The worst is when corporate decides in advance that a certain distribution of rankings needs to be done, so managers need to give average and poor ratings to some of the team regardless of if the employees really deserve it.
By having a fixed distribution isn't management pre determining that a certain percentage of the employees are sub par performers? If they believe that's the case shouldn't they be actively trying to solve that problem? Shouldn't they expect everyone to be giving outstanding performance?
This reminds me of the experiences of GE under Jack Welch, with his "rank-and-yank" initiative: 10 percent, each year, gets fired. It relies on the faulty assumption that the percentage of good vs. bad employees is constant.
First year, you can fire 10% without much complaint, because most of the people you're getting rid of are deadwood. Second year, it's a bit harder. Third year, the obvious deadwood is gone and nobody wants to lay off 10% of their workers. This is when people start getting pissed off.
The enforced rank distribution is just there to make it easier to fire people. They're afraid of termination lawsuits that might occur if someone gets fired with a trail of 4s and 5s.
Not coincidentally, Enron also used this model. I think that this is the worst idea possible. It encourages employees to compete with one another rather than working as a team.
Enron is an energy company that decided it wanted to be a Wall Street firm-- a trader rather than a maker. The problem is that it didn't have the cultural "memory" that most banks have-- that prevents them from doing outrageously stupid and illegal things (that people in the banks would also love to do if they were profitable, but history has shown to be bad ideas). So Enron became an outlandish caricature of Wall Street.
Gigantic-scale businesses are different than startups, and with different problems and different avenues and different dynamics.
As troubling as I find management built on an up-or-out career treadmill and deliberately roiling the employees and the bungee-bosses and the management schools, these are a counterintuitive and cut-throat and effective way to keep the management and the organizations from getting complacent.
Commission sales folks are accustomed to the up-or-out model, too.
This doesn't scale down to smaller businesses nor to startups, nor is it usually particularly necessary. And for all the reasons discussed elsewhere in replies elsewhere here. But the dynamics in bigger organizations are different than smaller ones.
(And no, I never thought I'd be sort-of defending this approach, either.)
Well statistically half your employees by definition are sub-par. The reasoning behind getting rid of the bottom 10% is that chances are the new hires you make are going to be on average better than the ones you fired.
The overall impact of the process should be that the average performance goes up every year.
Trying to change a D player into A player is much harder than just hiring an A player in the first place. Hence the fire/hire approach.
Of course the only way this works is if the people you hire are better than the people you just fired. Ideally firing the worst people improves the reputation of your company, so when you come around to hiring more better people want to work for you (the management consultancies like McK and BCG are good examples of this in practice) so you get better.
But if you can't hire replacements better than the people you fired, that's when you need to stop the practice.
"Well statistically half your employees by definition are sub-par."
Not at all. First of all, 'par' doesn't mean the average of the skill levels of your employees. 'Par' could be 'satisfactory' or 'the average skill level of the market as a whole'. Your own employees should not be a random sample of the market - otherwise why do you have a hiring process? Your employees should be above average - otherwise your hiring process needs improvement.
And if you have a stand-out performer at either end of the scale, then that will skew the distribution.
Thoughts:
If you couldn't hire an A player in the first place, maybe you should think about replacing your hiring process or look to make improving people a strength? This improvement may even pay off on your hiring process in the future!
It's difficult/impossible to judge the effect on a group dynamic that one person can have by any realistic rating system. Whatever system you choose will have exceptions and problems and you'll do some damage to your organisation by following it.
"But if you can't hire replacements better than the people you fired, that's when you need to stop the practice."
No, I disagree. Firing people and hiring them has cost. Your true indicator is 'if the risk of damage to your business caused by churning your employees and potentially not replacing them with much better candidates represents a larger lost profit than improving your staff (cheaper than hiring new), then you should stop trying to manage by silly quantitative rules and display the judgment and management for which you profess expertise.
It promotes kiss ass mentality and the only people left are the ones who blindly follow the boss.
If a company ever needs to have Performance reviews, 360 degree reviews are good. The manager also gets to be reviewed by the subordinates anonymously and quickly every one knows where the trust is missing. This eliminates all the managers who are promoted by randomness, and really do not have any leadership skills but politically survive.
