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The End of Rank and Yank: Management Practices Revisited

Jennifer Post

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

As businesses work to develop the next great management style, there is a lot to learn from those that have come and gone. One such style is the "rank and yank." This is a process in which employers rank their employees and fire those who fall below a certain ranking. The New York Times reported that Amazon was once a company that used this stack ranking process to cull "underperformers" (at least in comparison to higher-ranked peers). While the rank and yank does set a standard and provide a way to dole out incentives, it also promotes individuals over the team and can demoralize underperformers.

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.

Did you know?Did you know? Jack Welch himself isn’t a fan of the term rank and yank anymore, and instead prefers the term differentiation.

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. [Want to learn more about different management principles? Check out our guide on some of the original management theories.]

This all seems contradictory to current trends, particularly with companies that promote work-life balance, remote work, dogs in the office, onsite gyms and yoga classes. While Microsoft reportedly renounced the practice, as of several years ago it was still in place at Yahoo, where it was formally called Quality Performance Review. The process was used even though, as Neha Gupta reported for Invest Correctly, it 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.

Differentiating rank and yank from other management practices

Rank and yank can go by a few different names, and it’s important to know all of them. Set distribution, forced ranking, vitality curve, and rank and yank are all alternative ways of saying the same thing. Ranking employees by performance and getting rid of the ones at the bottom.

Managers have found better performance review systems

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," Welch wrote. "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."

Rank and yank is often mismanaged

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 several 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 

Alternatives to rank and yank

Despite some companies still using the rank and yank model even though it has been widely discredited as an accurate representation of an employee's performance, there are other performance review models out there that can be used in place of rank and yank.

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.     

FYIFYI: Zappos uses the 360-degree performance review model, as they feel it enhances the employee culture, after once relying heavily on the rank and yank system.

Calibration

While this method of performance review still works on a ranking system, there is a checks and balances system at play too. Various managers who oversee groups similar to one another all review each other's employee performance ratings. This way, the rankings themselves, as well as the reasons behind the rankings, are all discussed and debated to make sure there aren't any prejudices, biases, or personal reasons for a certain ranking.

Management by objective

Peter Drucker, a renowned management consultant, was the first to utilize this management and review style. Essentially, the manager and employee sit down together to come up with a list of goals and how they want the goals to materialize. The performance review is based solely on how that employee can achieve the goals set forth.

Since the goals and desired results are determined ahead of time by the employee and manager, the employee is fully aware of what is expected of them. There aren't many excuses that can explain a failure to deliver on those expectations.

Peer review

This approach has some middle and high school energy to it. With a peer review, an employee’s performance is reviewed and commented on by co-workers. This method might present more issues than the others listed above, but there is also the chance for employees to receive more tailored reviews, better suggestions on how to improve, and tips based on that employee’s individual strengths and/or weaknesses.

Bottom LineBottom Line: Find a performance review system that works the best for the structure of your business as well as the company culture you want to nurture. One size does not fit all when it comes to management.

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 consulting 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.

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
Jennifer Post
business.com Contributing Writer
Jennifer Post is a professional writer with published works focusing on small business topics including marketing, financing, and how-to guides. She has also published articles on business formation, business software, public relations and human resources. Her work has also appeared in Fundera and The Motley Fool.