Forced Ranking

Forced Ranking in the Workplace: Hidden Costs and Better Options

Forced ranking continues to be a controversial yet enduring performance management approach. At least 20% of Fortune 1,000 companies still use this method. A recent Deloitte Consulting LLP survey revealed that 58% of business and HR leaders believe their current performance appraisal processes fail to boost performance or employee engagement.

This piece dives deep into forced ranking systems and their differences from traditional stack ranking methods. The system categorizes employees into predetermined groups – top 20%, middle 70%, and bottom 10%. This rigid structure requires managers to identify underperformers even in high-performing teams.

The collateral damage becomes evident quickly. Critics highlight how “you lose your winners and win your losers”. The system fails to encourage teamwork and instead creates rivalry among colleagues. The fundamental issue emerges from the relative evaluation system where “when my performance is to be evaluated relative to yours… it is hard for me to genuinely cheer for and support your success”.

What is Forced Ranking and How Does It Work?

The term “forced ranking” might sound technical, but it’s pretty simple. Managers compare employees against each other instead of measuring them against set standards. Jack Welch at General Electric started this approach in the 1980s. Today, it’s a popular way to evaluate employee performance in organizations worldwide.

Definition of forced ranking system

Forced ranking lets companies rate employees based on how they perform compared to their coworkers. Traditional systems measure people against fixed goals. This system pits workers directly against their peers. It creates competition where employees land in specific performance groups whatever their actual performance level.

This system has a clear goal – to spot top talent, give rewards based on performance, and tackle poor performance. Companies also use it to cut down on favoritism and boost productivity through competition.

The system really took off during Welch’s time at GE, where people called it the “rank and yank” approach. Managers spent a lot of time doing yearly reviews to rate employee performance. Even though many people don’t like it, about 10% of Fortune 500 companies still use some version of this tool.

How it differs from stack ranking

People often think “forced ranking” and “stack ranking” mean the same thing. The truth is these performance evaluation methods have small but key differences.

Forced ranking makes managers put employees into preset performance groups with fixed percentages. The system doesn’t bend much. A certain percentage of employees must be labeled as underperformers, even if everyone does great work.

Stack ranking works differently. It creates a simple list from best to worst employees. Both methods compare people against each other rather than fixed goals. Stack ranking doesn’t force specific distribution percentages. In spite of that, both systems need someone at the bottom, no matter how well they perform.

Stack ranking’s ratings follow a bell curve. Forced ranking uses preset groups with specific percentages. Both ways look at how employees stack up against their coworkers instead of individual goals.

Forced ranking scale and templates

The “20-70-10” model leads the pack as the most common forced ranking scale. Here’s how it breaks down:

• Top performers (20%): These employees crush their targets and bring fresh ideas to projects. They usually get promotions, bonuses, or stock options.
• Middle performers (70%): Most employees land here. They do their jobs well but don’t really stand out. Small raises or chances to grow might come their way.
• Low performers (10%): These employees keep missing their targets even after getting help. They often face improvement plans or might lose their jobs.

Some companies use different names – like groups A, B, and C – but keep similar percentages. Welch’s model says “A” players have lots of energy, fire up other people, make tough calls, and get things done.

The process usually works like this: Teams compare members, do performance reviews, and place each person in their group based on set rules. These results help decide rewards, growth plans, or disciplinary steps.

Some people hate it because it can hurt morale and team spirit. Others say forced ranking still works great to find star performers and fix poor performance if you do it right.

Types of Forced Ranking Systems

Image Source: AIHR

Companies use forced ranking systems differently to evaluate how well their employees perform. Jack Welch made this concept popular at General Electric in the 1980s, and organizations have adapted this simple model to match their needs and workplace culture.

Top 20%, Middle 70%, Bottom 10% model

The classic forced ranking model, known as the “vitality curve,” puts employees into three categories based on how they perform compared to others. Jack Welch at GE created this approach with a set distribution:

• Top 20% – These “A players” are the company’s most valuable talent. They show high passion, get results, welcome new ideas, and have room to grow. They have what Welch called the “four Es” of leadership: high Energy levels, knowing how to Energize others toward shared goals, the “Edge” to make tough decisions, and the skill to Execute plans consistently. These employees often get promotions, bonuses, and stock options.
• Middle 70% – The “vital B players” are the company’s foundation. They might not be visionaries or highly driven, but they matter because they make up most of the workforce. These reliable performers meet expectations without standing out. They usually get modest raises and chances to improve their performance.
• Bottom 10% – The “C players” fall short of company standards. These employees often “enervate rather than energize” teams and tend to procrastinate and break promises. Companies often put these workers on improvement plans or let them go.

