Forced rankings of employees bad for business

Sept. 27, 2007
Forced-ranking systems that require managers to evaluate the performance of an employee against other employees can hurt productivity, says a researcher at the University of Michigan’s Ross School of Business.

“Using rankings to scale employee performance relative to that of peers, instead of using predetermined goals, may negatively affect employees’ willingness to maximize joint gains that will benefit the organization,” says Stephen Garcia, adjunct assistant professor of management and organizations at the Ross School and assistant professor at the Ford School of Public Policy.

“Individuals will care less about performing better on a given task and shift their focus to performing better on a scale comparison - in other words, to being surpassed in rank.”

General Electric is the most famous proponent of the forcedranking model, but other companies have used it in some form at one time or another, including Cisco Systems, EDS, Hewlett-Packard, Microsoft, Pepsi, Caterpillar, Sun Microsystems, Goodyear, Ford Motor, and Capital One.

As described in a recent issue of Organizational Behavior and Human Decision Processes, Garcia and colleague Avishalom Tor of the University of Haifa examined the forced-ranking system by conducting a series of studies of task comparisons versus scale comparisons.

Task comparisons concern relative outcomes or standing in specific tasks (such as anticipated earnings of one’s company versus a partner company in a joint venture), while comparisons on the scale — the metric that defines a standard — happen at a more general level (such as those concerning a company’s standing or annual earnings).

The researchers found that rivals ranked near the top of a standard are more competitive and less cooperative than those far from a standard. Only 25% of the study participants were willing to maximize joint gains when they and their rivals were ranked No. 1 and 2, compared to 79% when ranked No. 101 and 102. However, when the rivals’ relative standing on the scale was not in jeopardy, participants uniformly behaved more cooperatively — 74% for No. 1 and 2 and 77% for No. 101 and 102.

Similar results were found in a second study that manipulated the threat of an upward comparison on the scale in the business context of the Fortune 500. However, competitive behavior was not only more prevalent among the highly ranked, but also among those at the bottom - those vying to just make it in to the Fortune 500.

The findings suggest that forced ranking does not always diminish the likelihood of maximizing joint gains within an organization. But they do reveal a significant and overlooked weakness of this new and increasingly popular management system, the researchers say.

“While highly ranked employees may be more competitive and productive through simple self-selection, the championing of forced rankings fails to anticipate how competitive forces may ultimately inhibit the profitmaximizing exchange or pooling of information and resources among those ‘star’ employees,” says Garcia.

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