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Ranking and yanking is nothing new at Enron, which launched the system among its fiercely competitive wholesale-energy traders a decade ago and has since expanded it to cover all the Houston-based company's 18,000 employees. In a typically intense session, as many as 25 managers may gather around a conference table in a windowless room with a computer screen filled with employee rankings projected on one wall. Each participant comes armed with notebooks bulging with job reviews. As the discussion proceeds, the managers may shift people from one ranking to another, deciding their fate with the click of a computer mouse.
What makes this process less Star Chamber-like is that workers can turn in self-assessments and choose up to seven colleagues and clients to write evaluations on their behalf. Moreover, anyone in the company can voluntarily submit a review of anyone else's performance. All this makes Enron's approach "a lot less subjective and a lot less random," says Steve Kean, an executive vice president, because "it doesn't depend on the views of any individual supervisor."
What it does depend on is the willingness of managers to fight for valued employees during what can swiftly become a brutal horse-trading session. "Even if everyone did great," says the former Enron employee, "someone has to fall into the 'needs improvement' category."
Those who do fall into that category do not get bonuses and must sit down with a supervisor to draft a plan for performing better. Salvaging such workers is only prudent, Accenture's Jensen notes, because "it is the 25th man off the bench who may win the baseball game for you." For bench warmers who can't sweeten their swings or improve their fielding, though, the next steps are a severance package and a swift exit from the roster.
At Sun Microsystems, which ranks its 43,000 employees in three groups (20% are "superior"; 70% are "Sun Standard"; 10% are "underperforming"), the company alerts weak links to their tenuous status and provides one-on-one coaching to help redeem their performance. Sun CEO Scott McNealy is known around the company for saying the bottom 10% is where you "love them to death." But any workers who don't respond to McNealy's love are offered death in the form of "prompt exit" severance, which they turn down at their peril, since those who continue to be found wanting face dismissal without compensation.
Surprisingly, it's the employees in the middle rather than at the bottom of the scale who may feel the most demoralized by the forced-evaluation rankings. "People don't like to be considered average," Jensen says. To boost their sagging morale, he adds, management must reassure those in the middle group that they meet the high standards that the company expects.
For those who ace their evaluations, the rankings can swell their self-esteem and wallets, a prospect that makes Enron a hotbed of overachievers. (And profitable too: Enron has reported increased earnings in each of the past four years.) The ranking system "attracts hard drivers," Kean says. "The proof is in the pudding. Our employees are very talented, and they're glad to be working here." In its latest ranking of the world's most admired companies, FORTUNE rated Enron No. 1 in innovativeness and No. 2 in getting and keeping talent.