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Ranking Employees by Performance - A Seriously Flawed Common Practice

by Kimberly M. Wiefling, M.S.

One of the most distasteful duties I've performed as a project leader was to rank the people on my team, from best to worst performing, during an annual appraisal process. This is akin to ranking the usefulness of different kinds of music -- it's highly dependent on the music's intended purpose, and subject to the taste of the person judging the music.

This so-called "forced stack ranking" is something I resisted at first, but regrettably I caved in and did what was asked of me. Afterwards I went home and took a shower to wash the stench of the whole experience off me. This was many years ago, before I developed the courage to overturn such unproductive practices, as I did later in my career when I championed abolishing performance appraisals at one company. (Don't worry, it wasn't a free-for-all. We replaced evaluations with respectful two-way dialogues every quarter between managers and employees to mutually assess results and align future actions with company goals.)

Simplistically, forced ranking works like this:

  1. Make a list of people in a team, department or organization.
  2. Place the names in order of perceived performance, from highest to lowest.
  3. Turn this ranking into some kind of "grade," which is shared with the employee:
    • Reward the top performers by using this ranking as a basis of distributing raises or bonuses.
    • Punish, humiliate, sanction, or fire the bottom 5 - 10%, presumably to make room for more top performers.

I'm sure you can already begin to imagine some of the hazards of this system and the negative impact on individual and team performance. Please don't misunderstand me. It's not that I think that objective performance evaluation is impossible, or that performance management is evil. As a scientist I understand that the relative contributions of individual employees can be measured objectively, but it's often very difficult, time-consuming and expensive to do so accurately. As a professional familiar with neuroscience and the psychology of human behavior, I've learned that our ability to judge the performance of other people is flawed -- tainted by perceptual biases beyond our control, and often beyond our awareness. But it's my role as a leader that causes me the greatest concern regarding this widespread practice. As a leader my job is to optimize the results of a team, not merely select top-performing individuals. If you stack ranked the best musicians in the world and had them play together you wouldn't get the best band. If you stack ranked the best politicians in the world and built a team of them you would not get the best government. And stack ranking the best individual performers won't give you the best team.

I've seen first-hand the difference between a group of self-interested people and a team. Almost all of my consulting work involves facilitating global leadership and management development workshops all over the world for high potential people in Fortune 500 companies - mostly Japanese companies. These intensive programs create a safe environment that fosters vulnerability-based trust and mutual respect. Seemingly impossible goals are achieved through the power of peer-to-peer encouragement, support, and commitment to shared dreams. I've seen people from a dozen different countries overcome boundaries and barriers of every kind to achieve what no individual or "group" ever could. This kind of devotion to each other, and to a common purpose, separates a true team from a group of people, and it unlocks to power of doing the "impossible."

Naturally there are times when an individual does perform poorly, and that poor performance needs to be addressed. Most of the time the root cause is either a lack of ability or a lack of motivation. Who is responsible for motivation? I strongly believe that leaders are responsible for motivating and inspiring their followers. And what if the root cause is a lack of ability? The skills gap can be closed with training, coaching or mentoring, or finding a job that's a better match for the person's abilities. Often suitability for the purpose is more relevant than the capability of the individual. Performance that doesn't meet expectations is more a reflection of the failure of the manager to properly match skill set to the purpose than it is a failing of the employee.

I've hired people and I've fired people, but both my research and my experience lead me to conclude that using stacked ranking as a tool to do either is seriously flawed in several ways:

  1. People routinely self-evaluate higher than others evaluate them. For example, due to a phenomenon known as "illusory superiority," 90% of drivers think they are above average. Harvard Business Review reported that managers typically rate themselves higher than their colleagues do on most measures of performance, including their receptiveness to hear about difficult issues. Stacked ranking is bound to offend people who deliver perfectly acceptable performance.
  2. Managers are incapable of unbiased ranking. The human brain is subject to dozens of perceptual and cognitive biases. For example, the Fundamental Attribution Error makes human beings tend to attribute our own failings to circumstances, but the failings of others are blamed on character flaws. And research has proven that if the same resume has a woman's name on it as a man's name, the resume is thought to be less impressive by both female and male managers.
  3. Ranking teammates relative to one another erodes trust, which is the foundation of results in high-performing teams. In order to build the kind of trust that improves team performance, people must be willing to make themselves vulnerable. That's simply not an option when employees know they have to compete with each other for reward, recognition, and continued employment.
  4. The incentive that ranking people relative to their teammates creates is all wrong! If I want to be ranked highly the optimal strategy is to get into a group of people who perform more poorly than me, recommend new employees who are inferior to me, and do everything I can to succeed while undermining the success of my colleagues. Do we really want to require employees to ignore the rewards system in order to do the right thing?

