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honestyOne of the most difficult managerial tasks is providing honest feedback to employees, especially for new managers. Providing objective feedback, delivering the feedback in an appropriate manner, and being able to handle the employee’s reaction takes hours of preparation and can be anxiety producing. This is so difficult that many managers avoid providing honest feedback like the plague. Unfortunately, assessing the strengths and weaknesses of employees is critical to implementing many human resource tasks like compensation plans, succession planning, employee performance appraisals, training plans, and promotions.

Importance of Honesty in the Workplace

Knowing the importance of honesty in the workplace, I have read with concern the news that Microsoft is dropping forced ranking and that Yahoo is taking a lot of heat for adopting a new system that forces managers to rank workers on a curve. Throughout my career I have used forced ranking and found the process to be invaluable in every organizational transformation. The main reason: you can’t change a culture and improve organizational performance unless manager’s are forced to provide honest feedback.

Let’s face the facts – not everyone can be average and a performance curve exists in every organization. This fact was established for me with a simple exercise – the quarterly rating of every employee in a union factory on a scale of 1 to 10. After conducting this exercise over 5 years and 2 different factories, some basic trends emerged which I called the 5-85-10 rule.

  • Five percent of our employees were very poor performers.
  • Ten percent were star performers.
  • The rest—eighty-five percent—were giving a range of acceptable effort.

I provide more detail in my “Fair is not equal” post, but we rated everyone because we believed that treating everyone alike was not the same as treating them fairly. Since there was very little riding on the ratings – raises, promotions, and layoffs were all mandated by the union contract – we received honest assessments. However, a funny thing happened when we implemented the same concept for non-union, professional staff. The ratings became inflated. Everyone was exceptional.

It was obvious to me that we weren’t being honest with ourselves or our employees. We needed to be able to distinguish performance and tell people where they stood. The best way to force honesty in the workplace was by implementing forced rankings. We did not implement this to create a cut-throat environment, to layoff the lowest 10% of employees each year, or force people to quit. No, the main objective was to force honesty.

Misuse does not negate proper use

As I read the many reasons why people hate the idea of forced rankings, I mainly see poor implementation of a good process. However, as one of my mentors used to say “Misuse does not negate proper use”. Listed below are the 6 most common misapplications of forced ranking and how to overcome them.

Misuse #1: Forced ranking in a small work group

The most common complaint comes from managers that have a small, hand-picked group. Their issue is that in a small elite group of 10, there is no way that 1 of them should be labeled as a poor performer. They are right. Forced ranking in a small workgroup doesn’t make sense. Just like we were taught in statistics, the performance curve only holds with large groups. We always conducted our forced ranking at an organizational level where there were at least 30 employees.

Misuse #2: Everyone in the lowest 10% is terminated

For many organizations, being in the lowest 10% is the corporate equivalent of a death sentence – those employees are fired. However, it’s important to remember that the purpose of forced rankings is to drive honesty in the workplace. An honest assessment of strengths and weaknesses. Honest identification of training needs. Honest discussions on objectives and performance against those objectives. So, the lowest 10% are not always candidates for termination. But those employees do deserve to be told how they are doing and given an action plan on how to get better. Managers owe their employees that level of respect.

Misuse #3: Forced Ranking without a career potential ranking

I always used a forced distribution of 10 – 70 – 20 when ranking performance. The idea of grouping 70% of an organization in the same bucket just doesn’t seem right. There are some really good people in that category and the inability to identify these employees can lead to problems. Rather than create more performance categories, we a9 Box Griddded a “potential” axis to identify limited, medium and high potential employees. This ‘9-box grid’ helped us identify the highest performers and those employees that showed potential for future career growth. The results were incorporated into succession plans with recommended training and job opportunities to achieve that potential.

Misuse #4: Forced ranking only conducting on an annual basis

Conducting the forced ranking once a year defeats the purpose of providing honest feedback. Peter Block summed up how absurd it is to provide feedback once year with this story:

Open and honest communication is an important part of any relationship. Imagine what would happen if you only spoke to your spouse on an annual basis and told them how they were doing. It clearly wouldn’t turn out well. So why only provide feedback to employees once a year?

Clearly, creating a culture of open and honest communication required more than an annual performance review. We established a human resource development council to discuss the results of the forced ranking / potential exercise between 3 and 4 times per year. We identified activities to move people out of the bottom 10% and the training and developmental assignments to prepare high potentials for future leadership roles. A side benefit was that we were providing feedback throughout the year, even between council meetings.

Misuse #5: Forced ranking used only to determine layoffs

Laying off people is a stressful task. Using the forced ranking only for this inherently terrible task is guaranteed to leave a negative perception of the process (especially when applied uniformly to small groups as noted in Misuse #1). The other problem is that the lack of honest feedback throughout the year often results in an employee being “surprised” by the layoff because they never received honest feedback on their performance. These ongoing reviews of the bottom 10% clearly communicates to the employee that their performance is off. If a layoff becomes necessary, at least the employee knew ahead of time that their job may be in jeopardy if they didn’t improve.

Misuse #6: Forced ranking not used to determine annual incentives

Lastly, many organizations conduct the forced ranking as a stand-alone process and do not incorporate the results into the other human resource processes – like determining annual pay increases and incentives. Unfortunately, annual merit increases have been small across the board and many managers take the easy way out and allocate merit increases equally. Top performers should get top rewards and the forced rankings facilitate that process.

Best Available Tool for Honesty in the Workplace

In a great article “A CEO’s passionate defense of stack ranking employees”, David Calhoun CEO of Nielsen Holdings was asked if he would eliminate stack rankings, if in theory, he could find another way to guarantee that a manager holds an honest discussion with employees. “It would be great,” he says. “I just haven’t figured out the other way.”

Forced rankings are not perfect and it takes some effort to implement properly. But your employees deserve it. Like David Calhoun, I’ll take an honest culture, even if forced, any time.