Forced Distribution Performance Appraisals Suck the Life Out of Leadership

by Jennifer Miller on August 8, 2013

in Human Resources, Leadership

Do you work at a company that uses a “forced distribution” method for performance appraisals? How’s that working out for you?

I worked for a company that used this method, which was brought into mainstream corporate America by former GE CEO Jack Welch. The concept is this: over the broad spectrum of the employee base, statistically, you can expect 20% of the employee population to be top performers, 70% to be average performers (some with potential to get into that top 20%) and 10% that are underperforming.

At the company where I worked, this theory also translated into pay raises – meaning that pay was distributed as well. (Yeah, that went over like a lead balloon.)

This is one of those ideas that has merit in theory (hey, we all know that some people perform better than others – let’s not kid ourselves), but the reality of the situation didn’t quite play out as theory would suggest.

Here’s what happened in the real life of a forced ranking situation:

  1. Managers hated doing performance appraisals even more than they usually do, because they had to tell decent performers that they didn’t “make the cut” – i.e., someone has to be in the bottom third . . .and well . . .you are the lucky “winner” this year.
  1. Not all teams allocate evenly into the distribution ranking, so managers were “forced” award pay based on the distribution, not on actual performance.
  1. The system set up a competition amongst team members, not collaboration. Some may view this as a good thing, but if you’re touting “teamwork” above all else, it sends mixed messages.
  1. People compared notes. Yeah, I know – those knuckleheads broke the cardinal rule and discussed pay raises. As they say, “People talk; you hear things”; this was certainly the case among a handful of people. Because of this, morale would plummet.

Overly structured systems like forced ranking performance appraisals suck the life out of one’s ability to lead.

Instead of encouraging people to do more with their talents, forced ranking conversations back managers into a corner of justifying their actions. What bothers me most about this system is that there is no slack – what if an employee goes through cancer treatment, or nurses a loved one through an illness? Where is the grace in allowing that person a year where their performance is temporarily detoured from its normal trajectory? Top performers already know when their performance is not up to snuff – they wouldn’t expect the same compensation for an “off” year – but to hear it so baldly put into numbers? Defeating.

 

There is no completely objective way to measure performance – even with the outcomes-based method that often goes hand-in-hand with forced ranking. People will always feel slighted – and forced ranking attempts to mitigate the perception of “unjust” compensation practices.

Here’s a better theoretical model to follow – try to develop the best team, regardless of pay. Look to have more than the 20/70/10 split on your team – when you are an exemplary leader, talent will flock to you and change that ratio.

Pie-in-the-sky theory? Perhaps. But it leaves a lot more room for professional growth than telling people they didn’t fit into the pre-determined “band” for paymen.

Hat tip to Dan McCarthy of the Great Leadership blog, whose post 12 Out-of-the-Box Ways to Use a 9 Box Matrix sparked my thoughts on this topic. (Item #10 of his list is what got me going.)

 

{ 4 comments… read them below or add one }

Karin Hurt August 8, 2013 at 9:11 am

Jen, This is one of my hot buttons. I work in a company with this system, and have seen it completely demoralize. When you build a top team, achieving best-in-class results you will attract A players, and the balance will shift. I find myself going to the mat to advocate for what is right for my people. When the results back it up, it’s worth the battle. Your people deserve it. I have been winning more of these battles lately.

Jennifer Miller August 8, 2013 at 9:28 pm

Karin, it takes a leader with great resolve and character to stand up to company policy. Glad to hear that speaking up is paying off. When we hear from leaders like you who *have* made it work, we are encouraged. Thanks for sharing!

matt tenney August 10, 2013 at 12:15 pm

This type of system also kills creativity. People aren’t creative when they’re afraid. Our biology simply doesn’t allow us to be creative and afraid at the same time. When there’s fear of repercussions for “bottom-third” quarterly results, innovation is crushed as well. Innovation depends on people being willing to take some risks and stick with ideas that challenge the status quo. People are much less likely to stick with ideas like that when there’s an environment where healthy risk-taking could mean losing pay, or one’s job.

Jennifer Miller August 10, 2013 at 10:03 pm

Matt,

Excellent points! Systems that create fear or “protection” mindsets don’t get the best out of people. I do wonder. . .do you suppose Jack Welch would say that the bottom third is at the bottom because exactly because they are fearful?

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