Promoting and Firing Policy

Team B2
 Contents
• Introduction
• Names
• Method
• Ranking Curves
• Companies
• Benefits
• Deming’s System of Profound Knowledge
• Deming’s 14 points VS ‘Rank-and-Yank’
• General Critique
• Conclusion
• References
 General Electric Ranking Method
• Pioneered by Jack Welch in 1990s.
• It is described as a ‘major differentiation
tool’ to evaluate performance and
promotability.
• It is an annual process ranking employees
according to a 20/70/10 rule.
 “20/70/10 rule”
• This method is known with different names:

– Forced Distribution Rating System (FDRS)

– Vitality Curve
– Differentiation
– ‘Rank-and-yank’
– Top Grading
 Method
• The system is based on the premise that an
organization has to identify its best and worst
employees and reward the top ones with
development opportunities and bonuses,
whereas encourages the worst performers to
leave (Johnson, 2004).
• Less effective and capable people can be
replaced by new and more capable
employees who will ameliorate the overall
performance of the workforce (Community
Banker, 2005).
 Ranking Curves
It ranks employees
according to a curve: 20%
stars, 70% acceptable
performers, 10% non-
performers (Sedam, 2005).

Rewards top 20% in a way that

is both personally and
financially satisfactory, and
develops the 70% with training
and coaching, whereas it
eliminates bottom performers
(Welch, J. and Welch, S., 2006).
Companies
 Benefits GE gained

• Set apart the very best from the least effective

• Promote the effectiveness of the organization
• Facilitate succession planning, pipeline
building and leadership development
(GE Capital Solutions)

