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Forced ranking: a review.

Article Excerpt
When Jack Welch extolled a management tool, all managers took note. One such tool was "forced ranking," in which managers rank employees in their department against others in that department or a designated peer group. The top 20% are rewarded and the bottom 10% are put on probation or possibly terminated. This is much different from the widely used "performance appraisal." Managers attracted to the benefits of forced ranking should carefully review the pros and cons, especially the latter which include likely high turnover costs and injury to employee relationships and trust.

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Introduction

Jack Welch, and General Electric brought forced ranking into the spotlight with the publication of GE's 2000 annual report where Welch "explained and extolled" the use of forced ranking at GE (Grote, 2005). Since then its popularity as a performance evaluation tool has continued to grow. By some estimates as many as one-fifth to one-third of all companies are using forced ranking in some form (Grote, 2005). A recent study by Novations Group Inc. found that a total of 54.8% of all responding companies used forced ranking. Still, the total number of firms using it may be understated because some firms are unwilling to admit publicly to using the practice (Grote, 2005). Along with its growth in popularity has been a fair share of criticism. This article will look at what forced ranking is and how it affects organizations and the individuals being evaluated with forced ranking systems.

Definition

Forced ranking is a differentiation process where managers are required to evaluate an employee's performance, based on predetermined categories, against other employees in the department or peer group (Gary, 1990). These employee performance rankings are then applied to a bell curve. Those that rank at the bottom of the curve: usually the bottom 10%, are either put on probation, coached to improve performance, or terminated. Those at the head of the curve, usually the top 20%, are generously rewarded for their performance (Grote, 2005).

In its purest form, forced ranking is distinct from periodic performance appraisal systems used in most firms. Grote (2005) uses the term "talent management" to describe forced ranking, indicating that the purpose is to rank your best people not only for performance recognition but also future promotion decisions. While traditional performance appraisals tend be criterion based (setting a performance bar), forced ranking is about distinguishing people. Forced ranking demands a differentiation among performers; performance appraisals don't necessarily do that.

Forced ranking differs from other well-known performance management tools such as balanced scorecard and 360-degree analysis. We note these two particular tools because of the popularity they have gained both among the firms choosing to adopt them and the literature reporting on them. While the balanced scorecard and 360-degree analysis tend to focus on individual goals and development, forced ranking is a more specialized tool ranking individuals against their peers. The balanced scorecard is an evaluation tool used to link an organization's strategic goals to the activities of individuals within the organization. Users claim that this type of evaluation allows an employee to see how his work is affecting the organization (Sasse, 2005). The 360-degree analysis is a popular feedback intervention tool that allows anyone who interacts with...

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