We're surrounded with lists. They appear to be a phenomenon of our time.

Lists that tell us who is best.

The Best Companies to Work for.

The Global Most Admired.

The Top 40 Executives under 40.

The Best Managed Companies.

The Best Brands.

The Best of the Best.

Why then is Grote's concept of the forced ranking of your list of organizational talent such a jagged pill to swallow?

There, it's been said - forced ranking.

Two of the scariest words in the human capital management business, next to "You're fired".

Performance Reappraisal

Why is that?

Well, to step back and analyse for just a moment, the fear, no doubt, stems from being on the wrong side, or rather the wrong end, of the list.

However, offsetting that understandable human fear is a sober business reality relating to the inadequacy of the current performance appraisal system in most organizations. The evidence is quite staggering.

According to Grote, who is the former head of Frito-Lay's training department, over 30% of employees feel that poor performance is tolerated within their organization.

It has also been found that fewer than 40% of managers feel that their performance management system establishes clear performance goals or generates honest feedback.

A change to a more disciplined, rigorous system that uses a forced ranking component is becoming a growing standard in business today.

Selective Blindness

Far too often, the discussion around forced ranking is portrayed in a negative light. The perception many people have is that forced ranking is a fancy way of firing people. However, the benefits of implementing these types of systems may surprise you.

Studies have shown that effectively identifying your poor performers and dealing with them results in a measurable level of improvement in organizational performance. With that being the case, is it any wonder that 25% of Fortune 500 companies have now adopted forced rankings and tougher performance appraisal systems overall, a number that has been growing significantly for years.

Welcome to Lake Wobegon

Simply put, a forced ranking approach to talent assessment differs from a "traditional" performance appraisal system in one simple but major way - absolute comparison. In the traditional appraisal system, the scores are based solely on the relative comparison of the expectations established for the individual, and their ability to meet them.

The problem arises when the individual's manager sets "soft" expectations and then, in order to maintain the friendly atmosphere, gives high ratings to "keep everyone happy". Often, the result is a conflict free team that underperforms in terms of their collective potential as they have no real sense of their actual relative level of performance.

By contrast, a forced ranking system, using absolute comparison to other employees, gives both the manager and the employee a more empirical base of comparison; one that will lead to open discussion. Essentially, by implementing a forced ranking system, organizations guarantee that managers will differentiate talent in the way they should.

May the Force be with you

Jack Welch, probably the most popular proponent of forced ranking, is also a strong believer in candour. He has stated that lack of candour is one of the "biggest dirty little secrets in business". Forced ranking puts an end to this "secret".

By using the forced ranking system in your organization, you can objectively deal with your team, and give them the hard facts about their performance. Star performers are rewarded and promoted and poor performers are reassigned, or let go.

F = M x A

Remember, forced ranking is a good thing.

By dealing with your poor performers, you show your stars that their effort is valued and that your intention is to develop a team loaded with stars. This type of intrinsic "reward system" is one of the most effective, and ultimately the least costly. Cut the anchors from your team, and watch the rest of the crew soar!

In Our Opinion
The Beacon Group's Keys to Preparing Your Organization for Forced Ranking

Know the Goal - In most cases, the goal of forced ranking is to boost overall performance within the organization. In others, the goal is to deal with poor performers so that they are not a drag on overall effectiveness.

Communicate Openly - Because there are numerous benefits to forced ranking, the key to building support and buy-in is to ensure ample amounts of candid discussion. Focus on the benefits to the organization, as well as to your star employees.

Follow Through - The key to a successful Forced Ranking System is to develop a system that treats employees fairly, not equally. The decisions are tough, but they are key to the system's success. Your stars deserve praise, your up and coming employees need development, and, yes, your poor performers need coaching, reassignment or dismissal.

Monitor Progress - In many cases, forced ranking systems involve a "forced" termination of a percentage of poor performers. Studies have shown that, as the talent level of an organization improves, this sort of "rank and yank" system should evolve into a rigorous system of development, coaching, and succession planning. The key is in keeping your finger on the pulse of the organization.

Our Monthly Rant
Teamwork or Team Performance

Imagine a situation wherein the manager of a major professional sports team gathers her players in the change room after losing the big game. She tells them that, as of now, everyone on the team will make the same amount of money; more specifically, the average of their current salaries. In addition, she states there will no longer be any performance incentives.

How would this team perform the following season?

It is quite likely that their performance would end up being worse. Sure, the lower paid players would get a boost in salary. But for what? They weren't the best players. They likely had little to do with the team's success. And, going into this new season, they would have no incentive to work hard to be better than they were.

The tragic effect would be on the team's stars. Their talent and skills would go unrecognized. They wouldn't be driven to excel or to stick their necks out for the team, as there would be no reward for doing so.

The reality is that this sort of thing rarely happens in professional sports. There is a line-up of talent a mile long with athletes working hard, and training harder; their goal being to be the very best. At the same time, poor performers are cut loose from the team, often mid-season, freeing up room for new players to step in and prove themselves.

The question is, why isn't this sort of philosophy common place in business?

The Beacon Group can help your organization and its Leaders with our World-Class Organizational Development Expertise.

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