Most employees fall in the middle of this bell curve, with smaller groups at the top and bottom.

Rank-and-yank approach

The rank-and-yank method takes a tougher stance on forced ranking. Companies using this system let go of a fixed percentage of employees—usually the bottom 10%—during each review cycle.

The name tells the story: managers rank employees against each other, then “yank” (remove) the lowest performers. This method assumes that replacing poor performers with potentially better talent will make the organization stronger.

Jack Welch promoted this approach strongly. He believed it helped both the company and employees by removing people from situations that weren’t working out. Critics say it creates a competitive environment where people focus on beating their colleagues instead of working together.

Several big companies have tried versions of this method. Amazon uses “Organization Level Review” meetings where managers discuss employee rankings in sessions that feel like “getting ready for a court case.” The company aims to remove the bottom 6% each year through what they call “unregretted attrition.”

Hybrid and flexible models

Many organizations now use more balanced approaches that combine ranking with other evaluation methods, knowing the drawbacks of strict forced distributions.

These hybrid models keep some comparison elements while adding:

Qualitative feedback – These systems look beyond numbers to include detailed notes about employee strengths, weaknesses, and growth opportunities.

Flexible distributions – Some companies use “loose curves” instead of fixed percentages. They don’t require exact numbers in each category or specific actions for lower-ranked employees.

Development focus – Rankings help identify ways to improve rather than just determine rewards or firings.

Some consulting firms adjust their ranking curves based on team makeup and performance context. Google created a stacked ranking hybrid that spots promotion-ready employees without hurting those ranked lower.

These changes keep the benefits of seeing performance differences while reducing negative effects on employee wellbeing, teamwork, and company culture.

The Hidden Costs of Forced Ranking

Forced ranking systems come with hidden costs that many overlook, despite their apparent benefits. These negative effects can end up weakening the very performance improvements they want to achieve.

Employee morale and trust suffer

Research by the Institute for Corporate Productivity shows companies using forced ranking systems saw a 14% decline in employee engagement scores compared to those using other evaluation methods. This drop shows how deeply these systems shake workplace morale.

Workers placed in lower categories feel stuck and undervalued, even when they do their jobs well. The stress touches everyone, not just those at the bottom. Even top performers worry about keeping their position. This creates constant anxiety instead of lasting motivation.

The damage runs deeper when managers distance themselves from evaluations by telling staff: “I know you’re not really a bad performer, but I have to pick someone, and you drew the short straw”. Such behavior ruins the appraisal system’s credibility and erodes staff’s trust in leadership.

Internal competition takes over

The system turns colleagues into rivals instead of teammates. Modern organizations need knowledge sharing and teamwork, so this shift hurts their performance substantially.

One expert puts it plainly: forced ranking “produces a workforce where you lose your winners and win your losers”. People hold back from helping others since it might improve someone else’s standing at their expense. Team members become reluctant to train others, share information, or work together effectively.

The workplace often turns toxic. Staff focus more on making others look bad than improving their own work. Office politics and negative relationships grow as workers try to make their colleagues look worse.

Bias and favoritism creep into evaluations

The system’s subjective nature opens doors to various biases. Here are some concerning facts:

• All but one of these performance management systems fail to identify top performers correctly
• A single manager’s opinion, given once a year, often determines rankings
• Personal bias, favoritism, and office politics can affect the process

Rankings often reflect personal priorities rather than actual performance without proper checks. Managers might favor certain employees for reasons unrelated to their work quality.

Legal risks and discrimination suits emerge

The legal risks these systems create worry organizations most. Microsoft, Capital One, and Ford have faced discrimination lawsuits tied to their forced ranking systems.

Legal experts note that “the bottom bucket tends to fill up with minorities and women and people over 40”. Both Goodyear and Ford dealt with federal lawsuits claiming their systems discriminated against older workers.

Yahoo faced allegations that called their performance rating system “a tool of terror” open to discriminatory manipulation. Employees claimed the company used terminations to hide mass layoffs without proper WARN Act notices.

The system itself isn’t illegal, but it raises legal concerns when it affects protected groups differently. As one lawyer noted, “you’re asking for trouble—legally, and more importantly, in workforce morale and productivity”.

