Performance Appraisal Rank and Yank

Performance Appraisal
Rank and Yank

A growing number of organizations, including the likes of Ford, Microsoft and Conoco, have adopted performance appraisal models in which best-to-worst ranking methods are used to identify poor performers, who are then given a period of time to improve. If they fail, they must leave. The departure is often sweetened with a severance package, but if the poor performer refuses to exit gracefully, they face the possibility of termination without compensation.

The strategy is known as "rank and yank". According to Time magazine, forced ranking appraisal systems have spread to around 20 per cent of U.S. companies in recent years. For example, California-based Sun Microsystems ranks its 43,000 employees into three groups. The top 20 per cent are rated as "superior", the next 70 per cent as "standard". At the bottom is a 10 per cent band of "underperformers". The underperformers are told frankly that they must improve and are provided with one-on-one coaches. CEO Scott McNealy is famous for telling his executives that the bottom 10 per cent must be "loved to death". Underperformers who fail to improve are offered a 'prompt exit' package. If they decline it, they face a bleak future in which further incidents of poor performance could lead to dismissal. Love has its limits, after all.

Advocates believe that forced rankings make managers and supervisors take the tough decisions that otherwise they would avoid as being too difficult or unpleasant. Some organizations view the forced ranking approach as a way to create a continuously improving workforce.

Despite its appeal, there are problems with the forced ranking approach. Someone must always fall into the lower or underperforming category, even if everyone has performed at a satisfactory or better level. It is also possible that those rated as "poor performers" in highly productive departments may contribute more to the overall progress of the organization than those rated as "good performers" in other departments. As well, forced ranking can weaken teamwork. It can encourage unhealthy levels of internal competition, leading to a decline in team values as individuals seek to protect their own position at the expense of their co-workers. As one employee said about the impact of forced ranking in his organization, "... all the relationships instantly become strained."

One of the leading practitioners of forced ranking was Enron Corporation, the Texas energy and trading giant that collapsed in late 2001 under a tidal wave of debt and scandal. It is sobering to reflect that commentators had, in the months preceding its demise, held up the once highly profitable company as proof that rank and yank was the way of the future for all performance appraisals. It was said that rank and yank had produced in Enron "a hotbed of overachievers" - bold rhetoric which now seems a little embarrassing, to say the least.

Survey Findings
According to a study, half of all employees of workers want their supervisors to state performance goals more clearly. Nearly 40 per cent want the issue of their performance on the job more closely tied to both their development plans and their compensation outcomes.

The survey also found that 42 per cent of workers were at least moderately dissatisfied with their employer's system of performance evaluation.

There are many reasons for this widespread feeling of dissatisfaction. Says one source, "A lot of employers still use it [appraisal] to punish workers instead of helping them develop."

Another common complaint is that managers "...fail to explain to employees what they expect from them or clearly define the standards and criteria they use to evaluate performance." According to Shelley Riebel, this "...just sets up employees - and the process - for failure."

Termination: Legal Minefield?
AHI's Employment Law Center suggests that a series of careful steps should precede any decision to terminate an employee based on alleged "poor performance". The edited highlights are given below:

1. Do you have sufficient evidence? Does the evidence support claims that an employee's performance is genuinely sub-standard?

2. Is the evidence properly documented? Have alleged former incidents of poor work performance and/or disciplinary actions been properly documented?

3. Consider the timing. "Discharge decisions which immediately follow a complaint or participation in a protected activity may be perceived as retaliatory and discriminatory by the court." Perceptions matter, even if the timing was co-incidental and perfectly innocent.

4. Is it fair? Have other employees been discharged in similar circumstances?

5. Ask an objective third party for their views on whether your proposal to terminate seems fair and reasonable. Be prepared to modify your position if the feedback is not supportive.

This list of precautions should be carefully followed by employers seeking to terminate a poor performer. If there is any doubt concerning the fairness or legitimacy of a proposed termination, it would be sensible to consult a lawyer before any action is taken. Employers should also be aware of any local laws that might restrict their rights to terminate.

Growing numbers of dismissed employees are suing for what they claim is wrongful or illegal termination. If an organization wants to avoid costly litigation, it must ensure that all its termination decisions are legal, fair and reasonable. Proper and complete documentation - such as that created in performance appraisals - is critical.