June is nail-biting time at Enron Corp., a Texas energy and trading giant, at which managers assemble twice a year to evaluate and cull employees as if they were head of cattle. Wrangling behind closed doors for up to two days at a time, the bosses compare and contrast the performance of workers over the prior six months and rate them on a five-point scale, with the top 5% designated "superior" and the bottom 15% labeled "needs improvement." In between are "excellent" (30%), "strong" (30%) and "satisfactory" (20%). You don't want to be in the cellar: anyone described as needing improvement has six months to either get up to standard or scram.
Evaluations have always been one of the more conflicted aspects of organizational behavior. Employees fear getting bad ones, and many managers have a hard time handing out negative news, which deprives the subjects of a candid appraisal. Best-to-worst forced-ranking systems are the latest attempts by corporations to take a systematic, long-term approach to evaluations. The goal: a continually improving workforce.
Critics protest that forced ranking can be harsh and arbitrary. But that hasn't kept a growing number of companies from joining such firms as Enron, Ford Motor and Microsoft in adopting them. "What it all boils down to is who is in the room fighting for you," says an Enron worker who was cut from the herd. "I didn't have people there to talk for me, and I felt like I got screwed." Counters Craig Taylor, a manager in Enron's commodity-trading department: "You have to know where you stand, and I believe the system does an excellent job of doing that."
Whether they're fair or not, bell curve-like rating systems--which many employees now call rank and yank--have spread in recent years to some 20% of U.S. companies, and the trend is growing. They're particularly handy during periods of economic slowdown like the present one, when employees tend to cling to their jobs rather than retire or change positions. That lowers the normal rate of departures through attrition--which can run as high as 20% of a corporate work force when people feel like job hopping--just when companies are seeking to cut their costs to satisfy Wall Street. "People are hearing about friends who have been let go," says John Challenger, CEO of the Challenger, Gray & Christmas outplacement firm. "And they say, 'This is not the time to take a risk.'" So they stay.
Many companies were just as fond of ranking and yanking when times were good, since the threat of poor ratings and their consequences help concentrate the minds of workers. Or as Michael Loeb, a San Francisco expert in employment law, puts it, "You don't want companies where everyone's completely comfortable."
Perhaps not, but the forced-ranking systems have ignited legal firestorms. Recent lawsuits brought by past and present employees have charged Microsoft, Ford and Conoco with using the systems to favor some groups of workers over others--such as white males over blacks or women and younger managers over older ones.
Of course, top-to-bottom rankings also provide a method for identifying and rewarding strong performers and encouraging everyone to work harder and smarter. "Management has to lift everyone up, not just use the process to brand and target people," says Edward Jensen, a partner in the Atlanta office of Accenture, formerly Andersen Consulting.