How Forced Ranking Affects Team Dynamics

Research studies show that forced ranking systems hurt team performance. Teams take longer to finish tasks under these evaluation methods. The drop in productivity mainly comes from changes in how people work together when they’re compared against each other.

Breakdown of collaboration and teamwork

Scientific evidence shows that forced ranking reduces knowledge sharing among team members by a lot. People become less willing to help others when they know they’ll be measured against their coworkers. A study found that teams shared less knowledge when evaluated through forced distribution systems compared to other performance metrics.

There’s another reason – employees pick weaker teams on purpose to boost their chances of getting better rankings. A former software developer put it this way: “If you were on a team of 10 people, you walked in the first day knowing that, no matter how good everyone was, two people were going to get a great review, seven were going to get mediocre reviews, and one was going to get a terrible review”.

The outcome? Teams care more about beating each other than external competitors. Another employee said it clearly: “It guides employees to focus on competing with each other rather than competing with other companies”. Yes, it is common to see people holding back knowledge, undermining colleagues, and avoiding help that could improve a teammate’s position.

Survival mindset vs. growth mindset

Experts say forced ranking creates a “fixed mindset culture” where companies believe some people have naturally superior talents. This approach values natural brilliance over continuous improvement. The environment encourages:

• Employees who think only about surviving day to day
• Less risk-taking with new ideas that might temporarily lower performance
• Leaders who unconsciously support people fitting their existing mold while holding others back
• Managers who care about “visibility” more than actual improvement

Growth mindset cultures take a different approach by encouraging continuous learning and development. Microsoft’s transformation under Satya Nadella shows this fundamental change. The company moved from a “know-it-all” to a “learn-it-all” culture based on Carol Dweck’s research. This change welcomed experimentation, inclusivity, and teamwork—and ended up tripling the company’s market value.

Examples of toxic workplace culture

Microsoft’s old stack ranking system perfectly shows how forced ranking affects team dynamics. Kurt Eichenwald described the system as creating competitive sabotage that killed motivation, reduced breakthroughs, and built mistrust between management and colleagues.

Other major corporations saw similar issues. Their “calibration” process (ranking employees behind closed doors) made employees focus on political visibility instead of getting better at their jobs. Former Microsoft engineer Brian Cody shared: “I was told in almost every review that the political game was always important for my career development. It was always much more on ‘Let’s work on the political game’ than on improving my actual performance”.

These toxic workplaces come with a big price tag. One study found that toxic culture from practices like forced ranking cost U.S. employers nearly $3.8 trillion yearly before the pandemic. Research during the Great Resignation of 2021 showed toxic corporate culture was 10.4 times more likely to make people quit than compensation issues.

The system creates what experts call a “cutthroat competition” environment. Team dynamics change from working together to just trying to survive—a change that defeats the system’s purpose of improving performance.

Real-World Forced Ranking Examples

Major corporations have tried forced ranking systems with mixed results. We examined these real-life examples to learn about the appeal and pitfalls of this controversial performance management approach.

Case study: GE and the Welch model

Jack Welch, former CEO of General Electric, created what became the gold standard for forced ranking implementation. His “vitality curve” sorted employees into three categories: top 20% performers, middle 70%, and bottom 10%. Welch strongly defended this system throughout his tenure. He argued, “Why are grades OK from the time that you’re in fourth grade to the time you’re getting your MBA, but not OK once you’re an adult?”

Welch’s philosophy stressed the need to distinguish among employees. He insisted that “failing to differentiate among employees — and holding on to bottom-tier performers — is actually the cruelest form of management there is”. GE removed the bottom 10% annually under his leadership. He believed this practice helped both the company and people who weren’t thriving in their roles.

Problems emerged beneath the apparent success. GE had developed a vulnerable culture by the end of Welch’s tenure around 2001. The company moved away from strict ranking toward team-building after his departure.

Case study: Goodyear and legal backlash

Goodyear Tire & Rubber Company in Ohio used an “A-B-C” forced ranking system. About 10% received As, 80% Bs, and 10% Cs. Employees with Cs couldn’t get merit raises and received warnings. Continued poor rankings could lead to demotions or termination.

Legal problems surfaced quickly. Jim Sykora, a 56-year-old tire engineer with many patents and decades of “good/effective” evaluations, became labeled a non-performer after two rounds of forced ranking. He and several colleagues sued Goodyear for age discrimination. They claimed the system unfairly targeted older workers.

