Rank and Yank performance appraisal system was first implemented by Jack Walsh as a Chief Executive Officer (CEO) of the General Motors Company. The concept of the forced ranking approach to managing labor in the companies since then has received a lot of attention in academic and business literature. While the approach allows developing a number of measures on a personal and professional side and evaluates the individual performance of employees, a lot of critics of the approach argue that the negative outcome of the Rank and Yank approach is the creation of the working environment built upon competition and demotivation in a long term. Many companies have implemented the approach over the past two decades. The appraisal system still continues to be one of the commonly accepted among a number of large international organizations. The historical development of Human Resource Management (HRM), however, outlines the conflict related to this approach. The Ford case, which imposed a payout of over USD 10 million as a result of a class action is one of many examples, signalizing the issues and challenges associated with forced ranking approach.
QI: Opinion of Forced Ranking
Modern organizations are subject to many influences and the competition on the markets is significantly more complex than it was several decades ago. This complexity is a result of globalization and growing size of the organization. International mobility and increased opportunities for the companies to improve their cost structure through global supply chains, organic and inorganic growth to new markets and other sides of the business, make HRM more important and transform this function from supportive and informative, to facilitating and strategic element of organizational long-term planning (Swanson and Elwood, 2009).That said, companies should look for the ways to improve collective output and productivity through raising and controlling individual performance and increasing the motivation of employees. At the same time, the focus of HRM should be on retention rates of essential skills and competencies. Forced ranking system is one of the models that address this relationship, between individual and collective performance and incentive-based pay, if properly built and adequately addressing performance can b extremely effective in reaching this goal. Importantly, it should focus on rewarding performance rather than punish employees.
QII: Performance Judgment
Behavioral-based ranking can be absolute and relative rankings. The purpose of the relative ranking is to position individuals in comparison to each other across the hierarchy of performance, based on a set of universal measures. One can argue that the absolute ranking, therefore, is wrong and cannot offer an effective solution to raise collective productivity through improving individual performance. The reality is that relative rankings can be extremely confusing in measuring the performance of individuals as the "above average" can have the different meaning to each of the employees. The absolute ranking, at the same time, offers an advantage to evaluate and measure the evolution of individual performance in time, based on personal and personalized goals (Lipman, 2012). With that in mind, it is possible to argue that both, relative as well as absolute ranking have their pros and cons and absolute ranking is not a wrong approach, but rather complementary to the relative standards.
QIII: Choice of Ranking System
As a manager, I believe it is critical to understand the common measures of performance and be able to compare the output of individuals relative to each other. At the same time, a good management system is based on recognition and acceptance of diversity, which means that managers should recognize that "average",above average" and "below average" are not the universal measures and they should respect individual learning, work and social approaches and characteristics of employees. With that in mind, I strongly believe that only mixed approach, which has a set of complex hierarchical relative measures as well as individuals goals, based on employee's needs and potential can build on effective incentive-based performance appraisal system (Henemann and Werner, 2005).
QI: Differentiation Among Workers
Finally, a lot of attention was given to the discussion of universal performance appraisal system, which could offer a “fit-for-all” solutions to all the companies across the industries. The academic and business world, however, provide numerous examples and reasons for the conclusion that such system does not exist. I second this opinion and would argue that each company is unique in terms of its culture, desired output and relationships on corporate, individual and group level. With that in mind, it is important that the performance system reflects this culture and aligns the organizational goals with individual objectives. Importantly, it should address the retention and motivation of employees as much as individual performance in order to be effective for a given company (Sims,2007).
Key Learning Points
Based on the learning and experiences gained during the course, it is possible to outline the two major learnings. First of all, HRM is not an exact science as it deals with individuals. This means that building on successful performance management system and effective and sustainable operations companies, HRM should be flexible in the response to internal and external trends and dynamic to help align group and individual needs. Second learning is diversity. It is critical to understand that contemporary business environment reflects the diversity fo the world affairs in general. Companies have to address this diversity internally (employment relationships and strategies) as well as externally (dealing with business environment in different countries and cultures). Performance appraisal system should become an effective tool to address and benefit from individual differences, competencies and experiences and, thus, should include absolute as well as relative measures (Lipman, 2012). These two areas are the core learnings, which will further draw on the path of analysis and exploration of the HRM field and the variety of challenges and potential strategies.
References
Lipman V.. (2012). The Pros and Cons of Forced Rankings: A Manager’s Perspective. NBER Working Paper. Cambridge: National Bureau of Economic Research [Online]. Retrieved 11 June 2016, http://www.forbes.com/sites/victorlipman/2012/07/19/the-pros-and-cons-of-forced-rankings-a-managers-perspective/#72a9d8757c28
Heneman R. and Werner J. M. (2005). Merit Pay. Linking Pay to Performance in a Changing World. 2nd Edition.Greenwich: Information Age Publishing. Print.
Swanson R.A. and Elwood F.H.. (2009). Foundation of Human Resource Development. 2nd Edition. San Francisco: Barret-Koehler.
Ronald R. Sims. (2007). Human Resource Management. Contemporary Issues, Challenges, and Opportunities. Charlotte: Information Age Publishing.
