Forced Distribution of Performance Ratings
Each performance management process has rules for managers and employees. One of the most criticized and controversial rule in many systems is the forced distribution (also called stacked ranking). Many organizations introduce the forced distribution because they want to reach the visible differentiation among the performance of employees in the entire business. GE in the era of Jack Welsh was the most famous user of forced distribution. GE was limiting each category, and it required managers to act on top and low performers. Today, most companies do not use the strict forced ranking, but they have at least limits on certain performance categories. The companies do not want to have the organization full of excellent employees if the business is underperforming.
Ranking of employees is the emotional part for managers. HR Managers do enjoy many discussions about the unfairness of the process for employees and managers. The system pushes managers to choose an employee, who is unlucky and his or her performance appraisal is “needs improvement”. No one makes any complaints about the requirement to choose the employee, who is better than the others.
Benefits of the Forced Distribution
The forced ranking has many benefits for the large organization. All costs are under a control. HR can make an exact estimate of the development because it knows the limits. The system sets the limits for managers. No exceptions are allowed.
The system makes differences among employees. The top players (A players) enjoy many benefits. Their careers are quick; their bonuses are high; they enjoy salary increases. They enjoy benefits at costs of other employees, who are not lucky to be "A players".
The system can produce a healthy pressure on employees. They are required to increase their performance. The "A" players have to develop their skills and competencies to stay at the top level. The employees clearly see that managers act on low performers in the team. It is a motivation for the rest to work hard.
Weaknesses of the Forced Distribution
The forced distribution can kill innovations in the organization. The employees do not focus on being innovative; they focus on being visible in the organization. The manager has to be informed about every step. The organization is full of presentations and status reports. Nobody reads them and follows. However, the reports and presentations exist, because they have to exist. No deliverables, no excellent performance rating.
The forced ranking usually depends on the visibility of the employee in the organization. The employee, who join many “important” meetings, has a higher chance to receive the excellent rating. Some people learn to live in the matrix quickly. They are always seen as stars, but they have no real results to prove it.
The forced distribution usually stops working after few cycles. The low performers are out of the organization, and the manager has to choose new low performers. The manager starts to rotate the low performance ranking or starts to protect the last low performer in the team. The same situation happens to "A players". The manager is worried to rank the A player as the B player.
The forced ranking can have a destroying impact on the friendliness of the corporate culture. Employees do not cooperate; they protect their ideas and do not share them with others. The team without inspiring discussion is not a functioning team.
Each HR leader should do a quick evaluation of the performance management system used in the organization. The forced distribution can help in the moment, when the organization has to make a quick turn-around. However, it should not be in place for a long time. It stops working.
The organizations focused on innovations should leave the forced distribution as soon as possible. They should utilize other modern ways of providing instant and quick feedback to employees. The forced ranking and innovation cannot exist at one place.
If your organization runs the forced distribution performance model for a long time, you should consider if inputs to other strategic HR processes are still valid.
You can download the presentation Forced Distribution. It is available in the PDF format. The PowerPoint and Keynote format will be available later.