Accountancy Resources
Every business organization struggles to get the best out of its employees. To achieve this, they have to ensure that they retain their top performers and get their remaining workers to improve their productivity and effectiveness.
One way that companies have found to motivate their staff is to rank them in order of their output and efficiency. Using this method, firms can reward top-ranking employees with recognition as well as by giving them higher financial benefits. The remaining employees are bracketed as “average” or “poor performers”.
In fact, some firms use this technique to get rid of employees who have the lowest scores. Recently, Yahoo implemented a system where managers were required to give each of their team members a grade ranging from one to five. Those who obtained a higher ranking were rewarded while workers with ones or twos were targeted to be “transitioned out” of the company.
But many experts hold the view that “forced rankings,” “forced distributions,” or “rank and yank” appraisal systems can be counterproductive and lead to the opposite of what the company is trying to achieve.
In a recent study, Professor Iwan Barankay of the Wharton School at the University of Pennsylvania found that organizations who rank employees may be lowering the productivity of workers and even demotivating them.
The study, which was conducted over a period of three years involved 1500 furniture sales workers. One group was told how they had performed in comparison to their peers while the other group was aware of only their individual performance. It was seen that sales representatives who were unaware of how they had performed in comparison to their colleagues performed better in a subsequent period.
A decline in productivity was seen among salesmen who were aware of their rankings. The results of the workers with the highest ranks neither improved nor deteriorated. The study says, “… removing rank feedback actually increases sales performance by 11%.”
Many large companies have realized that abolishing forced rankings and the annual performance appraisal exercise can make them more competitive. Instead of using ranking, managers are expected to give feedback to staff on an immediate basis. Accenture, a consulting company with 330,000 employees has recently decided to stop ranking its employees.
In an interview with the Washington Post, Accenture’s CEO explained why the company had taken this step, “At the end of the day, you need to give some evaluation. You need to give a compensation increase. But all this terminology of rankings – forced ranking along some distribution curve or whatever – we’re done with that… It’s irrelevant.”
The list of other large firms that have done away with this performance appraisal system that pits employees against each other includes Microsoft, Adobe, Gap, and Medtronic.
Current management wisdom is quite clear that forced rankings do not serve the purpose of improving employee performance. But there is no doubt that every company needs a mechanism to track the output of each worker and reward high performers. It is equally important for each business enterprise to identify low performers and get them to improve or move out.
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