Profiling or stack ranking employee performance ratings has long been touted as an industry best-practice to cultivate a high-performance workforce. General Electric, PepsiCo, MicroSoft, Intel and others use their performance appraisal process as a means to identify and weed out low performers.
Also known as forced ranking or forced distribution, the approach essentially uses the performance appraisal process to rank employees relative to each other, and stipulates that a certain percentage of employees must fall in each rating category.
Proponents of the approach see it as a way to transform the appraisal process from one that simply tells employees they are doing a good job to one that communicates the importance of the process and drives a high-performance culture. Let's look at some of the benefits and challenges of profiling or stack ranking.
Differentiate ratings and avoid grade creep
Two of the common complaints many HR professionals have about their performance management process are the lack of differentiation between ratings, and "grade creep". It's common to see most employees given the same ratings, or to have managers give artificially high ratings. When either of these happens, performance ratings lose their meaning and impact for employees. Profiling or stack ranking prevents managers from assigning average or above average ratings across the board. It forces them to compare employees' performance, identify high and low performers and assign ratings that reflect this ranking.
Retain your high performers
If you don't know who your high performers are, it's hard to take steps to keep them. Profiling or stack ranking forces the organization to identify high performers. Once identified, you can take proactive steps to prevent them from leaving or being recruited elsewhere. Plum assignments, development opportunities, mentoring relationships and appropriate compensation are all tools you can use to help retain your high performers once you know who they are.
Deal with low performance and keep your staff motivated
A stack ranking program that forces the company to address low performance can have a beneficial effect on morale and productivity. Low performers are given specific performance and development objectives, and closely monitored and coached to improve performance. If performance doesn't improve, low performers can be reassigned or potentially let go. Knowing that low performance issues are being addressed helps to motivate and engage regular and high performers.
While these benefits are attractive, profiling or stack ranking brings a number of challenges, including the following:
- Doesn't allow for "real ratings". A certain number of employees will have their ratings altered to create the right "distribution" of scores. This can make the whole performance management process suspect in the eyes of employees.
- If communicated to staff, creates a culture of individual competitiveness that is detrimental to team work and team dynamics.
- Turns the performance management process into a fight for ratings rather than a tool to cultivate improvement and growth. Employee will tend to focus on the rating number rather than on the feedback they receive.
- Encourages dishonesty in ratings to "protect" employees or teams.
- Discourages knowledge sharing and coaching. Those who are on top want to stay there and may not help others succeed.
- Encourages prima donnas rather than team players. Can manifest as intense competition, information hording, finger-pointing, back-stabbing and sabotaging.
- Makes it hard to retain corporate knowledge. If every year, you fire 10% of your workforce because of low performance, over time you not only raise the bar for performance standards, you continue to lose corporate knowledge.
Other ways to deliver the same benefits
While it's important for every organization to identify high and low performers, you don't have to use stack ranking or forced ratios to effectively differentiate ratings and drive high-performance. Many companies wrongly think stack ranking is the only way to manage and reward excellence. Here are some alternate steps you can take to deal with grade creep or indiscriminate ratings and low performance.
Ensure your appraisal process supports accurate, differentiated ratings
In designing your performance appraisal process and forms, make sure you:
- Choose a rating scheme that allows for differentiation (at least 4 or 5 levels of performance)
- Clearly define and describe the various levels of performance. You may find that providing specific descriptions of the various levels of performance for particular competencies helps managers to better differentiate between the levels of performance and rate employees appropriately.
- Train managers on expectations around performance and on competencies so they can better assess and rate performance.
Identify and address the root cause of poor performance
Automatically firing the bottom x% of performers doesn't address the root cause of the poor performance. If the root cause is identified and addressed, often performance can be turned around, saving the organization significant money. Typically, the cost of training/coaching an employee to improve performance is significantly less than the cost of recruiting, hiring and onboarding a new employee.
Sometimes the problem lies with the manager, or in a personality or communication style conflict. Performance below expectations can also result because an employee is new in a role; sometimes because of downsizing or restructuring or because of a stretch opportunity. In other circumstances, a lack of tools or knowledge can be at the root of poor performance. Make sure you give both the manager and employee the time and training they need to succeed.
Get feedback/input from multiple sources
To help support better differentiated ratings, you can either gather 360 degree multirater feedback, or build in several layers of approvals into your appraisal process, or do both. Multirater feedback gives managers and employees a broader perspective on performance and can help the manager choose the most appropriate rating. Including a second level manager or HR signoff of performance appraisals in your process can also help provide another objective view of ratings, ensure better consistency and fairness. You may want to only send appraisals with ratings above or below a certain threshold for additional review.
Identify, reward and support the career development of your top performers
Identifying and cultivating your high performers is key to retaining them. Don't just put your performance appraisals in the drawer once the process is complete. Use the data to identify your high performers. Consider implementing a pay-for-performance program to more fairly reward your workforce. In addition, implementing a succession planning program that includes talent pools to help high-performers prepare for career advancement is a key way to communicate their value to the organization and encourage continued high performance and development.
Analyze the results and look for trends
To ensure consistency and fairness in performance ratings, it's important to be able to aggregate the results of your performance appraisal process and analyze them. By consolidating the ratings, then "slicing and dicing" the results, by group, job function, manager, etc. you can spot trends and take steps to correct any inequities or problems.