Keep Forced Ranking Out of Court
June 02, 2008
Whether you love it or loathe it, forced ranking is here to stay. And trainers, the experts say, can play a crucial role in helping their organizations to deploy the system effectively, consistently, and fairly.
By Sarah Boehle
If you're familiar with the term,"forced ranking," chances are you're also familiar with the near-incessant controversy surrounding the performance-based comparative evaluation tool. Proponents of the system (see sidebar on p. 44 for typical metrics) often argue that forced ranking drives truth into the performance management process by fighting the rampant "grade inflation" inherent to more commonly used performance systems. Forced ranking also provides an excellent framework, they say, for identifying, rewarding, and retaining top performers and for improving the overall quality of an organization's workforce.
Those on the other side of the debate contend that forced ranking damages morale, creates a hypercompetitive environment that destroys teamwork, and creates a culture of fear that stifles creativity. They also argue that because forced ranking-related judgments are inherently subjective (at least according to some of the tool’s detractors), the system can create
significant legal exposure for the companies that use it.
What's at Stake
It is the legal exposure that companies interested in implementing forced ranking tend to fear most.
And understandably so. In this decade alone, Ford Motor Co. has settled two class-action suits, paying out $10.5 million to employees who alleged age discrimination associated with the company's forced ranking system (which it subsequently shelved). Capital One, Goodyear Tire & Rubber Co., 3M Company, Sprint, and a slew of other big-name companies also have been taken to court in recent years by employees who alleged that these companies' ranking systems violated various age discrimination prohibitions.
The reality, however, is that the forced-ranking-related lawsuits aren't any more common than other types of employment lawsuits, according to Sara Goldsmith Schwartz, an employment law attorney and managing partner at the law practice of Schwartz Hannum PC in Andover, MA. "Typically, suits associated with forced ranking are based on discrimination against a protected class—by people alleging sexism, ageism, or racism. But forced ranking doesn't necessarily cause more litigation…in fact, there are only a handful of publicized cases on forced ranking as opposed to hundreds of cases on age discrimination each year in general."
So who's to blame for all the fear-mongering? Mostly the media, says former General Electric executive Dick Grote, who is now president of Grote Consulting Corporation in Frisco, TX, and specializes in helping organizations implement the tool effectively. "When a big-name company such as Microsoft is sued for discrimination tied to forced ranking, on what page of the paper does that news appear? Page 1. But when the judge throws out the case and says there is no way he will allow the suit to go forward based on the paltry evidence, where does that news appear? Page 38—right under the obits. The result is that we have hypersensitized organizations to the risks associated with what is a valuable management process."
Even Tom Osborne, a senior attorney of litigation at the Association for the Advancement of Retired Persons (AARP) in Washington, D.C., agrees that forced ranking as a performance system is not "inherently illegal"—despite the fact that he himself has battled corporate heavyweights as AARP co-counsel in the 3M, Capital One, and Ford forced-ranking-related age discrimination suits, the latter two of which were settled out of court. (The 3M case is still pending.) "There's nothing wrong with getting rid of the bottom 10 percent," he says. But companies that implement the tool need to use it as a legitimate ranking system backed by neutral practices, he says—not as a pretext for getting rid of certain types of employees. And to do so right, he contends, requires "a great deal of effort on the part of HR, managers, and executives in the business."
Training to the Rescue
This, of course, is where training enters the picture. Indeed, experts such as Grote and others contend that effective training is an essential ingredient for companies that want to ensure they use the system effectively—not to mention legally—and that managers are properly equipped to rate the performance of their teams and communicate the results. If you are tasked with this job, where should you begin?
• Explain why forced ranking matters. Even trainers themselves frequently struggle to understand the importance of ranking and the reasons behind it because the system so often is driven by upper management, says Christine Amalfe, chair of the employment law department at Gibbons P.C., a law firm in Newark, NJ. The result, she says, is that much of forced-ranking-related training "follows a simple formula consisting of, 'Go online and click here. There are 17 goals, and you need to rank your people against them. If you get equal numbers, you need to redo your ranking because everyone has to fit into a bell curve.'"
Instead, training for managers should begin by selling the tool's merits, she says, and communicating the value and purpose of the system. Her advice? Explain why the organization is implementing forced ranking; why it is important to the company; how long it will be used; and to what end.
• Be sure to emphasize the benefits the system will yield for managers and employees, too, says Amalfe. "For those identified as A players, it allows managers to nurture their most talented people," Grote says. "For B players, the good news is that they are part of the organization's vital majority and are doing a fine job. For C players, the news may be painful. But if your company doesn't feel that you are a strong player or have a future with the organization, and you are given the choice between ignorance and knowledge, wouldn't you rather have knowledge?"
• Get clear on goals. You need to ensure that managers have a firm grasp of the criteria against which they will be expected to rank members of their team. This is where problems most commonly creep into the ranking process, according to Amalfe. "You'll often see these systems launched and all the focus is on the end goal—on the actual ranking—without sufficient training on the front end focusing on establishing and understanding the goals."
The best training programs, she says, happen early in the year, several months before ranking takes place, and assist managers in not only understanding the goals, but involve them in refining the goals, too.
To further assist everyone in this regard, she advises, make your goals as measurable and objective as possible. That's what Erum Rashid did when she implemented a two-year forced ranking program for approximately 1,000 members of the pharmaceutical sales force at Aventis Pharmaceuticals (now Sanofi-Aventis). Rashid's team asked first-line sales managers to differentiate reps from one another on an A-B-C basis using a set of predefined criteria. All these criteria, she says, were based on actionable behaviors and highly quantifiable metrics that related to four focus areas such as sales numbers, client relationships,product and disease knowledge, and call reporting and documentation. Forqualitative measures such as client relationships,she devised behavioral actions as measuresto make forced-ranking-relatedassessments more quantitative. One behavioral indicator for "client relationships," for example, was "provides service to doctors in proportion to the prescription potential for the drug."
