Reference no: EM131508268

Thinking Ethically: Are Forced Rankings Fair?

Case Summary:

The forced ranking approach to performance management is the practice of using forced rankings to identify the top performers to retain and the bottom performers to let go. Jack Welch of General Electric introduced and later championed this method, called by critics "rank and yank," and other companies such as Lending Tree and American International Group (AIG) use it. Review the "Thinking Ethically: Are Forced Rankings Fair?" essay at the end of Chapter 8 and answer the following questions.

THINKING ETHICALLY: ARE FORCED RANKINGS FAIR?

Emotions can run high when it comes to the performance management practice of using forced rankings to identify the top performers to retain and the bottom performers to let go. When Jack Welch was chief executive officer of General Electric, he introduced and later championed this method. At GE, managers were ranked according to their performance against goals and sorted into the top 20% (who were richly rewarded), the middle 70%, and the bottom 10% (who often were asked to leave). Today LendingTree follows a similar approach, ranking managers as 1s (the top 15%), 2s (the middle 75%), and 3s (the bottom 10%). The idea is that if the organization lays off the 3s, it can later replace them with people who have the potential to become 1s, improving the overall performance. American International Group (AIG) recently began ranking employees on a scale of 1 to 5, with the biggest bonuses awarded to the top categories and no bonuses to the worst performers.

Critics deride the method, which they call "rank and yank," as ruthless and even demotivating. In their view, organizations should hire and develop good talent, so if the organization is well run, it shouldn't have any under-performers. In addition, they say, the practice tempts managers to compete against one another and perhaps undermine one another when they should be cooperating to help the organization attain its goals. If the organization wants teamwork but being a team player means you help your colleague meet more goals than you did and earn a higher ranking, would you want to be a team player?

Jack Welch insists that forced ranking is actually the fairest approach if done well. Assuming that the organization has made its goals clear, every manager knows where he or she stands. If the organization dismisses someone for being one of the lowest performers, the decision is fairly based on performance rather than personalities or other irrelevant criteria. People who have underperformed their colleagues know it and respect the reasons for the decisions. In addition, forced rankings can correct for any unfairness that results from the common error of a manager tending to be harsh or lenient compared with peers evaluating other employees. Nevertheless, surveys suggest that many organizations are uncomfortable with the method. A study by the Institute for Corporate Productivity, for example, found that use of forced ranking fell from 42% in 2009 to just 14% in 2011.

Questions:

1. Describe the activities involved in the performance management process.
2. The forced ranking approach is one of several methods of managing performance described in the textbook. Compare and contrast the fairness of forced rankings relative to two other methods of measuring performance described in this chapter.

What is performance management? How would an organization define it? What activities would be involved? It is essential to think about the benefits and also the potential challenges and whether or not there is a fairness. What other methods of measuring performance are included in our readings? How do they all relate and how would an organization know what might work best?