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Several very successful large companies do this as a matter of course. Are they successful because of, or in spite of, this practice? Profiling or stack ranking employee performance ratings has long been touted as an industry best practice to cultivate a higher performance-based workforce. GE, Pepsi, Microsoft and other Fortune 500 companies use this practice to identify and weed out low performers.
There are several benefits and consequences to using this approach. This approach works for some, but for others they see it as a constant pressure to perform above the rest. Since this practice works for some and doesn’t work for others, I have come up with benefits/challenges of implementing this type of ranking system. You decide if the benefits outweigh the consequences. Personally, I feel like this could be a good thing – only if implemented properly and without forced pressures.
Retaining High Performers. This is the obvious benefit of employee stack ranking. This type of system allows employers to rank each employee based on performance and find out who is working the hardest and ultimately performing above the rest. Once you identify these employees you can take steps to prevent them from leaving your company or being recruited elsewhere. Better assignments, development opportunities, mentorships, and appropriate compensation are all tools you can use to help retain the high performers once you know who they are.
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Tracking Employee Ratings. Performance ratings have a long history of being undervalued and not appreciated. Managers have looked at giving performance ratings as a awful task and they try to avoid it at all costs. Profiling or stack ranking prevents managers from assigning averages or above average ratings across the board. It forces them to actually compare employee’s performance and identify the high and lower performers that reflect the ranking.
Individual Competitiveness. Although competition is encouraged in most workplaces to get the best out of their employees, implementing employee stack rankings might detour a group of individuals from working as a team. This can be detrimental when big projects require teamwork and good team dynamics. You will have individuals competing and not working as a team, which can kill a project. Employee stack ranking doesn’t leave much room for employees to work in a cohesive team environment.
Retention of Corporate Information. If every year you are firing the bottom 10% of your workforce because of low performance, over time you not only raise the bar for performance standards, you continue to lose corporate knowledge. Training employees over and over costs a company time and money and in the long run it’s worth helping and developing current employees to performance better. Employee stack ranking doesn’t allow for this type of development. You’re either a high performer or you lose your job.
Employee stack ranking doesn’t necessarily have to be the method in which you rate employees. Other methods such as training managers around performance on specific competencies has worked well for several Fortune 500 companies and doesn’t put the pressure on employees to perform individually.
How does your company rank employees? Do they practice employee stack rankings or another method?