Forced ranking is a concept introduced at General Electric in the 1980s, and was quickly adopted by many other companies and corporations around the world.
To put it simply, it means:
- The top 20% of the company’s workforce is the most productive – the A tier.
- 70% of the workforce works adequately, and thus is vital to the company – the B tier.
- The bottom 10% of the company’s workforce is non-producers – the C Tier. These non-producers should be fired.
A surprising number of companies and corporations have adopted the model, including Motorola, IBM, Yahoo! and AIG. In fact, it’s estimated that up to 12% of US corporations use the model.
But, is it a model that leads to productivity or is it a poor management philosophy? Here are a few pros and cons of the Forced Ranking model:
- It leads to increased productivity – If everyone is afraid of being demoted to a "C" ranking, they will work extra hard to stay in the "A" or "B" tiers. The Forced Ranking system is credited for the 2800% increase in General Electrics’ earnings between 1981 and 2001.
- It helps you to identify key players – Once you evaluate your employees, you can see which ones deserve the most time and attention for professional development. It will help you to weed out the leaders from the rest of the pack.
- It encourages competition - Competition can be very healthy in a workplace environment, provided it doesn’t get out of hand. Employees competing to do more and get better results will usually improve the company’s bottom line effectively.
- It leads to subpar talent – Adding too many new "A" ranked workers to a company can make it harder to maintain an "A" or "B" rating, so many bosses in the Forced Ranking system hire "B" or "C" rated personnel. This means they are hiring people who are less productive, all so they can retain their high ranking.
- It can be unrealistic – No one can work at 100% output 100% of the time, it’s just not humanly possible! The Forced Ranking system uses fear as a motivator, which increases the amount of stress placed on employees. This, in turn, increases the risk of burnout.
- It limits employees – With the Forced Ranking system, employees are effectively stuck in their current positions. For example, someone with an "A" rating in Customer Service may be downgraded to a "B" rating if they changed to Marketing or Sales. This discourages promotion and change within a company, and it can lead to employee dissatisfaction.
- It encourages unhealthy competition – With everyone trying to outdo everyone else, a company atmosphere can quickly shift to a "dog eat dog" mentality. This is not healthy for a company!
Many experts believe that the Forced Ranking system does belong in certain workplaces, such as in the Sales industry. However, in other industries that are less dependent on individual performance and rely more on company effectiveness, the Forced Ranking system could have detrimental effects in a company!
Does your company use the Forced Ranking system? How does it affect you and your co-workers? Leave a comment and let us know…