Forced Ranking Systems

Forced ranking systems are performance evaluation programs under which managers rank employees against each other and then use the rankings to determine who receives raises and bonuses, promotions, and, in some instances, who is terminated. Pre-determined percentages of employees are forced into categories, sometimes designated by letter grades such as A's, B's, and C's; in other cases the categories are numerical, and in others with labels such as "superior" and "needs improvement."

The distribution typically follows a bell-shaped curve with 10 or 20 percent in the top category, 70 or 80 percent in the middle, and 10 percent in the bottom. The top-ranked employees are considered "high-potential" employees and are often targeted for a more rapid career path and leadership development programs. In stark contrast, those ranked at the bottom are denied bonuses and pay increases. They may be given a probationary period to improve their performance but are often terminated if they fail to show improvement.

Although forced ranking systems have been around for decades, the declining economy that has spurred many companies to downsize has caused their popularity to soar. Reportedly one-third of all employers use forced ranking systems, more than double the number who did so in 1997, including perhaps as many as one-quarter of the Fortune 500.

Fans of forced ranking argue that ranking employees enables companies to reward top performers, eliminate unproductive workers and raise the overall level of productivity. On the other hand, its critics contend that forced ranking creates an overly competitive workplace where employee cooperation and teamwork are replaced with cut-throat competition to outrank and outlast coworkers.

One of the most common criticisms of forced ranking systems is that the criteria used to rank employees are not objective and, consequently, are subject to bias. The forced ranking systems adopted by Ford, Goodyear, General Electric, Conoco, Microsoft, Capital One, and Sprint all have been challenged as being designed to get rid of workers of a specific race, age, or gender rather than poor performers.

Pros and Cons of Forced Ranking Systems

Proponents of forced ranking systems cite the following reasons why these systems can be beneficial to companies that use them:

They force reluctant managers to make difficult decisions and actually identify the most and least talented members of the work group.

They create and sustain a high performance culture in which the workforce continuously improves.

On the other hand, critics of forced ranking systems claim:

They harm morale;

They increase unhealthy cut-throat competitiveness;

They discourage collaboration and teamwork;

They are legally suspect, giving rise to age discrimination cases as well as other employment discrimination claims.

Tips for Avoiding Problems If Using a Forced Ranking System

Clearly communicate the purpose of the forced ranking system, how long it will be used, and what criteria will be used to rank employees.

Assure that the criteria used to rank employees are clear, objective, measurable, and, most importantly, not vulnerable to assumptions or stereotypes regarding protected classes.

Thoroughly train every employee who will be conducting performance appraisals.

Assess potential adverse impact on protected groups prior to finalizing decisions related to the forced rankings. If there are statistical discrepancies, research whether they are legitimate or the resulted of biased decision-making.