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CCorpoorporate University Xchange rate University Xchange

Forced Ranking Good, Bad or Both?

Presented by: Sue Todd, President & CEO

Raj Ramachandran, Performance Management Research Lead

The PresentersThe Presenters

• Sue Todd - President and CEO of Corporate University Xchange

Sue has more than 20 years of experience consulting with corporate universities and learning and development groups on performance management, e-learning, learning content, program measurement and other HR and training-related topics. She has taken the lead on corporate university design projects with companies like Air Products, M&M Mars, Rio Tinto and others. Suehas presented at ASTD and Training events and been an invited speaker at other industry events.

• Raj Ramachandran - Performance Management Research Practice Leader for Corporate University Xchange

Raj has over 10 years experience in learning and performance management, studying strategies and best practices in Global 2000 organizations including American Airlines, International Paper, Raytheon, Washington Mutual, and others. Prior to joining CUX, Raj was the learning and performance management practice lead for TPI, a global sourcing advisory firm. He has also served as a business process consultant for Accenture, IBM and PricewaterhouseCoopers.

AgendaAgenda

• The challenge of high performance

• How forced ranking systems work

• What the research shows as pros & cons of

forced ranking systems

• FAQ’s – analyzing the controversy

The High Performance The High Performance

ChallengeChallenge

• Constant drive to create high-performance within organizations

• Talent (human capital) is a critical lever for driving performance

• How do you build differentiation into the organization to identify and reward top talent?

What are Forced Ranking What are Forced Ranking

SystemsSystems

• Definition:• “any system or procedure in which individuals or groups

are ranked against one another into a specific scheme”

• Defining Characteristics: • Performance review mechanism• Individuals are ranked in comparison to one another • Introduces employee differentiation into the organization• Based on some sort of distribution curve (e.g. A, B and C

players)

• Also referred to as:• Forced ranking distribution systems (FRDS)• Topgrading

Poll Question #1Poll Question #1

• Which of the following is true of your

organization?

• We currently use a forced ranking process

• We are thinking of using a forced ranking process in the near future

• We have no immediate plans to implement forced ranking but have discussed it many times

• We have no intention of using forced ranking

• Many corporations today are exploring the

possibility of enhancing their current performance management system by including a forced ranking protocol

The ControversyThe Controversy

Advocates - raise the

talent quality bar and

motivate employees to

be successful

Critics - jeopardizes

employee morale and

potentially spawns a

host of legal issues

Forced Ranking SchemasForced Ranking Schemas

Strict forced distribution model:• Bell curve (top 20%, vital 70% and

bottom 10%) to slot the employees A, B or C players or A, A potential or not A’s

Loose distribution model: • Slot employees in either 3 or 5

buckets but percentages per bucket not assigned (A, A-, B+, B and C)

Quartile model:• Four cells are defined and people

forced ranked into one of the four cells and then within each cell

Totem pole approach:• Individuals are ranked from one

downward to include all people within that group (e.g., 1, 2, 3, 4…)Source: Forced Ranking. Making Performance Management

Work. Grote, Dick. ©2005


• If were going to introduce forced ranking system

in your organization, which of the following schemas are you more likely to use?

• Strict forced distribution model

• Loose distribution model

• Quartile model

• Totem-pole approach

• None of the above

Top 10 Reasons for Forced Top 10 Reasons for Forced

RankingRanking

10. Gets the right people on the bus

• Use of forced ranking process during the interview process can ensure that only the right people are hired

9. Promotes a culture based on achievement

• Shows a commitment to helping those that achieve, and

promote the development of an organizational culture that

does the same

8. ‘A’ players are talent magnets

• Top performers are more likely to attract other top performers to the organization


RankingRanking

7. The organization knows where the critical talent is• The real pay off comes from knowing who the top talent

is, and that they are being retained. Companies can use this information for making good development decisions

6. Promotes organization candor & honesty

• Employees know where they stand in the organization and team members are already well aware of who the low performers are and therefore should not be surprised by the ranking results

5. Rewards your top performers better

• Reward your star performers handsomely, offering them greater financial incentives, special coaching and choice of assignments.


RankingRanking

4. Provides a clear succession planning mechanism

• Allows the organization to replenish the supply of qualified talent by identifying the best potential candidates for the succession pipeline

3. Increases overall leadership caliber in the company

• This starts with the leadership of the company. A disciplined, structured review process using forced ranking systems aggressively develops top leadership talent, and

in some cases deselects others

2. Holds the leadership to higher standards

• Ensures that the leadership stays sharp, is of the highest caliber, does not become satisfied with mediocrity and continues to move forward and grow the company


RankingRanking

1. Give the organization the opportunity to be

the best in class

• The team with the best players wins!

• Research indicates that one of the key elements separating businesses that perform on average versus those who perform at the top is the organization’s ability to bring on and

retain the best people while moving low performers out

- Jim Collins, Good to Great


Which of the following reasons do you believe is the best reason to include Forced Ranking as a

performance management mechanism in your organization?

• Gives the organization the opportunity to be best in class

• Increases overall leadership caliber in the company

• Rewards your top performers better

• Attracts ‘A’ player talent to your organization

• Some research indicates that pay-for-performance programs produce negative side effects• Pushing quantity for quality

• People begin to sacrifice long-term success for short-term financial gains

• Process focuses people on reward-oriented tasks and not the bigger picture to do what is right for the organization overall

• Forced Ranking is the equivalent of grading students on a curve• Curves are used to make up for “bad” tests

• Teachers curve when they haven’t done a good job teaching the material

The Reversal The Reversal –– Against Against

Forced RankingForced Ranking

10. Gives HR and Management a Pass In the Recruiting and Hiring Process• A rigorous process for recruiting and selecting people should

ensure that the organization is hiring top performers and are a good fit with the organization culture.

