What is it?
Forced ranking, also known as stack ranking or rank-and-yank, is a performance management system where employees are ranked relative to each other based on their performance. In this system, employees are placed into predetermined performance categories such as top, middle, and bottom performers. Typically, a set percentage of employees are designated as high performers, the majority are rated as average, and the lowest-performing group faces consequences such as improvement plans or even termination. This system gained popularity with companies like General Electric (GE) under CEO Jack Welch, where it was used to identify and reward the top performers while managing or eliminating the bottom performers.
Why is it important?
- Promotes a Performance-Driven Culture: Forced ranking is designed to create a competitive environment by identifying and rewarding high performers, which can drive motivation and productivity among employees.
- Talent Management: It helps companies identify top talent for promotions, rewards, and development opportunities, while also identifying low performers who may need additional support or improvement plans.
- Accountability: The system holds employees accountable for their performance relative to their peers, ensuring that performance reviews are not inflated and that distinctions between levels of performance are clearly drawn.
- Resource Allocation: By identifying top performers, companies can allocate resources such as training, bonuses, and development opportunities to those who contribute most to the organisation's success.
However, forced ranking also has its drawbacks:
- Reduced Collaboration: The competitive nature of forced ranking can lead to unhealthy competition, reduced collaboration, and a focus on individual performance over teamwork.
- Low Morale: Employees in the bottom rankings may feel demoralised, even if they are performing adequately. This can lead to disengagement, higher turnover, and damage to company culture.
- Potential for Bias: Forced ranking can create biases in performance evaluations, especially in cases where managers are forced to rank employees into specific categories, regardless of actual performance variations.
