Managing the "c" performer: an alternative to forced ranking of appraisals
By Patty Davis and Bob Rogers who can be contacted at www.ddiworld.com
Downsizing, cost cutting, and a perception among senior executives that managers fail to adequately deal with substandard and mediocre employees have led to the rising use of various techniques to address these issues. These controversial management tools target the "C" performers, those who, through their lack of productivity and effectiveness, contribute the
least to the organisation's bottom line. As strong proponents of performance management,
we clearly support the need for managers to do a better job of filtering out their lower-performing employees.
We also clearly understand that managers are reluctant to address substandard performance, either through a lack of competence or confidence. After all, most of us are not thrilled when we have to deliver less-than-favourable news to an employee.
Consequently, seniour leaders have embraced various techniques to force managers to differentiate among employees based on performance and to take action on the lower-rated employees. We wholeheartedly support this approach-the need for organisations to do this is clearly evident. Not doing so results in "mediocrity creep" and a loss of faith and trust by an
organisation's top performers in their senior executives.
We contend that there is a better way to get managers to manage all employees, high and low performers alike, than to resort to organization-wide forced distribution or forced ranking systems. The solution is a performance management system that supports the organisation's strategic priorities by promoting constant open and honest feedback between leader and employee and by building managers' competence and confidence in how to conduct these most difficult discussions.
2. Forced ranking evaluated
But, first, let's review forced ranking and why more and more organisations are adopting it even while others are sweeping the program into the dustbin of failed evaluation systems.
Former General Electric chief Jack Welch, an enthusiastic supporter of forced ranking, called the practice "the vitality curve." Other names applied to it include "top grading," "forced distribution," and "cut to build strategies." Whatever name it goes by, leaders in a growing number of organisations see forced ranking as a handy grading tool for creating a high-performing culture. In their view, forced ranking enables managers to better manage low performers. GE's success in implementing a forced ranking system is cited as the model by many of the 20 percent of U.S. companies that have adopted it in recent years. (At General Electric, each year 10 percent of managers are assigned the bottom grade; if they don't improve they are asked to move on.)
What's behind this popularity? Generally, forced ranking is being adopted because seniour leaders believe managers have not addressed performance problems or adequately developed their staffs' talent. These leaders believe that forced ranking will help managers who are not doing their jobs raise the level of performance in their organisations. Its proponents maintain that forced ranking addresses two issues that are key to building a high-performing organisational culture.
First, it encourages managers to identify and remove poor performers. Second, it forces a predetermined compensation distribution curve, which allows managers to handsomely reward top performers while encouraging weak performers to leave the organisation. Philosophically, DDI supports the desired results, but not the process. Even Jack Welch is aware of the need to be sensitive to cultural issues. He recently stated that the GE vitality curve couldn't simply be dropped into an organisation if that organisation isn't set up culturally for the implementation.
W. James McNerney, Jr., one of Welch's senior executives at GE, found this to be all too true when at 3M. He'd been 3M's chief executive for 18 months before he was able to convince seniuor leaders to start using the GE system. Success at GE and 3M can't mask the fact that the adoption of forced ranking has not been without its problems. A rash of lawsuits has forced many organisations to reconsider using forced ranking. Take, for example, the Ford Motor Company's experience. Its system graded employees "A," "B," or "C," with an initial requirement that 10 percent of the population be graded a "C." The intent was simple: remove poor performers. Instead, the automaker landed in court. Eventually, after disgruntled workers filed six lawsuits against Ford, former CEO Jacques Nasser announced that the unpopular grading system was being modified.
3. One manager's experience
For some companies the perceived benefits of forced ranking are far outweighed by its drawbacks. It often results in low morale, caused when employees compete against each other instead of work with each other. Furthermore, many employees believe that their continued employment rests not on what they do but on who supports them. The belief that your survival in a forced ranking system boils down to your leader's effectiveness as an advocate for his or her employees can undermine the entire organisation. This point is illustrated by the following account provided by a leader who has managed in a forced distribution system.
" My experience as a manager (in a forced ranking system) revealed that a leader's communication skills and credibility have more to do with an employee's rank than does the employee's performance. For instance, we had one manager who was trained in behaviorally based assessment skills. These skills made it possible for him to be more convincing when advocating for his employees than other managers who lacked the same skill set. In three years of observing this manager, I never saw him lower a ranking for one of his employees. If all managers were trained as this manager was, then forced ranking would provide a level playing field in which employees could be placed in the right categories of performance. But this requires a culture that is prepped for the implementation of a forced ranking system.
The organisation I worked for did not have such a system in place, so adopting forced ranking resulted in dramatic culture shock. People were less willing to help others who they would be ranked against. Employees were more eager to pass on to senior executives negative information about others. And people lobbied for assignments to corporate headquarters because they saw that those who worked closely with senioUr executives received consistently higher rankings. Within one year this worldwide organisation changed the system as Ford did to
take the onus off the ten percent at the bottom".
This account echoes Jack Welch's comments, that the missing key in this and other failed examples is a corporate culture that can successfully absorb a forced ranking system. GE had such a culture, one based on honest feedback supported by a performance management system. The value that Welch placed on open and honest feedback at GE is illustrated in this question he asked one conference audience. "How many of you work for a company with integrity?" A sea of raised hands indicated that almost all thought they did. He then asked, "How many of you get straight-between-the eyes honest feedback about your performance?" Very few hands went up. That response, he said, supported his conclusion that unless an organisation promotes the giving of feedback at every level, then that company does not have integrity.
