Forced ranking falls from favor as it foments litigation

Posted by George Lenard

August 30, 2004

I recently ran across a reference to a rash of cases challenging “forced ranking” evaluation systems as discriminatory. Michael and I exchanged e-mails on this topic, so the following combines our thoughts on the subject, along with links to many articles.

To start us off, here is a useful definition of the concept:

Forced ranking is a performance-based evaluation system in which employees are ranked against each other based on a particular scheme or design.

Some companies have used a “totem pole” approach, in which employees in a group are ranked from the top down. Some have imposed quartiles, in which 25 percent of the group is placed in each of four cells and then ranked further in each cell. Others have ranked workers from best to worst along the bell-shaped curve of the normal distribution and established cut-off points for the top, middle, and bottom categories.

Typically, the ranking decisions are made by managers who spend hours in meetings haggling with each another to satisfy the distribution requirements.

Quoting: “Forced Ranking and Age-Related Employment Discrimination” (by Tom Osborne and Laurie A. McCann in ABA Section of Individual Rights and Responsibilities Human Rights Magazine)

This excellent article covers the pros and cons of forced ranking and the legal challenges that have been raised in some high profile cases.

According to proponents, forced ranking identifies the best and worst performers and, by generously rewarding the top-ranked people and culling the bottom dwellers, ensures that the employer will have a dynamic, continuously improving workforce with strong loyalties to the company. . .

Opponents . . . believe that the system creates more problems than it solves. They argue that such quota systems don’t work for many reasons, including “flaws in the normal distribution curve approach that is used to identify poor performers, as well as limitations in human judgment.

In fact, systems that force managers to cut a certain percentage of their people often don’t reveal the root causes of problems, often do not elevate performance and can ultimately be counterproductive.” [quoting The Folly of Forced Rankings].

A forced ranking system often incorporates the subjectivity of department heads, who can institutionalize bias and devalue older workers. . .

In addition to acting as a crutch for weak managers who are unwilling to confront poor performers, forced ranking can result in low morale because employees are rewarded for competing against one another instead of working collaboratively. Read more [there is much more]

My initial thoughts:

First, even if the Supreme Court rules against allowing disparate impact in age discrimination cases (an issue currently before it), forced ranking may be vulnerable to such challenges on other grounds, such as race or sex discrimination, and may be subject to challenge under disparate treatment as well.

Second, I like the idea of ranking to the extent it produces better evaluations by avoiding just giving everyone a passing grade — or better. This is a notorious problem from the perspective of management employment lawyers (and a gold mine for the other side!). How often we hear about a fired employee’s poor performance, only to discover a long string of favorable evaluations! So there is a clear benefit here, as with teachers’ grading, in being aware of the distribution, and making sure that someone whose performance truly stands out at the top or bottom is not improperly given a standard passing score. This helps avoid “grade inflation.” Of course there is also a clear benefit where tough choices must be made for RIF purposes. Such situations demand some form of ranking.

Third, forced ranking is not workable as a standalone process. It cannot be validated. It masks the underlying evaluation process. It begs the question of why an employee got a particular ranking. Therefore, it must be coupled with evaluation on specific job tasks, skills and qualities. I would think managers could draft evaluations without regard to ranking, and then view the resulting rankings — in the aggregate and by criterion. Adjustments could then be made if the rankings seem clearly wrong — with reasons specified. Ranking would thus be the outcome, not the means, of evaluation.

Michael agreed that the above article is, in his words “a great source of information.” He further said:

Forced ranking is controversial among HR folks. On the one hand, performance evaluations are notorious for leniency (ie.., people being rated higher than they deserve). Forced ranking’s real purpose is to break this problem. On the other hand, a really good manager may have really good employees, and to say some must be ranked at the bottom (indicating they are poor employees) is simply wrong. Similarly, it may not really be possible to distinguish some employees from each others. Another thing: for the same reason that many standard evaluations suffer from leniency, managers usually HATE forced ranking. It can “put the fire under an employee” but can also create tremendous stress and competition among employees and resentment against managers.

I am not aware of any research showing there is more bias against age with forced ranking. However, I would expect that if there are age biases, they will show up more in forced ranking systems.

For further reading:

“The Ethics of Forced Ranking; A lot depends on how fairly the system is developed, and how fair the people are who carry it out” (by Andy Meisler for Workforce Management magazine)

SHRM survey September, 2003, regarding prevalence of forced ranking. Responses to question: “Does your organization utilize forced ranking (e.g., a system whereby a specified percentage of those being evaluated must received the highest and lowest ratings) to evaluate employees?”

“Rankled by forced ranking” (HR Magazine, August, 2003)

“Forcing the Performance Ranking Issue” (by Mark Lowery in Human Resource Executive® Magazine)

“Managing the ‘C’ Performer: An Alternative to Forced Ranking” (by Patty Davis and Bob Rogers)

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