Sometimes I come across ideas in business that is just so counter-productive that I really cannot understand how they ever became accepted practice. One such idea that I've seen wreak havoc on corporate culture is the so-called Forced Ranking performance assessment process (or as Jack Welch termed it "Rank & Yank").
In virtually every company I've encountered this practice, it has had serious negative unintended (hopefully) consequences on the organisational culture. Kurt Eichenwald explains the system well in an article, published in Vanity Fair in 2012. It details the negative effects of this practice (they call it stack ranking) on Microsoft's corporate culture.
Here is a relevant piece of the article (I highly recommend reading the rest as well)
"At the center of the cultural problems was a management system called “stack ranking.” Every current and former Microsoft employee I interviewed—every one—cited stack ranking as the most destructive process inside of Microsoft, something that drove out untold numbers of employees. The system—also referred to as “the performance model,” “the bell curve,” or just “the employee review”—has, with certain variations over the years, worked like this: every unit was forced to declare a certain percentage of employees as top performers, then good performers, then average, then below average, then poor. …
For that reason, executives said, a lot of Microsoft superstars did everything they could to avoid working alongside other top-notch developers, out of fear that they would be hurt in the rankings. And the reviews had real-world consequences: those at the top received bonuses and promotions; those at the bottom usually received no cash or were shown the door. …
“The behavior this engenders, people do everything they can to stay out of the bottom bucket,” one Microsoft engineer said. “People responsible for features will openly sabotage other people’s efforts. One of the most valuable things I learned was to give the appearance of being courteous while withholding just enough information from colleagues to ensure they didn’t get ahead of me on the rankings.” Worse, because the reviews came every six months, employees and their supervisors—who were also ranked—focused on their short-term performance, rather than on longer efforts to innovate. …"
"So while Google was encouraging its employees to spend 20 percent of their time developing ideas that excited them personally, Ballmer was inadvertently encouraging his to spend a good chunk of their time playing office politics. Why try to outrun the bear when you can just tie your co-workers' shoelaces?"
The pressure it puts on managers who have to enforce it is another factor. In an article published in the Wall Street Journal, one manager is quoted as follows:
"Critics of forced ranking say that it demoralizes workers and fosters backstabbing and favoritism. Mark Parbus, a former sales manager for the consumer health-care division of GlaxoSmithKline, says he dreaded the year-end ritual of rating his 15 direct reports. Because the company practiced forced ranking on a regional basis, Mr. Parbus and other area managers met before Christmas each year to spar over which employees got which ratings—a grueling process that could take an entire day. "It was like being in court—the more you prepared, the better chance your people had of reaching the top of the scale," says Mr. Parbus, 51."
I've spent a lot of time in organisations listening to stories about culture. In every organisation that practices this system of performance assessment, I've seen the negative effects it has on the culture, and how it undermines many other business imperatives such as innovation, team effectiveness, and knowledge sharing (collaboration).
When performance measures are solely based on individual performance it drives other negative behaviours as well, for example, I heard stories of people stealing other people's ideas, claiming it as their own, and getting a top performance rating for it. How does one foster a culture of collaboration when everyone is jockeying for a limited number of top spots?
This practice impacts severely on engagement and work-life balance, the anecdotes below aren't quoted verbatim, but are illustrative of the types of stories I encountered:
"Our performance measurement system doesn't measure us against our peers, not an objective standard. You have a fixed number of people who must be classified as poor, average or high performers - so no-one is measured against a standard, we are measured against each other. This impacts very much on things like work-life balance because it means that we're all fighting to stay out of the bottom ranking, so if a handful of employees are highly driven, they force the others to act the same or be left behind."
"Before the company instituted this system, many of us had top-level ratings because we had many people in this unit who really were top performers. Now there aren't enough "spots" for everyone to be rated as exceptional, so many top performers now get an average rating. They're still doing the same work as they used to, but without the same reward. People who used to work together now stab each other in the back, it's all about being top dog now."
One of the saddest stories I heard is this one:
"I'll never forget how naive I was until my boss explained to me that it's not about my contribution but about how bad I can make other people look. It was such a sad wake-up! He was 2 years younger than I and 3 levels my senior, so he knew his stuff!
That's why I left-it was soul-destroying. "
In what is now increasingly being termed the "Creative Economy", we simply cannot afford to undermine the engagement and creativity of our people any longer. I want to stick my neck out and go as far as saying that a company that uses this system of performance assessment cannot have a healthy culture. They are mutually exclusive.
If you have stories to share about the effects of this practice I'd love to hear them!
Feel free to contribute them in the comments area.