• No need to be so careful if poor performers can be easily weededout

9. Drives significant replacement costs• Some research put replacement costs as high as 15X the salary of

the vacant job

• John Deere noted that they would not arbitrarily eliminate people they work so hard to recruit

8. Continual Flow of New Hires Put a Drag on Organization Performance• Replacing people continually puts a drag on organization

performance as new people come up to speed and managers and others continually use precious time training new people.

Top 10 Reasons against Top 10 Reasons against



What impact would a forced ranking program have on your recruiting and hiring practices if you had

to replace up to 10 percent of the workforce annually?

• No significant additional burden to hire replacements

• Minimal additional work to find replacements

• Significant additional challenges recruiting and hiring replacements



7. People Seek Out Managers Who Write Good Appraisals• A major manufacturing company said employees learned how to

game the system

• Some managers get good at writing appraisals indicating high performance

6. Lazy Way to Administer Pay for Performance Program• Arbitrary percentages offer a convenient way to dole out raises

and requires little effort to really identify great or poor performance

• Anecdotes about HR reading performance reviews and being unable to determine which people were 3s, 2s and 1s based on manager appraisals

5. Can create culture of fear and mistrust• Too easy for to be done poorly because most jobs don’t lend

themselves to objective measurements

• Quantitative measures for sales roles, call centers, software programmers – but others are not clear cut


How would you rate your current performance

appraisal processes in their ability to rank people fairly into performance buckets such as top 20%,

middle 70% and bottom 10%?

• Exceptional

• Good

• Barely satisfactory

• Unsatisfactory

• We don’t do performance appraisals

4. No fair way to really compare people• Compared against themselves, we don’t see how they stack up against others

performing the same job

• Compared to others doing same job influenced by each manager’s ability to do appraisals

• More work will be performed within teams – no good mechanisms to isolate individual contributions within the team

3. People reach peak performance at different times in their lives

• Hardware companies shifting to services businesses – those who perform well under one set of conditions may not excel under new conditions

• Qualcomm says they believe every employee has potential

2. Some companies justify the process because it worked well in lab simulations

• Can’t control for manager’s influence on goal-setting and assessment processes

Top 10 Reasons Against Top 10 Reasons Against


1. Symbolizes a weak leadership team

• Represents a stop-gap method to eliminate poor performers when the organization believes managers don’t have what it takes to hold courageous conversations about performance or to coach people who need help.

• Reduces the need for managers to really work with people to tap their strengths, coach and motivate them to high levels of performance




How would you rate the current ability of your

managers to provide fair, high caliber performance reviews?

• Exceptional

• Good

• Barely satisfactory

• Unsatisfactory

• We don’t do performance appraisals

Recap of ConsRecap of Cons

• Forced ranking might have been an okay concept during a downsizing period as a consistent approach to eliminating large numbers of jobs

• But impending talent wars will require leveraging what people bring to the job. Companies that can tap people’s greatest potential; allowing them to innovate, add value and stretch their knowledge and skills will win the game.

• Companies are probably kidding themselves if they believe there’s always a stable of better people waiting at their door.

• Organizations would do far better to shift their focus on improving the capacity of their leaders to develop, coach and inspire people – and when necessary -- to identify poor performers as soon as possible and take appropriate action.


Which of the following might be the worst possible

side effect of forced ranking?

• Higher replacement costs

• Lack of trust

• Reduced teamwork

• Some employees seeing the system as unfair

• There are none

FAQs FAQs -- Analyzing the Analyzing the

ControversyControversy

• Is it fair to compare employees with one another? If you are planning to use forced ranking systems, how do you make them fair?

• Is there evidence that forced ranking systems are a good way to raise the performance bar and increase your organization’s competitiveness in the marketplace?

• What are the legal implications of implementing a forced ranking system and how can you overcome them?

• Do you have to use a normal distribution curve approach or a quota system to rank employees?

• What other mechanisms that can be used to differentiate employee performance? And can you use them with forced ranking systems?


In the final analysis, how would you characterize

your opinion of forced ranking?

• It is an important tool that organizes should use to create a high performing organization

• It had its place but is no longer a good idea

• Forced ranking never was and still is not a good idea for corporations

Questions and Concluding Questions and Concluding

RemarksRemarks

• Companies will need to consider a host of issues

in deciding whether or not to adopt a forced ranking process

• Evaluate your overall business strategy, current performance management & leadership

development process first

• CUX Forced Ranking Study – send an e-mail to [email protected]

• Mark your calendars, our next webinar will be on

August 22, 2007

• Performance Management: Keys to Making it Work

ReferencesReferences

• Grote, Dick. Forced Ranking. Making Performance Management Work. Harvard Business School Publishing. 2005

• Lawler III, Edward. “The Folly of Forced Ranking.” C/net

News.com. http://news.com.com/2009-12-950200.html

• Robinson, Diana. “The Top 10 Reasons Why 'Forced ranking' Quota Systems Don't Work.” Coachville Coach

Training. http://topten.org/content/tt.AE439.htm

Thank YouThank You

Sue ToddRaj Ramachandran

Corporate University Xchange212-213-2828

E-mail: [email protected]

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