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Motivating workers - Ranked and yanked

Firms that keep grading their staff ruthlessly may not get the best from them

Nov 16th 2013 | NEW YORK |From the print edition

Mayer: who s for the chop next?

IT IS a brutal management technique in which bosses grade their employees

performance along a vitality curve and sack those who fall into the lowest

category. Known as ranking and yanking , it had its heyday in the 1980s and

1990s. In America its popularity faded somewhat after it was seen to have

contributed to the fall of Enron. Now it is back in the headlines.

On November 8th All Things D, a tech-industry website, reported that Yahoo

staff are increasingly unhappy about a quarterly performance review introduced

last year by the new boss, Marissa Mayer. The grading exercise is said to have

cost 600 of them their jobs in recent weeks.

Four days later, Microsoft announced that its own, equally unpopular system was

being scrapped. In a memo, Lisa Brummel, Microsoft s head of human resources,

said there would be no more ratings and no more curve . The firm would

implement a fundamentally new approach , designed to encourage teamwork and

collaboration.

Many firms, from Amazon to PwC, still use some version of what management

theorists also call stack ranking to sort the sheep from the goats in their

workforce. However, many of them enforce it more flexibly than seems to have

been the case at Microsoft or Yahoo. Even General Electric, which pioneered the

technique during the uncompromising reign of Neutron Jack Welch (GE s boss

from 1981 to 2001), has since softened its approach.

The reason such gradings have not died out entirely is because employers still

need to find ways to fairly evaluate their employees and have a basis for

compensation differences, says Robert Kaplan of Harvard Business School. This

is especially true when there is a wide gap between the remuneration of top

performers and the rest. To avoid lawsuits claiming unfair discrimination,

firms need to be able to show they have a clear basis for decisions on pay and

bonuses.

Ranking and yanking is more logical in investment banks, law and accountancy

firms and big consultancies: their business model is, in a sense, built on

recruiting large numbers of junior staff and motivating them with the prospect

of becoming a partner, even though in practice only a few of them can ever make

it. In other types of business, the evidence suggests that it may work at

first, if a firm needs to cut away dead wood (as Ms Mayer seems to think

necessary at Yahoo). But the benefit can disappear and turn into a cost if the

ranking and yanking is done repeatedly, says Denise Rousseau of Carnegie Mellon

University. You can quickly end up with the people in the bottom quartile

being average performers rather than poor performers, she notes. There is

nothing wrong with being average in an above-average workforce. A lot of good

work is done by average people.

If a large proportion of the workforce doubt the fairness of the grading

system, and fear being among an arbitrarily imposed quota of underperformers ,

many may try to jump before they are pushed: staff turnover may thus be higher

than is desirable. Worse, employees may look for ways to game the system, as

happened at Enron, where workers conspired to inflate their results to secure

their bonuses or escape the axe. That is not the sort of teamwork and

collaboration that is wanted.