Companies showing more flexibility in grading employees

  • Article by: THE ECONOMIST
  • Updated: November 17, 2013 - 1:46 PM

Firms that grade employees ruthlessly may lose out.

It is a brutal management technique in which bosses grade their employees’ performance along a “vitality curve” and sack those who fall into the lowest category. Known as “ranking and yanking,” it had its heyday in the 1980s and 1990s. Now it is back in the headlines.

On Nov. 8, AllThingsD, a tech-industry website, reported that Yahoo staff are increasingly unhappy about a quarterly performance review introduced last year by the new boss, Marissa Mayer. The grading exercise is said to have cost 600 of them their jobs in recent weeks.

Four days later, Microsoft announced that its own, equally unpopular system was being scrapped. In a memo, Lisa Brummel, Microsoft’s head of human resources, said there would be “no more ratings” and “no more curve.” Instead, the firm will implement a “fundamentally new approach,” designed to encourage teamwork and collaboration.

Many firms, from Amazon to PricewaterhouseCoopers, still use some version of what management theorists also call “stack ranking” to sort the sheep from the goats in their workforce. However, many of them enforce it more flexibly than seems to have been the case at Microsoft or Yahoo. Even General Electric, which pioneered the technique during the uncompromising reign of “Neutron Jack” Welch (GE’s boss from 1981 to 2001), has since softened its approach.

The reason such gradings have not died out entirely is because employers still “need to find ways to fairly evaluate their employees and have a basis for compensation differences,” says Robert Kaplan of Harvard Business School.

Ranking and yanking is more logical in investment banks, law and accounting firms: their business model is, in a sense, built on recruiting and motivating large numbers of junior staff members.

Copyright 2013 The Economist Newspaper Limited, London. All Rights Reserved. Reprinted with permission.

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