Steven Bell, the plaintiffs’ attorney, noted there was “overwhelming evidence showing the grading system impacted a disproportionate number of ‘older’ workers”. Goodyear dropped forced ranking in 2002 due to mounting legal pressure.

Case study: Consulting firms and flexible curves

Consulting firms traditionally liked ranking systems but took more nuanced approaches. To name just one example, First Consulting Group planned to use a strict forced ranking system but chose a “loose curve” instead. This avoided strict proportions for each category.

Their modified approach combined rankings with traditional evaluations and project reviews to create a full picture. Managers and coaches spent about ten minutes discussing each employee’s performance. Each evaluator gave a numerical score that was then averaged.

Large consulting firms chose these flexible models to keep performance distinction benefits while reducing negative effects on collaboration and culture. This approach recognized that strict distribution requirements often hurt knowledge-intensive environments where teamwork drives success.

Better Alternatives to Forced Ranking

Many companies have moved away from traditional forced ranking. They now use performance management approaches that accelerate growth instead of competition.

Continuous feedback and coaching

Up-to-the-minute input through regular check-ins between managers and employees has replaced annual evaluations in continuous performance management. Organizations stay agile during rapid changes with this approach. Weekly one-on-one meetings help address problems while they matter. Managers become performance coaches rather than judges. Block (formerly Twitter) has abandoned annual reviews completely and adopted this ongoing feedback model.

Development-focused performance reviews

Development-oriented reviews put employee growth ahead of comparative evaluation. Employees should lead these conversations. The focus stays on identifying strengths and offering targeted support to improve. Companies that give employees space to grow see higher engagement metrics and creative output. A culture that promotes career advancement helps retain top performers.

Separating compensation from evaluation

Pay discussions and performance reviews work better separately to achieve their distinct purposes. Money concerns dominate attention and employees don’t deal very well with feedback when both topics mix. Companies achieve better results by spacing these discussions at least one month apart. This ensures compensation decisions look at broader factors beyond individual performance.

Using the forced choice method of performance appraisal

The forced choice method differs from forced ranking. Evaluators select from predetermined statements about employee performance. Scores remain confidential from raters to prevent bias. This creates a more objective assessment system while keeping structure intact. Regular feedback throughout the year makes this method particularly effective.

Conclusion

Many organizations still use forced ranking systems despite clear evidence showing their harmful effects. These systems were designed to spot top performers and tackle underperformance, but they create toxic workplace cultures. Competition replaces teamwork, and companies face growing legal risks from potential discrimination lawsuits.

The psychological toll on employees stands out as the most worrying effect. People working under forced rankings develop a survival mindset instead of focusing on growth, which ends up hurting state-of-the-art ideas and real teamwork. Research shows these systems don’t deliver their promised results. Instead of better performance, they lead to less knowledge sharing and more office politics.

Major corporations like Microsoft and GE learned these lessons the hard way and dropped their strict ranking systems. They now use more balanced performance management strategies. Companies need ways to review employee contributions, but better options exist. Continuous feedback, growth-focused reviews, and separate discussions for compensation and performance work much better.

Organizations should look at whether their current performance systems encourage the collaborative, state-of-the-art environment needed in today’s digital world. Companies that focus on employee development rather than strict comparative reviews don’t just avoid forced ranking’s hidden costs – they build workplaces where people truly excel. High performance comes from cultures that help every employee do their best work, not from fear of landing at the bottom of a ranking list.

Key Takeaways

While forced ranking systems promise to identify top talent and drive performance, they often create more problems than they solve, damaging workplace culture and hindering long-term success.

• Forced ranking destroys collaboration – When employees are ranked against each other, knowledge sharing drops significantly as colleagues become competitors rather than teammates.

• Legal risks are substantial – Major companies like Microsoft, Goodyear, and Ford have faced discrimination lawsuits, as these systems often disproportionately impact protected groups.

• Employee engagement plummets by 14% – Companies using forced ranking see measurable drops in morale and trust, creating survival mindsets instead of growth-oriented cultures.

• Better alternatives exist and work – Continuous feedback, development-focused reviews, and separating compensation from evaluation create healthier, more effective performance management.

• Top performers leave toxic environments – The “rank and yank” approach often results in losing your best talent while retaining underperformers who game the political system.

The evidence is clear: sustainable high performance comes from fostering collaborative cultures where employees can thrive, not from fear-based ranking systems that pit colleagues against each other.

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