Kimberly Moore, a partner at Frisco, TX-based law firm Strasburger & Price LLP, couldn't agree more with this approach. "The more objective you can be with your goals, and the more quantifiable data you have to rest on, the easier it will be for you to defend your choices and the easier it will be for your managers to sit down at year's end and say, 'These are our top performers.'"
So, "take out the subjective stuff," she advises, and make ranking as specific and as tied to each job duty as possible. "Get away from terms and areas where it starts to look like you are putting your own interpretation on what is happening. Stay away from words such as 'attitude,' and make certain that if you are going to evaluate workers based on 'productivity,' that you define what productivity means. For a call center employee, for example, maybe productivity means he needs to spend a certain number of hours on the phone each day. For a salesperson, maybe it means she needs to generate a certain amount of revenue."
• Be a legal eagle. Once the goals are established and understood by all, it is time to teach managers how to rank. To do so, Schwartz advises taking the tool you will use and carefully explaining each part of it, while stressing the importance of utilizing it consistently, fairly, and equitably across the board.
Then, walk managers through the risks. As with any performance appraisal tool, it's impossible to remain 100 percent objective. But your training can and should give managers tools to guard against allowing stereotypes and personal bias to creep into the process. Amalfe accomplishes this task by conducting sensitivity training—including real-world scenarios, role plays, interactive hypothetical situations, and an overview of common stereotypes. The training, she says, is designed to make managers aware of their inherent biases while reminding them to avoid any indication of disparate impact against protected classes of employees when using the tool.
Another way to avoid age discrimination, in particular, adds Grote, is to clearly define what "future potential" means before any ranking takes place. "If you are projecting more than one job level up or more than two to three years out, it is going to have an adverse effect on older people. So when managers talk about talent, they shouldn't talk about ultimate potential, such as who has the goods to become CEO within the next 10 years. Instead, they should talk about each individual's projected ability to perform at a fully successful level at the next highest job level, and within the next two to three years."
Beyond these tenets, focus on the basics. "Train them how to do a good job, which includes not doing boneheaded things that will get them into legal trouble," says Grote. "They need to know all the legal risks before they sit in a room and start ranking."
For example? As an employment lawyer, one of the first things Moore says opposing counsel examines when a lawsuit tied to forced ranking arises is which factors were taken into account when ranking decisions were made. Thus, whenever groups of managers get together to begin talking about people and ranking them from high to low, she says, they need to understand the importance of sticking to the criteria, avoiding any gray areas, and focusing on the task at hand. "Stay away from the sideshow," says Moore. "Remember, there will be five to 10 people in the room, and chances are that each one of them will remember slightly differently what took place."
Last but not least, provide your managers with all the tools and documentation they need to be successful, advises Rashid. "If the process is laid out and even the smallest things are spelled out so managers have a Bible to look to that tells them exactly what to do in a given situation, they'll not only feel more comfortable with the process, they'll be far more effective in administering it."
When Rashid's team at Sanofi-Aventis instituted forced ranking, for example, the group created a "nuts-and-bolts" procedural manual for managers that outlined every element of the forced ranking process in painstaking detail, including goals, steps, how to handle various scenarios, and how to have forced ranking conversations with employees. The manual also detailed exactly what would happen to each employee once rankings were assigned. Those identified as C players, for example, immediately were funneled through a "Four R" process that included four steps: re-supply, retrain, refit, and release.
If an employee were ranked as a C under this system, explains Rashid, managers first were required to examine the situation to determine whether the employee's performance was lacking due to a supply issue—such as insufficient budget or work overload or under-load. Once any necessary "supply" tweaks were made, the manager established new performance objectives and associated timelines for the rep. If these interventions didn't do the trick, the manager re-examined the rep's performance to determine if he or she lacked any skills necessary to perform the job, in which case the company provided additional training. The third step, "refit," empowered the manager to transfer the rep to another area of the company or to a less-demanding product line if the first two interventions weren't effective. "If all this didn't work," says Rashid, "we proceeded to the fourth and final step and released the rep."
One of the overall upsides to this process, says Rashid, is that it allowed her company to level the playing field and drive more fairness into employment-related decisions made by sales managers.
For more tips on how to stay out of court when using forced ranking, visit www.trainingmag.com/ranking.
Sidebar: What is Forced Ranking
First popularized under Jack Welch's reign at General Electric Co. (GE), forced ranking is a performance-based evaluation system to assess performance and potential that compares and ranks employees against one another using a particular design or scheme. A typical system—according to former GE executive and forced ranking guru Dick Grote—might classify the top 20 percent of employees as A players, the next 70 percent as Bs, and the last 10 percent as Cs. The As typically are given more challenging assignments and additional nurturing. The Bs strive to be As. And the Cs are either given an opportunity to improve or let go.
The tool comes in many forms. Under Welch, executives at GE used the 20-70-10 approach, whereby executives were required to place 20 percent of managers in the "top performer" category, 70 percent in the middle "vital majority" category, and 10 percent in the bottom category. Other companies, according to the Association for the Advancement of Retired Persons (AARP) attorneys Tom Osborne and Laurie McCann in their Human Rights Magazine article, "Forced Ranking and Age-Related Employment Discrimination," impose quartiles, in which 25 percent of a given group is placed in each of four cells and then ranked further in each cell. Still others, Osborne and McCann say, "rank workers from best to worst along the bell-shaped curve of the normal distribution and establish cutoff points for the top, middle, and bottom categories."
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