IN THE LEAD: Ranking Systems Gain Popularity but Have Many Staffers

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IN THE LEAD: Ranking Systems Gain Popularity but Have Many Staffers Riled
By Carol Hymowitz

05/15/2001
The Wall Street Journal
B1
(Copyright © 2001, Dow Jones & Company, Inc.)

MANY CHIEF EXECUTIVES, from General Electric's Jack Welch to Enron's Jeffrey
Skilling and Ford's Jacques Nasser, swear by the process. Many of their
employees swear about it.
It is known as the performance review ranking system and it requires managers
to rank employees against each other on a bell curve. At GE, which has used
the system for several years, this means that 20% of salaried, managerial and
executive employees are rated outstanding each year, 70% "high-performance
middle" and 10% in need of improvement.
At Enron, where some have nicknamed the system "rank and yank," employees are
put in one of five categories: 5% are identified as superior, 30% excellent,
30% strong, 20% satisfactory and 15% "needs improvement."
And Ford, which began using rating systems last year, dictates that 10% of
the auto maker's 18,000 managers will get A grades, 85% Bs and 5% Cs.
(Initially, it asked for 10% Cs.) Those who receive a second consecutive C
can be fired.
Executives who aim to improve their staffs' performance and weed out deadwood
say the grading systems force their managers to frankly assess and inform
employees about their work, and chances for promotions. Otherwise, they say,
managers tend to push along poor performers with deceptively inflated
reviews.
"Not removing that bottom 10% early in their careers is . . . a form of
cruelty because inevitably a new leader will come along and take out that
bottom 10% right away, leaving them, sometimes midway through their careers,
stranded," GE Chairman Mr. Welch wrote in his annual letter to shareholders
in February.
THE GRADING SYSTEMS, however, are based on subjective judgments and often
produce skewed results, critics say. Employees who belong to a particularly
talented or productive unit, for example, may receive poorer grades than they
would get in a less-talented unit. And while employees who are either
outstanding or weak usually stand out, trying to strictly quantify each group
can be a problem. "Once you start attaching a number or percentage to this
group, they no longer fit the definition of exceptional," says Mary Jenkins,
a Brighton, Mich., business consultant.
At the same time, trying to distinguish among the vast majority of employees
in the middle who rates a three and who rates a four, for example, may be
impossible. "There's an assumption that a manager can know the precise
performance level of an employee, when this sort of ranking is really a very
subjective judgment that depends on many factors," says Tom Coens, an East
Lansing, Mich., labor attorney and co-author with Ms. Jenkins of the book
"Abolishing Performance Reviews."
Among these factors are a manager's own biases about the qualities he values,
and the fact that management is so often in transition. Also, ranking by a
single grade tends to blur the range of talents and deficits within one
person.
Moreover, the grading systems pit employees against each other, undermining
teams, which are often intentionally put together with varying talents in
mind. In Internet chat rooms, scores of employees complain they've been
graded unfairly, feel angry and unappreciated, and don't want to collaborate
with co-workers with higher grades.
The grading systems also have triggered employee lawsuits at Ford, Conoco and
Microsoft. One class-action lawsuit filed against Ford in February alleges
that the grading system discriminates against older workers. A second suit
alleges it discriminates against older white males.
DEFENDING THE SYSTEM as fair and necessary in a competitive industry, Anne
Marie Gattari, a Ford spokeswoman, says that in the past employees "weren't
given honest and frank feedback that they could use to improve themselves. It
wasn't a good system for them as much as it wasn't a good system for the
company." But some Ford employees in their 50s and older who received Cs
believe the grading system is a way to get rid of them.
"They've gotten excellent written evaluations for years and all of a sudden
they get a C," says Michael Pitt, a Royal Oak, Mich., attorney who is
representing nine Ford employees.
Even employees who have received high grades question their value. Steve
Carpinelli, a former research analyst at EDS, says he was graded in the top
1% of his peers, yet was laid off about 18 months ago when the company cut
staff and dissolved his business unit. "It was confusing because no one ever
clearly communicated what the ratings would be used for," he says.
An EDS spokesman, noting that more than 13,000 jobs were cut in the
reorganization, said, "Unfortunately, even for some good employees, there
were not always other positions available."
Defenders of grading systems acknowledge that their fairness and usefulness
depend largely on how they are implemented. GE initially assigned employees
one of five grades but streamlined that into three grades. "We had a system
where 90% of employees felt demoralized," says Bill Conaty, senior vice
president of human relations.
GE tries to make sure the bulk of managers who fall in the middle ranks don't
feel demoralized by rewarding many of them with stock options. "These people
may not be highly promotable but they may be your best plant manager or your
best design engineer," he says.
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