• 28x increase in earnings and a 5x increase in

revenue at GE between 1981 and 2001.
 Deming’s System of Profound
Knowledge

• Appreciation of the System

• Knowledge about Variation
• Theory of Knowledge
• Psychology
 Appreciation of the system
Cases For
• Talented team members
within the company, thus
results in better
performances
• Increase the average quality
of workforce
• Motivate employees to
work harder
Cases Against
• Rank-and-yank is weakening
the overall organization's
system
• Discourage teamwork by
encourage competition
within the organization
 Knowledge about Variation
Cases For
• It can be seen that special
cause variation (poor
performance) is being
identified and eliminated
from the process
• Leads to opportunity for
learning which in turn leads
to improvement in
workforce’s performances
Cases Against
• Not all people perform in the
same way
• Performance might be
improved after ranking
• The recorded values will not
be unchanging over time. They
will differ and vary.
• It’s no individual’s fault that
targets weren’t being
achieved; it was the system by
which they were trying to
achieve it
 Theory of Knowledge
Cases For Cases Against
• Improvement requires • Force managers to push out
change perfectly good employees
• Get rid of 10% lower- • Not value teamwork and co-
performers so better talent operation
can be brought in • Newly trained employees
• Encourage winning and might be ranked at the
doing good work bottom 10%
 Psychology
Cases For Cases Against
• People can get motivated • Considered as a cruel approach
• Performance relates to what
and improve their really motivates people
performance • Respecting the rights of people to
obtain joy in work and joy in
• A self-fulfilling prophecy learning
where people behave in a • Discourages the development of
way consistent to how we strong relationship between
employees
expect them to behave • Turned into a more political
system
• False ranking (subjective, bias,
favoritism)
 Deming’s 14 Points VS Rank-and-Yank
• Institute training on the job: Employees ought to be given more
flexibility and training to improve their skills, as opposed to being
fired should their performance falls in the lowest 10th percentile.
• Institute leadership: Management's job is NOT to supervise/
evaluate/fire but to institute leadership, whereby focus on the
outcome is shifted to focus on understanding and unlocking
people's motivation instead.
• Drive out fear: Employees fearing that they might not be ranked at
the average 70% or top 20% may prevent them from working
together effectively.
• Eliminate slogans, exhortations, and targets for the workforce: Most
poor productivity is caused by the system, and hence, beyond the
power of the workers to improve. Framing their performance upon
their self-portrait can insult the intelligence of the workers.
 General Critique
• Managers are not qualified to rank employees in
the first place (Sedam, 2005)
• This method might inflate evaluation in fear of
losing team members (Cutler, 2006)
• It should be implemented after a stable
evaluating process within the organization
• The 16% improvement would fall to only 2% after
6 years
– It should be deployed in a short-term period with a
maximum of 3 years prospect
• There are other methods for managing
performance and evaluating people
 Conclusion
• Since the 'differentiation' approach yields diminishing return
over the years, its unsustainability can result in companies
falling behind in terms of creativity and innovation. Workers
are discouraged to generate new ideas and try new things
because they risk some unsuccessful trials (seen as poor
performance) that eventually get them fired (Hughes & Halsal
2010).
• SoPK states that most poor productivity is caused by the
system. Hence, eliminating the employees does not necessary
help eliminating the poor performance. As a matter of fact, an
employee may be the scapegoat of the poor system of the
company, and if that employee is fired, the company risks
losing talent to its competitor.
 Conclusion
• In short, despite proofs from GE’s benefits of the
'differentiation' approach, in the long-run if a company thrives
to be sustainably competitive, it should promote learning,
eliminate fear from the workforce so employees can actually
start concentrating on real improvements, real innovation,
sharing of creative ideas; all of which will help retaining
talents, reducing costs in training new staff, and possibly lead
to higher job satisfaction.
• Alternative evaluation methods may include self-assessment,
peers-to-peers, etc... SoPK also advocates that performance
improvement may be better obtained through a strong
program of education and self-improvement.
 References
• Adrian H. & David N. H, (2002): Comparison of the 14 deadly diseases and the
business excellence model, Total Quality Management, 13:2, 255-263
• Anonymous, (2005a). 'Rank and Yank' Systems May Improve Workforce
Performance, Study Finds, Community Banker, 14, 4, p.64.
• Anonymous, (2005b). 'Rank and yank' benefits work force, Industrial Engineer,
37, 4, p.23.
• Cost of Firing: Why Employers are Reluctant to Fire Problem Employees, [Online].
URL: http://www.peo7.com/newsletter/newsletter9Issue.htm (Retrieved 4th Feb
2012).
• Cutler, G. (2006). Tom Tries "Rank-and-Yank" Appraisal, Research Technology
Management, 49, 2. p. 58-59.
• Employee Ranking Systems : Rank and Yank, [Online]. URL: http://performance-
appraisals.org/appraisal-
library/Employee_Ranking_Systems/Rank_and_Yank/more2.html (Retrieved 4th
Feb 2012) .
• Johnson, G., (2004). Forced Ranking: The Good, The Bad, And The ALTERNATIVE,
Training, 41, 5, p. 24-34.
• Kwoh, L., 'Rank and Yank' Retains Vocal Fans’, The Wall Street Journal [Online].
URL:
http://online.wsj.com/article/SB1000142405297020336350457718697006437522
2.html (Retrieved 3rd Feb 2012).
• MacLennan, A., Forced Ranking Time to dismiss this underperformer?, [Online].
URL: https://www.strategy-
execution.co.uk/sites/default/files/articles/forced_ranking.pdf (Retrieved 4th Feb
2012).
• PRISM Consultancy International, (2001-2005). Dr W. Edwards Deming’s System of
Profound Knowledge.
• Podia Consulting LLC, Forced Ranking: The Controversy Continues, [Online]. URL:
http://podiaconsulting.com/pdfs/forced_ranking_the_controversy_continues.pdf
(Retrieved 3rd Feb 2012).
• Sedam, S., (2005). Rank and Yank, Professional Builder, 70, 6, p.33-34
• The Organisation as an Organism, [Online]. URL:
http://www.e2consulting.co.uk/document/The+Organisation+as+an+Organism
(Retrieved 3rd Feb 2012).
• Vitality curve, GE Capital Solutions, [Online]. URL:
http://www.cefcorp.com/commequip/productsandservices/acfc/VitalityCurve.asp
(Retrieved 4th Feb 2012).
• Welch, J. and Welch, S., (2 Oct, 2006). The Case For 20-70-10, Bloomberg
Businessweek [Online]. URL: http://performance-appraisals.org/cgi-
bin/links/jump.cgi?ID=10613 (Retrieved 4th Feb 2012).
Thank you!
Q&A