Of ratings and rankings
It's been a while since I posted one of my Toastmasters speeches. This little gem was # 9 of 10 in my competent communicator series. One more to go!
Remember, the views and opinions of this blog are Jonathan's, and do not reflect those of any people or institutions with whom Jonathan associates himself. In fact, Jonathan does such a poor job communicating that what he posts here rarely even appropriately reflects his views and opinions. Nevertheless, I figured this would be timely given what many people go through at their jobs this time of year. Enjoy, and good luck!
Fellow Toastmasters and guests. I’d like to start this discussion with some thinking about your ideal body weight. Has anyone here ever looked up their ideal body weight before? If you were 5’10”, and you weighed 200lbs, you would be defined as “overweight.” If you dropped 10% of your weight, you’d be180lbs. You’d be near your ideal range, but still a little over. So if you dropped another 10%, you’d be at around 160. Odds are you’d be feeling a little lighter in your step, have a little more energy, and a little more confident. You’d have trimmed off the fat that keeps you down.
But what if you decided, “Hey, that worked great! Let’s drop another 10 percent!” So over the next year you went down to about 145. What if you did it again? 130lbs. You’re now underweight. Anorexic. You’ll feel weak, short of breath, and people will comment on your brittle skin and emaciated look. What started as healthy weight loss eventually caused more harm than good.
I’d like to keep that lesson in mind as we shift our focus to corporations. Companies, like people, can get fat. When they do they also have ways of getting in shape, and this time of year we’re all very familiar with the cornerstone of efficiency. Performance reviews. Today I’m talking about a specific piece of that puzzle, knows as the forced distribution.
For those of you unfamiliar with the forced distribution, it was made famous by Jack Welch as the CEO of GE in the 90s. The distribution says that if you take a company’s population, you can separate your performers into the top 20%, the middle 70% and the bottom 10%. The top 20%, those are your stars. They get the best raises, the top training, and are in line for that next promotion. The middle 70%, they’re essential to the organization. They get decent raises, some training, and some will even move into that top 20%. The bottom 10%? Well, they get what’s left, essentially, a poke in the eye.
But in fairness, the better companies will still invest time in that 10%. Maybe they need a better job, or a little extra coaching, or maybe they’re best employed at another company.
However, I am here today to share with you that while forcing a distribution may work in some cases, it does not work in all, and it is certainly not a long term solution.
I’ll share a specific example first. Say you take that top 20%, and you put them into a special program. Some will say that you have to take that new population of stars and force a distribution on them. So that means that some of that top group will be classified in the bottom 10%. Whoever falls into that category now gets little to no raise and possibly flagged as a poor performing employee.
A common explanation for that case is, “Well, even in the NBA someone has to sit the bench.” Or, “well, even in the Olympics someone gets the bronze, or no medal at all.” However, think about why you pay your employees. You pay your top performers above average raises to ensure they get a competitive salary. If you don’t pay them that salary, they can, and will, be recruited away to a firm that will.
By taking someone in the top tier and forcing them into the bottom 10%, they get a lower than average raise. Your forced distribution just deflated their wages, and made them susceptible to other firms that can come in and say, “Hey, we’ll pay you what you’re really worth!”
So what other clues do we have that a forced distribution might now work?
I think the biggest clue is that even GE, the pioneers, do not force the distribution anymore. It’s obvious why they did at first. A professor at Drake University found that forcing a ranking results in an impressive 16% improvement in productivity the first year. However, over time the gains dropped off to six percent, and then to zero by year 10. What drives that decrease?
Think of what the distribution implies. You do not give your employees an absolute goal; you give them a relative goal. So no matter what you say about teamwork, when you force a distribution there will be, to some degree, a part of the employee that looks to another employee and thinks, “It’s either you…or me.” Overtime you risk turning cooperation into competition, and that will decrease productivity.
Finally, think of our weight loss analogy. Eventually, you run out of fat to trim. Just like you start to lose your muscle mass, a company will start to lose their good performers. So while yes, there are situations where a forced distribution will improve productivity, we now have enough long term evidence and exceptions to know that there must be rationality in the process. Nobody wants to work for an anorexic company.
Labels: Toastmasters
posted by Jonathan @ 5:41 PM
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