The press is having a field day celebrating the demise of a GE-type forced performance distribution program by Microsoft, Here’s To The Death Of Microsoft’s Rank-And-Yank, as well as several other companies. Under the program, the forced ranking of employees by performance ratings was accompanied by a mandate to reward the highest performers and terminate the lowest performers — the bottom 5% or !0%. Most talent experts now agree that such an approach produces non-collaborative behaviors that are not healthy for business or for innovation, in particular.
It’s easy to bash an outmoded approach. The question is: what’s a better approach? Certainly, performance-related terminations are far better than the rightsizing programs which have become so prevalent over recent years. Here’s the problem. Managers don’t like to manage performance and engage in uncomfortable conversations where terminations are warranted. They far prefer waiting until the next staff reduction to accomplish terminations and spreading rewards across the whole team rather than sharply differentiating performance.
This leaves two choices:
1.Manage performance, rewards and terminations with a forced distribution a la Rank-and Yank.
2.Get your managers to deeply engage with your employees and have the courage to make the right decisions about performance, rewards and terminations, including highly rewarding collaboration and innovation, without the use of a forced-ranking or other quota system.
Clearly the second approach is the right approach, but don’t expect it to just happen. It will take hard work, training managers in all aspects of employee engagement. But it will be well worth the effort. You will drive high performance, high employee engagement and a sense of fairness when terminations are required. It will be hard to transition to this approach, however, without first using some type of forced performance distribution as a catalyst to change manager behavior. And, even when the forced distribution is dropped, retaining non-mandatory distribution guidelines may be a good idea.
Former GE CEO, Jack Welch, recently defended GE’s approach in a Wall Street Journal opinion piece, Jack Welch: ‘Rank-and-Yank’? That’s Not How It’s Done, where he points out that referring to GE’s performance management approach under his tenure as “Rank-and Yank” does not do justice to a process that was well executed, fair and highly effective at driving both collaboration and strong business performance. There is a lot of evidence that Jack’s position is correct. GE’s deep commitment to performance management and business excellence should not be confused with the poorly executed programs of companies who copied GE but did not make the investment in their mangers needed to run the programs well.