Forced Ranking: Good Management, or Just a Flawed and Arbitrary System?

It’s not good to pull me into the debate over “forced ranking” performance appraisal system, known more commonly as “rank-and-yank.”

And here’s why: because it’s an arbitrary, formula-heavy performance system that’s obsessed with cutting people down instead of helping to build them up. Plus, it’s the brainchild of Jack Welch — and few executives today can execute it like Neutron Jack did.

The Wall Street Journal just published another article about the pros and cons of the system, and in case you don’t know exactly what forced ranking is, here’s how The Journal described it:

Forced ranking (is) the controversial practice of rating employees from best to worst. The method, sometimes called “rank and yank,” was pioneered by Jack Welch when he ran General Electric Co. from 1981 to 2001, and was rapidly adopted by other firms.

Today, an estimated 60% of Fortune 500 firms still use some form of the ranking, though they might use gentler-sounding names like “talent assessment system” or “performance procedure,” says Dick Grote, a Dallas-based performance management consultant who has written a book on the topic.

Still, a recent study by the Institute for Corporate Productivity found that 14% of all companies reported using a forced ranking last year, down dramatically from 42% in 2009.

That may be because “no one calls it forced ranking anymore,” says Mr. Grote, who has helped about 60 Fortune 500 firms implement the practice. “That term has become so pejorative.”

A pretty arbitrary system

Yes, forced ranking has become a pejorative term because it has some pretty big negatives associated with it.

For one, getting rid of the bottom 10 percent of the workforce assumes that the bottom 10 percent of your staff needs to be shown the door. Maybe that’s true, but maybe not. What if you only have 2 percent identified as low performers? Or, what if it’s 25 percent?

That’s one of my big problems with the rank-and-yank system: it’s pretty arbitrary when you get right down to it.

Plus, it takes a formulaic approach to talent management, and that’s never a good idea when you are dealing with real, live people who don’t necessarily fit neatly into some arbitrary management formula.

The father of forced ranking — former General Electric CEO Welch, a great leader and management thinker I admire — continues to defend the system. “This is not some mean system,” he told The Journal. “This is the kindest form of management. [Low performers] are given a chance to improve, and if they don’t in a year or so, you move them out. And that’s the way it goes.”

Yes, low performers should absolutely be coached and given a chance to improve, but to arbitrarily target a specific number of them to go leads you to a culture where hitting the numbers becomes more important than actually focusing on who actually can’t improve and needs to go. The drive to get rid of the bottom 10 percent, as forced ranking would have it, probably leads to getting rid of some employees who haven’t been coached, can improve, but just haven’t been given enough time and focus to get them there.

No one understands the system like Jack Welch

And there’s another big issue with “rank-and-yank,” and that’s the fact that in many companies, it’s not implemented properly.

I’ve heard Jack Welch talk about this at conferences a number of times, and when you hear him get into, forced ranking doesn’t sound quite so bad. That’s because there is a pretty intense process around the system that makes sure that not only are those bottom 10 percenters not surprised at what is going on, but that they also get plenty of time and opportunity to improve and get out of the bottom group.

For example, here’s what I wrote about Welch when I covered him speaking at a conference back in 2005:

“During a Q&A session in New York he was asked how he would handle two different types of workers: a high performer who delivered the numbers but didn’t buy into management’s philosophy for the company, and a low- to mid-level performer who struggled to deliver the numbers but enthusiastically bought into the corporate vision and embraced what top management was trying to do.

Jack’s answer? Get rid of the high performer who delivered the numbers and give the low- to mid-level person another chance — maybe two or three more chances — because they buy into what top management is trying to do. His philosophy is that you need people with “positive energy” and need to get rid of the people who inject the workforce with “negative energy” — even if they are high performers.”

Guess what company has dropped forced ranking?

Now, he was not speaking specifically about forced ranking here, but his notion that you should give more chances to low-to mid-level performers who are trying to get what management wants speaks volumes about how he believes a forced ranking system should be implemented.

And, one more thing: Despite all the companies and executives that have embraced forced ranking, Jack Welch’s old company, General Electric, has opted to move away from it and don’t utilize it any more. As the WSJ story pointed out:

GE has … dropped forced ranking, according to spokesman Andrew Williams. He says the company continues to “embrace differentiation,” though he declined to give details on the current process. The company phased out forced ranking during the mid-2000s.”

I’ve worked at a company that tried to implement a forced ranking system because the owner/president seemed to love to get rid of people. Unfortunately, he wanted it for the wrong reasons, was terribly impatient about how long it would take to see results, and probably most importantly, didn’t have the patience, temperament, or business savvy of Jack Welch. It turned into a disaster.

So, say what you will about forced ranking, or “rank-and-yank,” but in my experience, it takes a Jack Welch-like character at the top of an organization to really make the system work. Without that, it can turn into an arbitrary formula that demoralizes your talent and leaves the survivors wondering if they might be next.

Yes, it takes a Jack Welch to make forced ranking work. And, maybe that’s the bottom-line problem with it.