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The End of Rank and Yank: Management Practices Revisited

business.com editorial staff
business.com editorial staff

Many businesses employ a management practice of ranking and then dismissing a certain number of employees every year. Can this approach survive?

  • Rank and yank is a process in which employers rank their employees and fires those who fall below a certain ranking.
  • Some pros of rank and yank are that it sets a standard and provides a way to dole out incentives.
  • Some cons of rank and yank are that it promotes individuals over the team and can demoralize underperformers.

The New York Times has reported on, among other seemingly oppressive management practices, Amazon's periodic culling of "underperformers" (at least in comparison to higher-ranked peers) using a process called stack ranking, aka "rank and yank." 

What is rank and yank?

According to The Performance Management and Appraisal Resource Center, "rank and yank" is a term used to describe when companies rank their employees against one another, then terminate the employees who are dead last in the rankings.

Developed by Jack Welch when he was CEO at General Electric in the 1980s (though the legal profession practiced it well before that), stack ranking requires managers to rate subordinates in a hierarchy from top to bottom. Those at the bottom aren't necessarily poor performers; they're just ranked that way because, well, somebody has to be.

A frequent criticism of the practice is that it forces managers to sometimes sacrifice otherwise good employees to protect those considered more essential. Employees who, for whatever reason, end up in the bottom rankings are fired, under the assumption that you continually allow the cream to rise to the top. Critics believe the cream may rise, but it leaves too many otherwise good workers to sour.

This all seems contradictory to current trends, particularly with high-tech companies that promote work-life balance, dogs in the office, onsite gyms and yoga classes. Indeed, Microsoft recently renounced rank and yank (although Noam Scheiber of The New York Times reports the belief that the practice isn't fully abandoned).

Yet it is still in place at Yahoo, where it is formally called Quality Performance Review, even though, as Neha Gupta reported for Invest Correctly, the practice is widely believed to kill innovation and demoralize employees, because no one wants to risk being on a project that could potentially fail and thus be allocated to a lower ranking.

Pros and cons of rank and yank

According to Business First Family, these are some pros and cons of rank-and-yank management.

Pros

  • It allows employers to establish a standard for all employees.
  • It can help you create incentives, such as bonuses for those who perform well.
  • It makes for more accurate reporting in terms of employees' performance.

Cons

  • It demoralizes underperformers. Those who are not performing quite as well as others (even if they still perform well) will always be worried about losing their positions.
  • It promotes looking out for oneself above working as a team.
  • The spirit of competition can undermine employee morale overall.

[Read related article: 14 Best Tools to Measure Employee Performance]

Differentiating rank and yank from other management practices

Rank and yank still has its defenders. The first point they make is that it is indeed an ineffective management practice as commonly defined; the problem is that the term is applied incorrectly to a management practice that does work to the benefit of workers and management.

According to Jack Welch himself, "most experienced businesspeople know that 'rank and yank' is a media-invented, politicized sledgehammer of a pejorative that perpetuates a myth about a powerfully effective real practice called (more appropriately) differentiation.

"Unlike 'rank and yank – I hate even using that term – differentiation isn't about corporate plots, secrecy or purges. It's about building great teams and great companies through consistency, transparency and candor. It's about aligning performance with the organization's mission and values. It's about making sure that all employees know where they stand. Differentiation is nuanced, humane, and occasionally complex, and it has been used successfully by companies for decades. Maybe that's not as headline-worthy as you-know-what, but reality rarely is."

Diane Stafford, writing in the Kansas City Star, points out that rating systems – if you'd rather call it that than "rank and yank" – purge dead wood to make room for more innovative workers and motivate everyone to do better. Perhaps it's not the rating that's a problem, but who does it. Managers sometimes misuse any ranking system for a number of reasons:

  • To make themselves look good (by trying to get the largest percentage of high rankings, regardless of actual merit)
  • To get rid of someone they perceive as a threat to their position
  • To punish insubordination
  • To keep a star performer from job hopping by giving a good but not top evaluation 

360 degrees of separation

One alternative approach is 360-degree appraisals, so called because employees are rated not only by their peers, but also by their subordinates. While the purpose is for everyone to understand their strengths and weakness as perceived by both peers and superiors, the approach is not without problems.

  • Feedback is sometimes based on personal prejudice rather than objective evaluation.
  • Peers might be reluctant to say anything "bad" about each other, particularly in cases where 360 evaluations are not confidential and are shared among employees.
  • Criticizing a manager, even constructively, carries the risk of retaliation – not from good managers, of course, but the unfortunate fact is that bad managers in many organizations have more power to affect their subordinates than the other way around.     

Every organization has to evaluate how well employees are doing. Whether that needs to turn into a Darwinian struggle of the fittest depends in large part on how fit you are for survival.

Certain law firms, management consultation firms and high-tech companies pride themselves on employing only the "best and brightest." It works for them. Arguably, the cost is to burn through a lot of competent and valuable employees.

Other companies, such as Zappos, are struggling to come up with systems that fit employees to jobs where they can succeed. The problem may not be the employee, but that the employee is in the wrong kind of job. Rather than employing a grueling rating process, management tries to match people's talents to where they can best put them to work.

At the very least, if you're going to put in your mission statement that your company values work-life balance, don't be a hypocrite if what you really value are those who bring their laptops on their vacations.

Image Credit: LanaStock / Getty Images
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