QUESTION: I am appalled by the “pay for performance“ system recently implemented by my company, which has more than 10,000 employees. Forced rankings are used to assign performance review scores, so 60 percent of the staff must now be rated as “meets expectations.“ Only 10 percent are allowed to receive the highest rating of “outstanding.“
To place people in rating categories, each department holds a meeting in which the managers discuss their employees’ performance. Names are moved around until every category is filled. Even if there are many outstanding staff members, only 10 percent can get the top score.
I feel sure that all the managers will lobby for their own employees, so those of us who work for less persuasive or influential people are likely to lose out. What do you think about this approach?
ANSWER: Since most people agree that greater contributions merit greater rewards, “pay for performance“ makes perfect sense conceptually. The problem is that virtually everyone believes they are “above average,“ so lower ratings often trigger lengthy debates. To avoid these unpleasant arguments, many managers, left to their own devices, simply give higher ratings to everybody.
Forced rankings represent a logical attempt to require managers to differentiate among levels of performance. But while these standardized distributions work well across large populations, like your 10,000-employee company, they are completely invalid with small groups, such as a 10-person team. Trying to manage this contradiction can drive human resources people crazy.
Your company’s group ranking approach spreads the performance distribution across entire departments instead of applying it to each individual unit, which is a reasonable strategy for increasing validity. But, as you point out, assigning ratings through open discussion can easily create a “squeaky wheel“ bias.
If your boss seems to be a predictably feeble advocate, consider sharing this concern with your human resources manager. That may help to balance the scales, since the HR department is almost always involved in establishing final rankings. While your company’s new system certainly has both pros and cons, the same is unfortunately true of every other appraisal method.