Rarely Performance reviews are conducted for good intentions, they are a tool to conduct lay offs and pocket million Dollar bonuses to executives who can show this as money saved.
Even 360s are terrible the higher up you get in the company. Big Big Boss (BBB) will not fire Big Boss (BB) no matter how many subordinates say BB is bad because in many cases BB is doing BBB's dirty work.
In flatter corporate structures, it's very likely that BB is the founder/owner/board member and so they're not going to go no matter what the feedback is.
The're terrible even at the bottom. The problem with 360 reviews is that writing reviews of your co-workers is excruciating, and the more inclined you are to be critical, the worse it is. It's essentially impossible to be honest without making people you have to work with every day unhappy, so I spend most of the time trying to think up nice things to say while not being completely dishonest. (And therefore I distrust the nice things they say about me.) I can't think of anything less likely to promote honest communication.
Problem with 360s: at least in my experience, I've never seen people "done in" by their direct boss, because the boss wants has too much of a stake in the performance of those below him to be a total jackass. It's middle management and influential co-workers (people who are technically same-level but have more influence over those with power) that you have to watch out for. Much more common than the caricatured asshole boss (a rarity in my experience) is the "too nice" (often overburdened) hands-off boss who inadvertently leaves newbies to be eaten alive by co-workers. 360s are just going to make that sort of Lord of the Flies environment more common and harsher.
As much as I hate performance reviews, from my limited experience with them, I'm not sure they are bad for business. I mean if you're doing a tedious job there's an obvious conflict of interest: you, the worker, want to relax to make the work more bearable; they, the employers, want as much work to be done as possible, no matter how boring it is. What's the point of pretending otherwise?
Now, I quit my last job partly because of this. I'd say on one hand its their loss because a) i contributed lots of helpful ideas/processes, b) if nobody ever sticks around they wont have long-term, 'expert'/veteran staff, who are very important. However, perhaps good ideas always tend to come in with new employees, and perhaps a high turnover of staff ensures they only need to pay the entry-level wage, while they also want to minimize future reliance on veteran staff. I can't call it myself.
I've actually been hoping that a formal review process will be put into place soon at my current company, and I've been asking my boss(es) about it regularly. This is because I was under the impression that a formal review is the only way for me to get a raise. From that perspective, it's definitel in the company's best interest to dodge this as long as possible: upon reviewing me, they either have to tell me I don't deserve what I think I deserve, or they have to pay me more.
Is my understanding of the process wrong? Granted, this isn't a GE kind of company-- we have employees in the hundreds, not thousands-- so hopefully it's different.
This is because I was under the impression that a formal review is the only way for me to get a raise.
This seems rather directly mistaken. If you feel you deserve a raise, communicate this directly, rather than artificially putting a formality in the way.
upon reviewing me, they either have to tell me I don't deserve what I think I deserve, or they have to pay me more
I think it's pretty safe to say this is a false dichotomy. A formal review could tell you all sorts of things, none of them having anything to do with money. Absent some kind of clause in an employment contract, they don't have to do anything.
Interesting, thanks for the advice. I guess I was basing my assumptions on the experiences friends have had at larger firms, where all the salary changes were relegated to yearly reviews.
This is my first time working at a company with more than 40 people, so it's all been a learning process. Glad I asked about raises here-- otherwise, I probably would've waited till my first year was up, only to be disappointed!
They could always come back and say, "while we certainly think you deserve a huge raise and I'd really love to give you one, we unfortunately can't for all kinds of complicated budget and HR reasons". I know I've had that happen to me.
At my previous job, I had a yearly performance review. It was that time of the year where my boss told me that he's glad to have me around, but that I should try to keep the procastrination under control. I really liked that. A serious, but amicable conversation, valuable in spite of the red tape.
I like a somewhat formal statement on whether people think I'm doing a good/bad job. It's also ammo when you're asking for a raise.
It's certainly not suitable to the startup model, but that's not what this article is about.
By having a fixed distribution isn't management pre determining that a certain percentage of the employees are sub par performers? If they believe that's the case shouldn't they be actively trying to solve that problem? Shouldn't they expect everyone to be giving outstanding performance?