Many companies have used 20-70-10 employee ranking or “stack ranking” as part of the process in performance evaluations. Some companies once viewed the process as the staircase for success.
Jack Welch used forced employee ranking at General Electric. He popularized the concept through his writing and consulting. In a “Bloomberg BusinessWeek article ‘The Case For 20-70-10’“, Jack and Suzy Welch explain the principle for ranking employees into performance categories.
The process of forced ranking includes firing the bottom 10%. Critics call this process “Rank and Yank.” Many critics state that “stack ranking” polarizes managers and employees and stifles innovation.
In more than one article, Forbes writers have discussed the reasons that the Jack Welch performance ranking may have worked at General Electric but stifled innovation at Microsoft. In an article titled, “Here’s to the Death of Microsoft’s Rank-And-Yank,” Forbes contributor Stephen R. Satterwhite writes about Microsoft’s decision to end the practice of forced ranking during performance reviews.
According to David Coursey in post on Dice.com, Yahoo, Amazon, and Google still use stack ranking.
Even though fewer companies use “rank stacking” today (read more via Forbes.com, Peter Cohan), most companies still do annual performance reviews.
According to Fortune/CNNMoney.com contributor Anne Fisher, only two percent of human resources executives say that yearly evaluations are actually useful.
On its company blog, Adobe published an article about its decision to drop annual performance reviews.
“The dreaded performance review? Not at Adobe.”
It’s the bane of managers’ and employees’ existence at corporations around the world — the annual performance review.
Adobe abolished its performance review system in favor of ongoing “check-ins.” The story of how it came about and the way it works is a perfect example of how Adobe does what makes sense regardless of trends — and winds up setting some new trends in the process.”
Adobe did a specific thumbs down on stack ranking.
“In most corporations, managers must divide employees into groups — for example, maybe 15 percent of people can be assigned the highest rating. Those ratings then determine salary increases. Employees are also typically ranked, meaning that every interaction with a teammate could be viewed as a competition rather than a collaboration.”
In conclusion, performance feedback is important. All companies do use some form of evaluations. Managers must direct employees to focus on the job and on ways to do a better job. The method of performance review should vary from company to company. Each company has different circumstances. For some companies annual reviews work well. For other companies such as Adobe, regular feedback alone works well. Many companies use a combination of methods for reviewing performance and giving employees feedback. Although some companies still use stack ranking in various forms, many companies have found that forced ranking of employees neither creates better employee performance nor gives an accurate of understanding of the skills and abilities of the total organization workforce.