Forced Distribution Forced Distribution (aka “Rank and Yank”)(aka “Rank and Yank”)

Estimated that at least 20% of Fortune 1,000 cos are Estimated that at least 20% of Fortune 1,000 cos are using, and growingusing, and growing– Ees grouped into “baskets” (e.g., 20% As, 70% Bs, 10%Cs) Ees grouped into “baskets” (e.g., 20% As, 70% Bs, 10%Cs) – Championed by former GE CEO Jack WelchChampioned by former GE CEO Jack Welch– Most successful in orgs w/ high-pressure results-oriented cultureMost successful in orgs w/ high-pressure results-oriented culture

““You can’t do it wo/ focusing on culture and communication”You can’t do it wo/ focusing on culture and communication”Research shows top Ees outperform “average” Ees by 40-100%, Research shows top Ees outperform “average” Ees by 40-100%, bottom Ees may have net negative effectbottom Ees may have net negative effect

– May be used where managers have been reluctant to do May be used where managers have been reluctant to do accurate performance appraisalsaccurate performance appraisals

Forces org to differentiateForces org to differentiate– ““A manager has a responsibility to develop that person or move them A manager has a responsibility to develop that person or move them

out”out”– ““Certainly the process is discriminatory. It discriminates in favor of the Certainly the process is discriminatory. It discriminates in favor of the

talented and energetic and against the lazy and dull. But that form of talented and energetic and against the lazy and dull. But that form of discrimination is not yet illegal.”discrimination is not yet illegal.”

Forced Distribution (aka “Rank and Forced Distribution (aka “Rank and Yank”)Yank”)

Downside: litigation, negative publicity, impact Downside: litigation, negative publicity, impact on moraleon morale– May be prone to bias and favoritismMay be prone to bias and favoritism– Could be inappropriate where culture values Could be inappropriate where culture values

teamwork and cooperationteamwork and cooperation– Has been dropped by Goodyear, FordHas been dropped by Goodyear, Ford– May be unlawful if disparate impact createdMay be unlawful if disparate impact created

But, disparate impact is form of discrimination under Title VII, But, disparate impact is form of discrimination under Title VII, not necessarily Age Discrimination Actnot necessarily Age Discrimination Act

– Argued that preferred approach would be “appraisal Argued that preferred approach would be “appraisal system that goes beyond simply measuring system that goes beyond simply measuring performance to exposing the causes of poor performance to exposing the causes of poor performance” and “encourages managers to work performance” and “encourages managers to work hard to find solutions other than dismissal”hard to find solutions other than dismissal”

““The Struggle To Measure The Struggle To Measure Performance”Performance”

Following string of discrimination lawsuits from ees who feel they Following string of discrimination lawsuits from ees who feel they were ranked and yanked based on age, not merely their were ranked and yanked based on age, not merely their performance, fewer cos are adopting forced distribution appraisalsperformance, fewer cos are adopting forced distribution appraisals– Critics charge that forced distribution hinders collaboration and risk-Critics charge that forced distribution hinders collaboration and risk-

takingtakingResearch suggests that productivity improvements of forced distribution Research suggests that productivity improvements of forced distribution process are not sustained over medium- to long-runprocess are not sustained over medium- to long-run

– Even General Electric is trying to inject more flexibility into its systemEven General Electric is trying to inject more flexibility into its systemJack Welch instituted 20-70-10 systemJack Welch instituted 20-70-10 system

Key is to strike balance btwn strict yardstick and mngt judgment Key is to strike balance btwn strict yardstick and mngt judgment – Yahoo has modified performance appraisal process, but requires mngrs Yahoo has modified performance appraisal process, but requires mngrs

to rank-order ees for purpose of distributing raises and bonusesto rank-order ees for purpose of distributing raises and bonusesDuring reviews, ees told how their increases generally compare to those of During reviews, ees told how their increases generally compare to those of othersothersCo says new program doesn’t automatically weed out ‘C’ group and was Co says new program doesn’t automatically weed out ‘C’ group and was designed specifically to reward its starsdesigned specifically to reward its stars

Source: Source: BusinessWeek onlineBusinessWeek online, 1/9/06, 1/9/06

““The Best vs. the Rest”The Best vs. the Rest”

Hewitt report indicates in 2005, nonexecutive Hewitt report indicates in 2005, nonexecutive white-collar ees who were best performers white-collar ees who were best performers received 9.9% raise on average, average received 9.9% raise on average, average performers 3.6%, poor performers 1.3% (if any performers 3.6%, poor performers 1.3% (if any raise given)raise given)– Gaps have widened over past several yearsGaps have widened over past several years– More differentiation is being implemented, rather than More differentiation is being implemented, rather than

boosting overall budget for raisesboosting overall budget for raisesMngrs must explain to average ees (typically majority of staff) Mngrs must explain to average ees (typically majority of staff) why their raises remain low even though economy is solid why their raises remain low even though economy is solid and profits healthyand profits healthy

– ““You don’t want them to conclude that ‘meeting expectations’ is You don’t want them to conclude that ‘meeting expectations’ is bad, because it’s not”bad, because it’s not”

Source: Source: Wall Street JournalWall Street Journal, 1/30/06, 1/30/06

““How to Reduce Turnover”How to Reduce Turnover”

In bid to reduce high turnover rates, Applebee’s reviews In bid to reduce high turnover rates, Applebee’s reviews and ranks hourly ees, then rewards mngrs for retaining and ranks hourly ees, then rewards mngrs for retaining better eesbetter ees– In high-turnover industries such as retail and restaurants, In high-turnover industries such as retail and restaurants,

turnover rates among hourly ees can run as high as 200%turnover rates among hourly ees can run as high as 200%For other midsize and large cos, annual ee turnover typically ~10-For other midsize and large cos, annual ee turnover typically ~10-15%15%Applebee’s reduced turnover in co-owned restaurants from 146% in Applebee’s reduced turnover in co-owned restaurants from 146% in 2000 to 84% in 20042000 to 84% in 2004

– Applebees uses 20-60-20 forced distribution (altho ees generally Applebees uses 20-60-20 forced distribution (altho ees generally aren’t told their grades)aren’t told their grades)

– Consultant likes idea in theory, but notes that success depends Consultant likes idea in theory, but notes that success depends on having straightforward and simple ways to judge hourly eeson having straightforward and simple ways to judge hourly ees

Applebee’s hourly ees evaluated twice/year on nine factors, Applebee’s hourly ees evaluated twice/year on nine factors, including reliability, attitude, guest service, and teamworkincluding reliability, attitude, guest service, and teamwork

– Albuquerque ee’s tardiness suggested by co-workers to have little to do Albuquerque ee’s tardiness suggested by co-workers to have little to do w/ his college class schedule, thus earning a ‘B’ rather than ‘A’w/ his college class schedule, thus earning a ‘B’ rather than ‘A’

Source: Source: Wall Street JournalWall Street Journal, 11/21/05, 11/21/05