1. Forced Ranking Systems

2. Forced Ranking Systems
Gained popularity following GE
Up to 20% of companies
Used by:
Conoco
Capital One
Sun Microsystems
Cisco
EDS
Hallmark Cards
Used and abandoned by:
Ford
Goodyear
Microsoft
Hewlett-Packard
Intel
Texas Instruments
Enron

3. When managers have discretion:
They tend to give “Above average” ratings.
They prefer to give uniform ratings regardless of performance.
They tend not to use the ends of the rating scale.

4. “A company that bets its future on its people must remove the lower 10% and keep removing every year – always raising the bar of performance and increasing the quality of leadership.”
Jack Welch, former GE CEO

5. The “Vitality Curve” “The bottom 10” “The top 20” “The Vital 70”
Jack Welch “Jack: Straight From the Gut” 2001

6. Why Conduct Forced Rakings?

7. Why Conduct Forced Rakings?
Replacing worst employees improves performance.
Sends a message that poor performance is not tolerated.
Creates a competitive, high performance culture.
Constant improvement of the workforce.
Force managers and supervisors to make the tough decisions.
Creates a compensation distribution that rewards top-performers.
Legal employment practice that may be used as a grounds for promotion, demotion or layoff.

8. Why NOT Conduct Forced Rankings?

9. Why NOT Conduct Forced Rankings?
Turnover and replacement costs
Creates competition among employees
Managers may disown the system and responsibility to develop employees.
Gaming the system
Only fire people after performance appraisals.
Set up people for political reasons.
Horse trading among managers.
Overstaffing for cannon fodder.
Low morale

10. Evolution of Ford’s Policy
January, 2000: Ford begins new performance evaluation policy
Top 20,000 managers
10% of the executives will get A's, 80% will get B's, and 10% will get C's.
C’s are not eligible for bonuses. Two C's in a row are grounds for dismissal.
Quota for C’s later reduced to 5%
July, 2001: Ford eliminates the "A," "B," and "C" ratings in favor of "top achiever," "achiever," or "improvement required.” Quotas dropped for employees to be ranked as "achiever" and "needs improvement."
December, 2001: Ford agrees to pay $10.5 million to settle lawsuit
620 employees
Mostly older, white men
April, 2002: Ford revises its performance review system to “focus on creating bonds between managers and employees”, and will have no ranking quotas.

11. Goal Setting

12. Why Do Goals Motivate?

13. Why Do Goals Motivate? Focus attention of the employee
Prolong persistence
Provide challenge – competition
Intrinsic and extrinsic rewards
When goals are achieved:
Positive affect
Job satisfaction
Self-efficacy
Organizational recognition and rewards

14. Goal Setting Basics Specific Challenging Achievable
Participatively set
“SMART” Goals
Specific, Measurable, Attainable, Realistic, Trackable
Set interim or subgoals.
Use action verbs.
Specific dates, times, and amounts.

15. From“The Practical Significance of Locke’s Theory of Goal Setting," by Journal of Applied Psychology, 60, p Copyright 1975 by the American Psychological Association. Figure 3 - Effect of Goal Setting on Percentage of Legal Net Weight Achieved by Logging Truck Drivers

16. Goal Setting Research Findings
Goals that are specific and difficult lead to highest performance.
Commitment to goals is most critical when goals are specific and difficult.
Commitment to goals is the highest when (a) individual is convinced goal is important and (b) the goal is attainable. How to gain commitment:
Legitimate authority
Supportiveness
Recognition
Rewards
Participation

17. Participation No one knows the job better than those who do it.
Workers are more likely to accept the goals with input.
Employee
High
Low
Management
Participation
Unilateral
Empowered /
Self Managed
No Goals

18. Leadership for Goal Commitment
Communicating a vision
Acting as a role model
Expecting high performance
Rewarding employees who embrace vision
Delegating responsibility (“ownership”)
Expressing genuine confidence in employee abilities
Providing training and resources
Asking for commitment in public

19. Goal Setting Research Findings Cont’d
Goal setting is most effective when there is feedback showing progress towards goal.
Goals stimulate planning and task strategy.
When people work on complex tasks they are least effective at discovering effective task strategies if:
They have no prior experience
There is time pressure
There is pressure to perform well.
Achieving more difficult goals leads to more self-satisfaction but risk of failure limits employees from voluntarily setting goals high.

20. The Goal-Setting Theory of Motivation

21. Expectancy Theory Motivation = E X I X V
Expectancy: The connection between behavior and the outcome
Instrumentality: The connection between outcome and a reward
Valence: Is the reward something that the individual values?
People will only be motivated if outcome is possible.
People will only be motivated if outcome is contingent on behavior.
People are motivated by intrinsic and extrinsic rewards they desire.
People are motivated if the reward is contingent on the outcome.
“Line of sight” is the perceived link between individual behavior and the reward.

22. Goal Challenge and Performance
High
Performance
Low
Performance
Easy Moderately Difficult Extremely Difficult

23. What Expectations are Appropriate?
Tom Peters on appraisal: “Employee evaluations should reflect perform-or-else principles...”
Simply showing up and doing what you are told is not enough...
Continuous improvement means doing more with less year after year...

24. What performance measures did Hiram put in place?
Customer Service / Call Center?
Shipping?
Sales?
R&D?
What were the outcomes of those measures?
What should Hiram have done instead?

25. What performance measures did Hiram put in place?
“Customer Service”
“On-time shipments”
“Sales commissions”
“Research and Development”

26. What performance measures did Hiram put in place?
“We announced targets and let everyone know we were going to monitor them”
“Customer Service”
Number of calls handled
Time per call
24 hours from time is opened
“On-time shipments”
Shipped when the goods were promised
“Sales commissions”
Percent of sales actual price - period
Sales bonuses – sell the most you win
“Research and Development”
Number of patents/ copyrights/ proposals

27. What were the outcomes of the measures?
“Customer Service”
“On-time shipments”
“Sales commissions”
“Research and Development”

28. What were the outcomes of the measures?
“Customer Service”
Don’t open the s
“Wall of shame”
“On-time shipments”
Left the building but not on the way the customer
“Promise” dates different from dates customers requested
“Sales commissions”
Lower morale
No Mentoring or Prospecting
Keeping account information current
Bonuses to people in rich territories
“Research and Development”
Negative attitudes
Unnecessary patents

29. Two Perspectives Psychoanalytical Approach
Motivation lies within the individual
Psychological motivations for behavior
Choice of rewards and understanding the individual
Behavioral Approach (Skinnerian)
Motivation lies in the environment
Behavior is linked to consequences
Feedback / reinforcement schedules
Behavior = Person X Environment

30. Careful What You Wish For
“You make the rules, we play the game.”
What do we want employees to do differently?
Why aren’t they doing it already?
Don’t sacrifice long-term business success for short-term goals.

31. Types of Goals Behavioral goals vs. Outcome goals
Often easier to observe outcomes than behaviors
Outcome goals give discretion on how to achieve them
Use Outcome Goals When:
Workers know how to achieve the goals
Workers have the necessary resources
Specific goals better than “do your best”
How effective are “stretch goals”?

32. Linking Individual & Organizational Goals
What are the ultimate goals?
Profits, Sales, Customer Service
Balanced scorecard
Don’t focus on intermediate goals unless they matter.
Consult with business leaders and employees on appropriate goals

33. Balanced Scorecard “What you measure is what you get”
Financial vs. operational measures
Short term vs. long-term effectiveness
Specific goals and measures for:
Shareholder satisfaction
Customer satisfaction
Operational Excellence
Innovation and Learning
Others?