whitepaper Managing the “C” We contend that there is a better way to get managers to manage all employees, high and low performers Performer: An Alternative alike, than to resort to organizationwide forced to Forced Ranking distribution or forced ranking systems. The solution is a performance management system that supports By Patty Davis and Bob Rogers the organization’s strategic priorities by promoting Downsizing, cost cutting, and a perception among constant open and honest feedback between leader senior executives that managers fail to adequately and employee and by building managers’ competence deal with substandard and mediocre employees have and confidence in how to conduct these most difficult led to the rising use of various techniques to address discussions. these issues. These controversial management tools target the “C” performers, those who, through their Forced Ranking Evaluated lack of productivity and effectiveness, contribute the But, first, let’s review forced ranking and why more least to the organization’s bottom line. and more organizations are adopting it even while As strong proponents of performance management, others are sweeping the program into the dustbin of we clearly support the need for managers to do a failed evaluation systems. better job of filtering out their lower-performing Former General Electric chief Jack Welch, an employees. We also clearly understand that managers enthusiastic supporter of forced ranking, called the are reluctant to address substandard performance, practice “the vitality curve.” Other names applied to either through a lack of competence or confidence. it include “top grading,” “forced distribution,” and After all, most of us are not thrilled when we have to “cut to build strategies.” Whatever name it goes by, deliver less-than-favorable news to an employee. forced ranking is seen by leaders in a growing number Consequently, senior leaders have embraced various of organizations as a handy grading tool for creating a techniques to force managers to differentiate among high-performing culture. In their view, forced ranking employees based on performance and to take action enables managers to better manage low performers. on the lower-rated employees. We wholeheartedly GE’s success in implementing a forced ranking support this approach—the need for organizations to system is cited as the model by many of the 20 do this is clearly evident. Not doing so results in percent of U.S. companies that have adopted it in “mediocrity creep” and a loss of faith and trust by an recent years. (At General Electric, each year 10 organization’s top performers in their senior percent of managers are assigned the bottom grade; if executives. they don’t improve they are asked to move on.) To learn more, call your local DDI office or contact: The Americas ....... 412.257.0600 Southeast Asia.... 65.226.5335 France ............. 33.1.41.96.86.86 United Kingdom 44.1753.616000 Toll-free Canada... 800.668.7971 Australia.............. 61.2.9466.0300 Germany ......... 49.2159.91680 E-mail [email protected] Toll-free U.S. ........ 800.933.4463 Greater China ..... 852.2526.1188 Mexico............. 528.152.3200 Web ..................www.ddiworld.com DEVELOPMENT DIMENSIONS INTERNATIONAL What’s behind this popularity? Generally, forced One Manager’s Experience ranking is being adopted because senior leaders For some companies the perceived benefits of forced believe managers have not addressed performance ranking are far outweighed by its drawbacks. It often problems or adequately developed their staffs’ talent. results in low morale, caused when employees These leaders believe that forced ranking will help compete against each other instead of work with each managers who are not doing their jobs raise the level other. Furthermore, many employees believe that of performance in their organizations. their continued employment rests not on what they do Its proponents maintain that forced ranking addresses but on who supports them. The belief that your two issues that are key to building a high-performing survival in a forced ranking system boils down to your organizational culture. First, it encourages managers leader’s effectiveness as an advocate for his or her to identify and remove poor performers. Second, it employees can undermine the entire organization. forces a predetermined compensation distribution This point is illustrated by the following account curve, which allows managers to handsomely reward provided by a leader who has managed in a forced top performers while encouraging weak performers to distribution system. leave the organization. My experience as a manager (in a forced ranking Philosophically, DDI supports the desired results, but system) revealed that a leader’s communication not the process. Even Jack Welch is aware of the skills and credibility have more to do with an need to be sensitive to cultural issues. He recently employee’s rank than does the employee’s stated that the GE vitality curve can’t simply be performance. For instance, we had one manager dropped into an organization if that organization isn’t who was trained in behaviorally based assessment set up culturally for the implementation. W. James skills. These skills made it possible for him to be McNerney, Jr., one of Welch’s senior executives at more convincing when advocating for his GE, found this to be all too true when at 3M. He’d employees than other managers who lacked the been 3M’s chief executive for 18 months before he same skill set. In three years of observing this was able to convince senior leaders to start using the manager, I never saw him lower a ranking for one GE system. of his employees. If all managers were trained as this manager was, then forced ranking would Success at GE and 3M can’t mask the fact that the provide a level playing field in which employees adoption of forced ranking has not been without its could be placed in the right categories of problems. A rash of lawsuits has forced many performance. But this requires a culture that is organizations to reconsider using forced ranking. prepped for the implementation of a forced Take, for example, the Ford Motor Company’s ranking system. The organization I worked for did experience. Its system graded employees “A,” “B,” or not have such a system in place, so adopting “C,” with an initial requirement that 10 percent of the forced ranking resulted in dramatic culture shock. population be graded a “C.” The intent was simple: People were less willing to help others who they remove poor performers. Instead, the automaker would be ranked against. Employees were more landed in court. Eventually, after six lawsuits were eager to pass on to senior executives negative filed against Ford by disgruntled workers, former information about others. And people lobbied for CEO Jacques Nasser announced that the unpopular assignments to corporate headquarters because grading system was being modified. © Development Dimensions 2 International, Inc. MMII. MKTMPWP02–05020MA Managing the “C” Performer All rights reserved. DEVELOPMENT DIMENSIONS INTERNATIONAL they saw that those who worked closely with • Features a compensation process that is based on senior executives received consistently higher performance and pays the high performers more rankings. Within one year this worldwide than it pays substandard performers. organization changed the system as Ford did to It’s not unreasonable for organizations to want their take the onus off the ten percent at the bottom. managers to handle performance problems, develop This account echoes Jack Welch’s comments, that the talent, make tough decisions about removing poor missing key in this and other failed examples is a performers, and distribute pay equitably. All this can corporate culture that can successfully absorb a forced be done without implementing a controversial ranking ranking system. GE had such a culture, one based on system. So, why aren’t managers managing their honest feedback supported by a performance staffs? Most likely, it’s because they face one or management system. more of these four barriers: The value that Welch placed on open and honest 1. The organization does not have a good feedback at GE is illustrated in this question he asked performance management system in place. one conference audience. “How many of you work 2. Managers lack the competence or confidence for a company with integrity?” A sea of raised hands needed to set performance expectations, provide indicated that almost all thought they did. He then feedback, and deal with performance problems. asked, “How many of you get straight-between-the- 3. Managers are not held accountable for eyes honest feedback about your performance?” Very substandard performance or for dealing with few hands went up. That response, he said, supported substandard performers. his conclusion that unless an organization promotes the giving of feedback at every level, then that 4. The organization’s compensation system does not company does not have integrity. require that managers make tough decisions. A Prescription to Cure the Problem The “Good” in Good Performance The lesson to be learned from Welch’s argument is Management that forced ranking as a management tool will not Let’s address the first barrier. By “good performance necessarily lead to success alone. In fact, in most management system,” we mean one that: cases, the “cure” of forced ranking may be worse than • Establishes clearly defined but individual the “illness” of weak performers. The alternative is performance objectives for all employees. These one that should have been prescribed in the first objectives should support the organization’s efforts place: a performance management system that: to achieve higher levels of performance from one • Holds employees accountable for results. year to the next. • • Encourages and supports open, honest feedback Includes competencies (knowledge, skills, and between employees at all levels. behaviors) needed to achieve the organization’s business results in every employee’s performance • Provides a convenient mechanism for developing plan, and defines those competencies behaviorally.