection process, your performance management process and your coaching process.

“Nowadays, most companies — and I’m talking of manufacturing, professional services and technologies companies — all expect employees to learn, to be innovative, to make decisions. When you’re investing in that, the time required to get people to that level of contribution is not insignificant.”



T&D spending flat
A Conference Board of Canada survey of about 150 employers found that investment in training and development averaged at $838 per employee in 2002. This figure indicates that training remained relatively flat compared to previous years, when training averaged at $859 in 2000, $776 in 1998 and $842 in 1996. Average training dollars represented 1.7 per cent of payroll.

Employers in the primary industries led the pack with an average per-employee spending of more than $1,400, nearly 30 per cent of which went to occupational health and safety training. Manufacturers came in second in training dollars, spent mainly on management and supervisory skills. Ranking third were employers in the professional services, which invested nearly 30 per cent of training dollars on professional skills.

Wholesale and retail trade, health and education, and food and accommodation services were the three industries that spent the least training amount per employee.

On average, only 1.9 per cent of total formal training spending went to developing basic skills of literacy, reading and English as a second language.

Organizations surveyed indicated that an average of 30 per cent of employees did not receive any formal training at all.
Jack Welsh's description of GE's "vitality ratings"
"Ones are the top 10 per cent. These are the top people. Twos are the next-strongest 15 per cent. Threes are the middle 50 per cent. The ones in the middle have a real future. Then fours are the caution 15 per cent. They can move to the left. Fives are the least effective 10 per cent. We've got to get rid of them. We don't want to see these people again."

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