Order of the boot

Firing someone can be a hard decision to make – especially when they’ve historically performed well, and they’re just the nicest person and cute as a sack of kittens.

But there is another, much easier way to reach a decision: ‘rank and yank’. Championed by the hard-nosed CEO of GE, Jack Welch, who rigorously pursued efficiency savings and downsizing, it refers to the act of automatically cutting a percentage of your worst performers.

So, every year you might rank your workforce with performance reviews and then cut your bottom 5% or 10%.

Welch credited it with a twenty-eight-fold increase in earnings over his twenty year tenure. Somewhere between 10 and 20% of US companies in the Fortune 500 still use it, although under kinder names such as “Relative Performance Rating System”. Jack himself apparently preferred “Differentiation”.

The hyper-competitive and cut-throat environment that rank and yank fosters feels like a throwback to a time where lawyers had hostile takeovers for breakfast, then wiped their mouths with napkins made of unions. But are we being blinded by our sentimentality?

Vitality statistics

Let’s look at this with our rational glasses on. Rank and yank involves assessing where workers fall on a ‘vitality curve’. It allows you to identify and reward your top performers while also identifying those who are at the other end, with an eye towards replacing them.

At its core it is a completely transparent, no bullshit system. Working well, it can create healthy internal competition, and ensure that your workforce is never stagnant. By definition, after a few years of rank and yank, your workforce will be on average composed of higher than average performers.

Imagine a magical world where 50% of workers are great and 50% are bad. You have 100 employees. Assuming no natural turnover, after 1 year of 10% rank and yank, you will end up with 55 great and 45 bad (on average). After 5 years, 75 to 25.

After 10 years, you end up in a situation where you cut the great with the bad, and end up stuck at a maximum point of 95/5. Still, a decent result. Most companies would drool over those kinds of numbers.

Clearly though, life is sadly nowhere near this convenient. They still haven’t even replaced pavements with travelators.

There are a number of large objections to the system:

• The big costs involved with forcing such a high rate of attrition
• Loss of skills, and the requirement to train new staff, impacts productivity
• It arguably creates a poor office dynamic that stifles innovation
• It’s difficult to accurately assess performance on many kinds of work
• There are no guarantees that your new hires will be any better than your old ones

It’s quite telling that the poster child of rank and yank, GE, no longer uses the system. If it were such a magic bullet and the only reason for their success, then surely they’d still be pursuing it now, rather than quietly leaving it behind.

Boo hoo Yahoo

Other big names have picked the system up, only to drop it too, including Microsoft, Ford, and Adobe. Yahoo also recently introduced a similar system, then ended up having to amend it heavily.

Perhaps the best way to look at rank and yank is as the biggest double-edged sword in employment policy. Applied correctly, it can make excellent efficiency savings and turn a company in dire straits around quickly. Applied incorrectly, it will badly damage employee morale and sabotage productivity.

Microsoft is a classic case of rank and yank applied incorrectly. They forced managers to rank their team, regardless of whether all their team met and exceeded expectations. So even if the bottom percentage were still excellent, they could find themselves judged as underperformers.

Fearful of attempting to innovate but failing, their employees perpetually ‘played it safe’ with regards to their work, to minimise their risk of getting poor performance reviews. Apparently, Microsoft’s star employees would actually surround themselves with average or under-achievers in order to protect themselves from finding themselves at the bottom of the pile.

The practice of ranking has been blamed for the drought of innovation at Microsoft that led to it falling behind in every market ­– phones, media players, tablets, and to an extent, desktops.

However, Jack defends his practice from criticism to this day:

I’ve spoken to more than 500,000 people around the world and I always ask audiences, “How many of you know where you stand in your organization?” Typically, no more than 10% raise their hands. That’s criminal! As a manager, you owe candor to your people. They must not be guessing about what the organization thinks of them. My experience is that most employees appreciate this reality check, and today’s “Millennials” practically demand it… Yes, I realize that some believe the bell-curve aspect of differentiation is “cruel.” That always strikes me as odd. We grade children in school, often as young as 9 or 10, and no one calls that cruel. But somehow adults can’t take it? Explain that one to me.

About the author

Andrew Baird

Andrew is the CEO of HRville. He is also Employer Brand Director of Blackbridge Communications, Editorial Director of Professionals in Law and an associate of The Smarty Train. Previously, he was the MD of TCS Advertising.