Imagine stack ranking the parts of you car. Which part is more important? The gas pedal? The brake? The engine? The steering wheel? The fact is that you need all of them in order to achieve the goals of an automobile. And if your brakes fail then you should immediately get them repaired, not wait for the next annual maintenance. Why would you wait until next year's ranking to fire an employee who is unsuitable for their position?

Trying to improve your team's results by laying blame at the feet of one or more team members is fraught with peril. Business is a team sport, and this is the century of collaboration. Many of today's business challenges can only be overcome through the cooperation of a diversely talented team. Forcing people to be stack ranked against one another undermines the collaborative environment and increased employee engagement required to optimize business results.

Some people tell me that stack ranking is necessary because a business needs to have the best team to win. While I agree about the need for the best team, the issue here is how to go about achieving this. The assumption that stacked ranking is a path to assuring you have the best team is erroneous. A more effective approach is to understand the requirements of an effective team in the business environment in which you operate, and then select team members that combine to produce this winning team. In some cases this might require you to fire everyone on the existing team, another situation where stacked ranking offers no solution. If you, as a leader, want your team to perform optimally you need to avoid this destructive and well-respected practice.

If you have an employee who is performing below requirements, don't wait for the annual performance appraisal or ranking exercise to deal with this issue. Employees who perform poorly hurt the team, threaten business results, and sometimes even put the future of the business at risk. If you can't help them close the gap in their skills, then by all means help them find another job where their skills are a better match. If you can't help them get motivated, then admit your failure and free them to their next great opportunity where they may be more motivated. But don't indulge in the unproductive practice of ranking them relative to their colleagues.

Let's return to our music analogy. Imagine if each year the people of Earth ranked the appeal of various kinds of music with the intent to eliminate the 10 % least appealing music. Not only would a great deal of time and energy be wasted arguing about the relative merits of various musical styles and compositions, we would never expect the total quality of music on Earth to be improved by this process. More likely we'd generate a group of disenfranchised musicians who cling to the blackballed music, rise up to create a competing musical community, and establish an alternative to our preferred musical genre.

It's time to update our thinking from individual performance to "business as a team sport." I strongly believe that forced stack ranking should be thrown on the scrap heap of outdated business practices.

Note: This article was inspired by a column written by my colleague Robert Sher, a regular columnist for Forbes. I'd like to thank Robert for stirring up this intriguing debate with his column "The Case for Stack Ranking of Employees."

Kimberly Wiefling is the author of Scrappy Project Management, published in English and Japanese, and the executive editor of the whole series of 5 "Scrappy Guides." Her favorite is Scrappy Women in Business, a collection of the stories of a dozen scrappy businesswomen. She works primarily with globalizing Japanese businesses, traveling extensively in the US, Europe and Asia.

©Copyright 2001-2012 Wiefling Consulting. All Rights Reserved.

Not all comments are posted. Posted comments are subject to editing for clarity and length.

Facinating read Kimberly. Enjoyed. Thank you.

Thanks, Sue! Glad you enjoyed this one. It was a catharsis to write it!

Hi Kimberly, I could not agree with you more! Brilliant article! It identifies the pitfalls in Performance Management when individuals are assessed. Team based performance is the way to go especially for incentives. The bonus issue should be separated from the actual monitoring of performance and managed accordingly. The question is how do we inculcate this thinking into the mainstream???

Excellent article - you have built a compelling argument to challenge the status quo of forced rankings.

Most managers would readily agree with your points but are unwilling to change because the alternate systems for reward and recognition have not been developed at sufficient maturity that allows equitable treatment of rewards and recognition.

As Faizal Karani hints at in his comment, the notion of team and group incentives is something that needs to be further researched against the fabric of organisational performance, and systems (tools & methods) for deployment should be developed.

