Forced Distribution (aka “Rank and Yank”)

1. Forced Distribution (aka “Rank and Yank”) • Estimated that at least 20% of Fortune 1,000 cos are using, and growing • Ees grouped into “baskets” (e.g., 20% As, 70% Bs, 10%Cs) • Championed by former GE CEO Jack Welch • Most successful in orgs w/ high-pressure results-oriented culture • “You can’t do it wo/ focusing on culture and communication” • Research shows top Ees outperform “average” Ees by 40-100%, bottom Ees may have net negative effect • May be used where managers have been reluctant to do accurate performance appraisals • Forces org to differentiate • “A manager has a responsibility to develop that person or move them out” • “Certainly the process is discriminatory. It discriminates in favor of the talented and energetic and against the lazy and dull. But that form of discrimination is not yet illegal.”

2. Forced Distribution (aka “Rank and Yank”) • Downside: litigation, negative publicity, impact on morale • May be prone to bias and favoritism • Could be inappropriate where culture values teamwork and cooperation • Has been dropped by Goodyear, Ford • May be unlawful if disparate impact created • But, disparate impact is form of discrimination under Title VII, not necessarily Age Discrimination Act • Argued that preferred approach would be “appraisal system that goes beyond simply measuring performance to exposing the causes of poor performance” and “encourages managers to work hard to find solutions other than dismissal”

3. “The Struggle To Measure Performance” • Following string of discrimination lawsuits from ees who feel they were ranked and yanked based on age, not merely their performance, fewer cos are adopting forced distribution appraisals • Critics charge that forced distribution hinders collaboration and risk-taking • Research suggests that productivity improvements of forced distribution process are not sustained over medium- to long-run • Even General Electric is trying to inject more flexibility into its system • Jack Welch instituted 20-70-10 system • Key is to strike balance btwn strict yardstick and mngt judgment • Yahoo has modified performance appraisal process, but requires mngrs to rank-order ees for purpose of distributing raises and bonuses • During reviews, ees told how their increases generally compare to those of others • Co says new program doesn’t automatically weed out ‘C’ group and was designed specifically to reward its stars • Source: BusinessWeek online, 1/9/06

4. “The Best vs. the Rest” • Hewitt report indicates in 2005, nonexecutive white-collar ees who were best performers received 9.9% raise on average, average performers 3.6%, poor performers 1.3% (if any raise given) • Gaps have widened over past several years • More differentiation is being implemented, rather than boosting overall budget for raises • Mngrs must explain to average ees (typically majority of staff) why their raises remain low even though economy is solid and profits healthy • “You don’t want them to conclude that ‘meeting expectations’ is bad, because it’s not” • Source: Wall Street Journal, 1/30/06

5. “How to Reduce Turnover” • In bid to reduce high turnover rates, Applebee’s reviews and ranks hourly ees, then rewards mngrs for retaining better ees • In high-turnover industries such as retail and restaurants, turnover rates among hourly ees can run as high as 200% • For other midsize and large cos, annual ee turnover typically ~10-15% • Applebee’s reduced turnover in co-owned restaurants from 146% in 2000 to 84% in 2004 • Applebees uses 20-60-20 forced distribution (altho ees generally aren’t told their grades) • Consultant likes idea in theory, but notes that success depends on having straightforward and simple ways to judge hourly ees • Applebee’s hourly ees evaluated twice/year on nine factors, including reliability, attitude, guest service, and teamwork • Albuquerque ee’s tardiness suggested by co-workers to have little to do w/ his college class schedule, thus earning a ‘B’ rather than ‘A’ • Source: Wall Street Journal, 11/21/05