How the performance of employees at Yahoo is rated

Forced rankings are the death of any good corporate culture

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Forced rankings: Microsoft is currently abolishing them, Yahoo only introduced them last year and will continue to do so - even if there are some changes. In general, I don't think much of forced rankings. But why companies such as Microsoft or Yahoo use this system, I can only begin to understand. So let's make a brief digression: What is forced ranking, where does it come from and why are few in Germany aware of it?

What is forced ranking?

The forced ranking is a method of employee evaluation in which employees are divided into performance groups. The size of the groups is determined according to percentages. Jack Welch, the former CEO of General Electric, introduced the 20-70-10 rule at General Electric: Twenty percent of a company's employees are stars and should receive bonuses, seventy percent are average and should be challenged and encouraged and the weakest 10 percent of employees should be laid off. Welch's method was successful: During Welch's tenure as CEO from 1981 to 2001, General Electric was able to increase sales from $ 27 billion to $ 137 billion, while at the same time reducing the number of employees from 400,000 to 300,000. A radical but successful approach from a purely entrepreneurial point of view. In addition, a global company, which is the market and innovation leader in many business areas, should also regularly "regenerate". Because a long standstill is extremely dangerous here. Incidentally, at the time he was also one of the fathers of the shareholder value approach, which he now calls the “stupidest idea in the world”. Welch has left its mark - shareholder value dominates the global economy and forced ranking is widespread, at least in America - and to a lesser extent in Germany.

The basic problem of forced ranking

The problem of the forced ranking makes sense quickly: Due to the fixed size of the performance groups, there must be winners and losers. The performance of the employees is not measured by the actual, absolute performance, but only in comparison with other employees. Even if the worst employee is still doing a good job, he is one of the failures in the forced ranking and should, as the system wants, be thrown out. At Yahoo there are five performance groups and allegedly the employees of the two worst groups are in acute danger of being kicked out, at least according to All Things D. Yahoo boss Marissa Meyer does not refer to the quarterly reviews called “Quarterly Performance Review” (QPR) as a forced ranking , but in the end they are a more or less strong modification of this system. Microsoft introduced the Forced Ranking in 2006 and has now abolished it without replacement. For what reason? Because the employees started working against each other through the system. The forced ranking makes teamwork more difficult, if it does not destroy it. If it is not your own performance that counts, but rather the performance in comparison with other employees, it is also worthwhile to deliberately make other employees look stupid. In addition, nobody wants to work with an employee who could drag their own performance down. On the other hand, employees with a poor performance evaluation are subject to enormous pressure - even though the reasons for the inadequate performance are often outside of work (family conflicts, necessary care for relatives, etc.).

Especially in the industry in which Yahoo and Microsoft operate, I am very surprised that the forced ranking is used. In these companies in particular, innovation and development are so important. It's not about assembly line work that can be measured simply by the number of packages packed. Google's corporate culture is exactly the opposite and it is not for nothing that it is one of the most successful companies in the world - in precisely that industry.

The situation in Germany

The radical forced ranking, which also includes layoffs due to poor performance, is not so easy in Germany. If a company wants to fire an employee for poor performance, the settlement with another employee has no hold in court. The performance to be fulfilled is ultimately based on the employment contract and not on what other employees do - and that should be the case.

Per se, I am not against any kind of performance evaluation; on the contrary. But the forced ranking is certainly not the best solution and usually damages the corporate culture enormously. At the same time, of course, there is also the fact that such evaluations are always subjective (and as already mentioned, performance in most companies cannot simply be measured using packed packages). But rating systems almost always have this problem. In Germany, it must also be taken into account that we generally have a different culture in dealing with employers and employees. The “hire & fire approach” is common in the USA and is generally accepted as such by all those involved; but not in Germany. Because the employer is responsible for the employees.

So companies should consider very carefully whether they want to introduce a performance evaluation in the sense of “forced rankings” - albeit with modifications. Alternatively, for example, it could be considered whether the performance evaluation of individuals is not simply carried out "top down" but also or and by the team. This would not only relieve the managers, but also transfer significantly more responsibility to the employees. This is especially true when it comes to the distribution of bonus payments or possible savings.