Excellent article,Everybody needs to think "Business is a team sport" . All Leaders & Managers need to come up with different performance judgement practices.

Thanks so much for your comments, you all! In fact change CAN happen . . . but you have to FIRST separate performance feedback from salary administration. This is more feasible than you might think, as about 85% of compensation is based on the market value of skill sets, and only about 15% is based on performance relative to peers. I found a great book called "Abolish Performance Appraisals Now" a useful guide. Then moving to team-based profit-sharing kinds of rewards as a greater percentage of compensation. Why should an individual get rewarded when the business is failing? Reward the team when the business is profitable, and admit that heroics and firefighting are a result of bad planning, not exemplary performance.

I am posting these comments on this article, which I received from a reliable Army source, with their permission:

- I have seen the same things you talked about happen as a result of drive to be rated "Above Center of Mass" - lack of teamwork, folks in it for "me", and hyper competitiveness vs. teamwork.

That being said, even staff officers are responsible for sections that they must synergize, coordinate, and drive execution to mission accomplishment. Officers in bona fide leadership positions are responsible for organizations from 16 people to 3,500 people. One could surmise that they are evaluated at how well their team performed, and how well they lead the organization.

The model breaks down when you try to evaluate one person against their individual achievements relative to another's.

- On the lack of ability or lack of motivation: there is a common Army saying that any item or issue requires only the right skill, will, or resource. Failure of success is often determined by those three.

- On the workshops intensive programs that create a safe environment of trust and respect: leaders (and organizations) flourish when they feel they were not in competition with, but rather in collaboration with their peers

- punishment in the military is the failure of building discipline, just as you pointed out that subordinate failure is the failure of management, not the individual.

-Stacked ranking to develop the best team: You are right on. This is why "All Star Teams" routinely lost to the USSR hockey teams in the 70's and 80's. Herb Brooks didn't pick the best players for the 1980 Lake Placid games, he
picked the best ones that could play together, as a team.

The Army's ranking model: We have to de facto rank our subordinates into four groups, and they are graded to some extend against their peers, and to some extent against their assigned responsibilities vs. performance of those responsibilities.
-each officer gets an evaluation by two people
- his/her boss (the rater), and his/her boss's boss (the senior rater).
Those are the Rater and Senior Rater. The Rater grades you on primarily on performance, and a bit on potential to
serve in positions of greater responsibility, attend school, and suitability for promotion. The Senior Rater grades you primarily on potential, and touches a bit on school, future positions, and promotion.

Rater Ranking. Subordinates are rated into one of four groups:
-Outstanding Performance, Must Promote.
-Satisfactory Performance, Promote,
-Unsatisfactory Performance, Do not Promote
-Other (explain)

The rater provides this, along with a narrative.

The Senior Rater gives two ratings. One rating is on the promotion potential to the next higher grade and they
-Best Qualified
-Fully Qualified
-Do Not Promote

Finally, there is a rating on Potential Compared with Other Officers Senior Rated in the Same Grade. The four groups are: Above Center of Mass (by Regulation, no more than 40%, but the desire is closer to no more than 1/3); Center of Mass (just about everybody else); Below Center of Mass-Retain (very poor performers); Below Center of Mass-Do Not Retain (the worst performers).

- Ranking for the sake of ranking stinks. Done as a product of performance evaluations and counseling is a bit more palatable. We are required to counsel our subordinate leaders on the tasks, areas of responsibility, and standards that we expect them to uphold and execute. Our counseling should be based on how well/poorly the rated leader performed, and what the subordinate needs to do to achieve and perform well (to meet the standard) or to exceed
the standard. This performance counseling on expectations and performance helps inform our recommendation to the senior rater (my boss) on how a subordinate should be rated (Above, Center of Mass, or Below).

- The easy part - Identifying your best and worst performers. Even in the military, you end up with some unmotivated folks. The best, top 10%, stand out clearly. Same with the bottom. The tough part are the folks in between.

Thanks for your time. I know this was a long rant, but your article got me plucky and motivated!

If you intentionally tried to create a toxic work environment of politics, sycophancy and backstabbing, you could not do better than to introduce forced ranking of employees.

The comments to this entry are closed.

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