Many firms employ a management practice that rank and then dismiss a certain number of employees every year. Can this approach survive?
The New York Times recently 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.”
Originally developed by Jack Welch when he was CEO at GE in the 1980s—though something the legal profession practiced well before that—stack ranking requires managers to rate subordinates in a hierarchy from top to bottom. Those in 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 in order to protect those considered more essential.
Employees who, for whatever the reasons, end up in the bottom rankings are fired, hence “rank” and “yank,” 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 in contradiction to popular trends, particularly with high-tech companies that promote work/life balance, dogs in the office, on-site 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 reports forInvest Correctly, the practice is widely believed to kill innovation and demoralize employees because no one want to risk being on a project that could potentially fail and, thus, be allocated to a lower ranking.
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Differentiating Rank and Yank From Other Management Practices
Rank and yank still has its defenders, though. The first point they make is that “rank and yank” is indeed an ineffective management practice; the problem is that the term is applied incorrectly to a management practice that does work to the benefit of workers and management.
Here’s how Jack Welch himself puts it:
…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 motivates everyone to do better. That’s not necessarily a bad thing. Perhaps it is not the rating that’s a problem, but who does it. Managers sometimes misuse any ranking system for any of 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 perceived to be a threat to their position
- To punish insubordination
- To keep a star performer from job hopping by giving a good, but not top evaluation
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360 Degrees of Separation
One 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 his or her strengths and weakness, as perceived by both peers and superiors, the approach is not without problems.
- Feedback can sometimes be based on personal prejudice rather than objective evaluation.
- Peers can 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 constructive criticism, risks retaliation. Not from good managers, of course, but the unfortunate fact is that in many organizations bad managers have more power to affect their subordinates than the other way around.
Every organization has to evaluate how well employees are doing and which ones aren’t doing well. 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 consultants and high-tech companies pride themselves on being the “best and the brightest.” It works for them. Arguably, the cost is to burn through a lot of otherwise 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 a grueling rating process, management spends time trying 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.