4. A prescription to cure the problem
The lesson to be learned from Welch's argument is that forced ranking as a management tool will not necessarily lead to success alone. In fact, in most cases, the "cure" of forced ranking may be worse than the "illness" of weak performers. The alternative is one that should have been prescribed in the first place: a performance management system that:
>> Holds employees accountable for results
>> Encourages and supports open, honest feedback between employees at all levels
>> Provides a convenient mechanism for developing talent
>> Features a compensation process that is based on performance and pays the high performers more than it pays substandard performers
It's not unreasonable for organisations to want their managers to handle performance problems, develop talent, make tough decisions about removing poor performers, and distribute pay equitably. All this can be done without implementing a controversial ranking system. So, why aren't managers managing their staffs? Most likely, it's because they face one or more of these four barriers:
1. The organisation does not have a good performance management system in place.
2. Managers lack the competence or confidence needed to set performance expectations, provide feedback, and deal with performance problems.
3. Managers are not held accountable for substandard performance or for dealing with substandard performers.
4. The organisation's compensation system does not require that managers make tough decisions.
THE "GOOD" IN GOOD PERFORMANCE MANAGEMENT
By "good performance management system," we mean one that:
>> Establishes clearly defined but individual performance objectives for all employees. These objectives should support the organisation's efforts to achieve higher levels of performance from one year to the next.
>> Includes competencies (knowledge, skills, and behaviors) needed to achieve the organisation's business results in every employee's performance plan, and defines those competencies behaviorally. For example, every manager's plan should include the competency, 'Coaching'. In turn, the behavioral expectations for Coaching should include continuously developing associates, setting challenging performance expectations for staff, monitoring progress against expectations, and addressing performance gaps. To be evaluated "effective" in coaching, a manager must successfully demonstrate each of these behaviors.
>> Features an individual development plan for every employee. The development plan should identify competencies the employee needs to improve in his or her current role or for a future role. The plan also should include specific development objectives that will enhance performance in the assigned competencies.
MPROVING MANAGERS' COMPETENCE AND CONFIDENCE
>> Even the best-designed performance management system won't be effective if managers lack the competence and confidence to use it. Training is essential if all employees-but especially managers-are to understand and use a performance management programme or system. Generally, organisations understand this truism. But all too many of them focus their training on the mechanics of the process such as completing the appraisal document.
>> While this kind of training is necessary, managers would be better served if their training focused on writing measurable objectives, assessing and evaluating competencies, and interacting effectively with peers, direct reports, and others. These interaction skills enable managers to effectively reach agreement on performance expectations, provide honest feedback, coach employees not performing at expected levels, communicate the consequences of not improving poor performance, and conduct review discussions that encourage employees to sustain good performance and improve where needed.
>> The absence of these interaction skills can be disastrous. We studied a large division of a company that was successfully using a ranking system. We found employee dissatisfaction, managers who simply went "through the motions," and a human resources department flooded with complaints from employees that they weren't getting the coaching and feedback they needed to improve performance.
Our diagnosis revealed that, although all managers were trained in the system, they were not trained in the interaction skills they needed for conducting performance discussions. At GE, on the other hand, where the forced ranking system works, the program's success rests on managers who have been thoroughly trained in coaching and feedback skills.
TOP LEADERS HAVE A ROLE TOO
>> The third barrier-managers not being held accountable for substandard performance-is an issue for the organisation's top leaders. Seniour executives must hold managers accountable for substandard performance and for improving or removing poor performers. In performance discussions with direct reports, seniour executives should identify the weaker performers, analyze the cause of poor performance lack of motivation, lack of skill, poor job fit, etc.), and reach agreement with the direct report on improvement goals or redeployment options. If an employee must be removed, managers need the organisation's support as they counsel the employee to leave the company or help him/her find a more suitable position within the organisation. In short, it is critical that senior executives use the performance management system to hold managers accountable for carrying out the necessary employment actions.
ALTERNATIVES TO FORCED RANKING
The fourth and final barrier-lacking a compensation system that requires managers to allocate more to high performers and less to substandard performers-may be the toughest problem to cure. Although challenging, there are ways to manage compensation besides resorting to a forced ranking system. We have observed or helped clients with these alternatives to forced distribution systems:
>> A compensation/HR committee reviews merit pay raises and bonuses against unit and individual performance.
>> Line managers are held accountable for distributing a pool of funds based on performance as well as tracking all managers' pay decisions to identify problems (e.g., central tendency, favoritism, discrimination).
>> A seniour line manager reviews all pay decisions in his/her department to ensure alignment with this pay-for-performance approach.
>> Seniour line managers randomly examine performance reviews and associated pay increases. The senior line managers at LaSalle Bank in Chicago look at up to 160 performance reviews a year to ensure that they are completed and that the quality of the reviews and pay increases are aligned with the record of individual performance.
>> Internal and external third parties evaluate performance and alignment to pay.
These methods show that it is possible to bring the same rigor and discipline to managing the "C" performers without the downsides found in a forced distribution system. They all require that leaders lead and managers manage, which brings us full circle to the crux of the issue.
When an effective performance management system is combined with a compensation management process, the results can be the same as those sought in a forced distribution system, but without the negative effects. Instead of looking for a crutch, organisations need to set clear expectations and hold managers accountable for achieving them in addition to tracking performance and providing coaching and honest feedback. By doing so, the organisation's human resources management processes will have integrity. After all, wasn't that the objective all the time?
* Reprinted by permission of DDI
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