Olympics 1, AIG 0: Why Forced Ranking Is a Bad Idea
“I’ve always been a stats guy,” Don Steinberg wrote in the Philedelphia Inquirer explaining why he invented America Bowl, a contest pitting Presidents against Super Bowls to see which is better.
There have been 44 presidents in U.S. history, and this year, the 44th Super Bowl game was played. “America Bowl will match a President against the same-numbered Super Bowl game,” Don describes on his website <http://www.americabowl.net/> , “Each day one will win — and score a point.” For example, on the first day of the contest, George Washington was compared to Super Bowl 1. George won. Presidents: 1 Super Bowls: 0.
“Which have been better?” Don asks, “Our Super Bowl games? Or our Presidents? Finally, we can find out!”
Crazy, right? I mean, how can you compare a President to a Super Bowl? That’s not apples and oranges, it’s apples and Orangutans. Which is, of course, why it’s funny. Why, according to the Economist, it’s “A delightful way to waste time,”
Well, unfortunately AIG took the same principles that made the America Bowl laughable, and used them as the basis for their new performance management and compensation system.
AIG is going to rank thousands of employees on a scale of 1 to 4 based on their performance relative to their peers. It will be a “forced distribution,” which means that 10% of employees will be a”1″, 20% will be a “2”, 50% will be a “3”, and the bottom 20% will be ranked a 4. Then they’ll determine bonuses based on where employees fall in the ranking.
I know, I know, forced ranking isn’t a new idea. GE did it. Can it be that bad?
Yes, in fact, it can. Because A) it’s impossible to do right and B) when you try, you create a tremendous amount of damage.
A) Why is it impossible?
Consider the Winter Olympics in Vancouver. The racers in the Men’s Downhill skiing competition will be ranked based on one, simple criterion: their time. That’s a great use of ranking.
Same idea with the Women’s Ice Hockey Competition. Again, the criterion is clear. The team that scores the most points wins the game. Another good example of ranking.
But now, how about we compare the male downhill racers with the female ice hockey players and rank them based on who performs better?
It’s impossible, of course, because they’re playing different games. So how can we rank Bill from Accounting and Jane from Sales? And even if we keep the ranking within a particular department, jobs are sufficiently different within the same area that performance is unrankable. Can you compare the downhill racers with slalom racers? They’re both ski racing. But the competitions are incomparable. That’s why they have separate gold medals and, more often than not, different winners.
Ultimately ranking, and all the more so when it’s forced into a predefined distribution system, misses the basic and very human principle of talent management: each person has an individual set of skills, competencies, motivations, passions, capabilities, strengths, and weaknesses.
Great companies maximize the impact of each person’s unique talents to make a positive impact. Great managers understand each one of their employees well enough to put him or her in the exact role, the exact situation that leverages the individual’s exceptional strengths and mitigates the negative consequences of the person’s distinctive weaknesses. They don’t waste energy comparing one person to another. They focus energy by comparing each person to the particular job he or she is tasked to accomplish.
Because unless everyone is doing exactly the exact same thing in the exact same way – which rarely happens — it’s a waste of time to compare them. Worse than a waste of time. It’s destructive mismanagement.
B) So it can’t be done. But why is trying to do it so damaging?
When I assess the strengths of a CEO’s leadership team, I look, more than anything, at how they work together. Do senior leaders take responsibility for company wide problems even if the problems have nothing to do with their particular business? Are they willing to sacrifice the success of their division or region in order to support the success of the larger organization?
That’s teamwork for a greater good. It’s exactly the kind of teamwork that makes a company succeed over time. And exactly the kind of teamwork that ranking discourages. Can we really expect people to help each other succeed when they know they’ll be paid more if the people around them fail?
And what about growth and development? The long term success of any organization is based on the willingness and ability of its employees to learn. And as I argued in two previous posts: Why You Need to Fail and How Not Achieving Something is the Key to Achieving It, people learn by taking risks, reaching outside their comfort zone, stepping into roles that are too big, making mistakes and correcting them.
Which means their performance will go down if they’re learning. But rank people and you end up penalizing them for taking on more challenge. In other words, AIG is effectively telling people: “if you want to get paid well, stop learning.” Can we really expect people to take on challenging tasks if we pay them less for doing so?
“I never figured my nutty ‘America Bowl’ would catch fire the way it has.” Don Steinberg said.
If only we can stop the fire from spreading to corporations.
Peter Bregman is CEO of Bregman Partners, a company that strengthens leadership in people and in organizations through programs (including the Bregman Leadership Intensive), coaching, and as a consultant to CEOs and their leadership teams. Best-selling author of 18 Minutes, his most recent book is Four Seconds. To receive an email when he posts, click here.