Fortune admits Jack Welch is wrong – ranking employees really is stupid

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Distaste I try keep posts which rail against corporate life to a minimum and focus instead on concrete tips for helping people escape their job and start their own business.  (Although a good rant is cathartic at times!) Lord knows there are enough people blogging about how miserable it is within corporations.

But when I picked up this month’s issue of Fortune magazine, I simply had to comment.  The cover has a smiling face of Jack Welch, ex-CEO of GE and star of the Executive speaking circuit.  He has a gigantic circle and slash over his face and the cover proclaims: 

Sorry Jack!  Welch’s Rules for Winning Don’t Work Anymore (But We’ve Got 7 New Ones That Do)

They take to task some of his long-held management religion that states short-term profit is king and swashbuckling, charismatic CEOs will boost company profits.

The rule that I am most delighted to see smashed apart is this:

Rank Your Players, Go With the A’s

I am very intimate with this process, having consulted with executives and managers that were being forced to implement such a system within their company.  Most often, a senior executive read one of Welch’s books or sat next to a colleague in first class who waxed poetic about the system and decided to implement it without considering the impact on their employees.

Here is the premise:  Create a system where all employees are ranked in groupings of A, B and C according to performance.  Support and nurture the "A’s and B’s" and ignore or fire the "C’s."  In a perfect world where everything is fair, politics don’t exist and communication between managers and employees is open and honest, this would work fine.  As Jack himself said, "(ranking) has been portrayed as a cruel system.  The cruel system is the one that doesn’t let anyone know where they stand."

The problem is, ranking rarely does anything to support an environment of superior performance, energy, passion and excellence.  Rather it turns into a nasty popularity contest, with the employees that have the most vocal and well-connected managers winning the coveted high rankings.  An employee may have an off year due to many different factors, often outside of their control.  The designation of "C" ranking (sometimes a "3" in companies that use 1, 2 and 3) can have a devastating effect on someone’s career.

I had the privilege of working with an extraordinary woman in one of my projects that had experienced a series of events that landed her the first "C" rating of her 20+ year career in a large corporation.  The year before, she was encouraged to take a position that was not within her area of passion or interest, and she struggled to deliver results.  She had two major personal blows in the same year, losing a sibling, and having to work down the hall from her daughter’s abusive ex-husband who took every chance he could get to threaten and intimidate her.  She admitted that it was not her best performance year, but if you looked at her track record, it was obviously a huge exception to two decades of solid performance.  Once she got the rating, however, it became like a scarlet letter hanging around her neck .  She was refused job interviews in other parts of the company, because they told her they wouldn’t consider "C" candidates.  Since she was just 5 years from retirement, she felt like the grim reaper was trying to hasten her exit from the corporation.  Thankfully, she did some serious networking and research and landed a job that perfectly fit her skill set.  Her performance improved dramatically and she is now 2 years away from a well-deserved retirement.

It boggles my mind how much time and energy is wasted on implementing systems that fundamentally don’t make sense in the real world.  If you were to ask most employees what they thought of the idea of ranking these days, most would stick out their tongue and give a huge thumbs-down.  If you want to get great performance, here is a simpler route:

  • Discuss work expectations with your employees.  Include specifics as to quality standards, quantity of output, expected customer satisfaction, etc.
  • Ask them if they feel they are able to accomplish the work. If so,
  • Check in frequently.  Ask them how it is going.  Ask them what is getting in their way of accomplish their goals.
  • Remove the things that get in their way.
  • Check in some more.  Have open, honest expectations about how things are going.  Be supportive, but don’t sugarcoat your observations.
  • At the end of the year, there will be no surprises.

One of the greatest benefits of being on my own for a decade is bypassing the whole ranking system.  Instead of sweating bullets trying to be an "A" instead of a "B," I just do the very best I can to serve my clients.  If they don’t like what I do, they fire me.  Nice and simple.  Haven’t been fired yet, so something seems to be working.

7 Responses to “Fortune admits Jack Welch is wrong – ranking employees really is stupid”

  1. Unfortunately ranking, whether formal or not, does happen and plays out in financial tough times for companies. Most companies we will work for today (many of them ‘good’) will lay off employees when times are tough. You will discover your rank at this time.

    As a senior manager in one company I once had to lay off 5 people from my department. I argued; I objected; I flew down to head office to discuss it with the CFO as I thought the decision was arbitrary and would hurt the company’s long-term growth prospects. No go. I had several discussions over a period of years with one individual who I respected very much. He did good work, was reliable, and had turned around a bad attitude (post merger) to a good one. However, he didn’t, wouldn’t, stay current in his technology knowledge. I sent him on courses, gave hime time away from the office to self-study at home, had frank discussions with him. I gave concrete examples of how some of his peers had handled retraining. He was too busy coaching his kids’ sports and leaving the office on time to do so. There may have been other reasons even though these themselves were pretty good. When it came time to fire people, he was one of the five I could ‘do without’. There were operational, project management, and development positions that I couldn’t but his I could.

    I am sure the same applies in consulting. As you said, your customer always has the choice to fire you and/or choose not to invite you back for repeat business. We should all know where we rank. Some of us use it to drive ourselves forward. Others need it as a wake-up call before it’s too late.

  2. Astha says:

    It’s even more frustrating when you realize that most arguments in favor of Performance Ranking are based on a research done by Professor Steven E. Scullen- a statistically sound endeavor- but a simulation! The authors emphatically emphasize this fact, but people who quote it conveniently overlook the latitude between simulations and realities.

    Also the authors clearly say that Performance Ranking works for only a few cycles and can actually be detrimental after that.

    Performance Appraisal & The Feared Curve: A three part series!BB0155A45B1604C7!589.entry

  3. How to Follow the Right People and Get the Results You Want

    This article discusses why you shouldn’t necessarily follow the advice of Journalists. Related to the Fortune Magazine article on Jack Welch.

  4. Fortune magazine has this all messed up. Clearly Betsy Morris just wanted to get on the cover.

    What Jack Welsh is trying to explain is the princple that in any group you have A,B, and C people. He of course is giving his personal techniques for dealing with these people, but it’s the principle people should have paid attention too.

    Fortune Magazine is completely wrong if they think that has changed!

    – Bryan

  5. Mark says:

    When I worked for a big tech company, we used ranking more for setting pay than for giving performance feedback, though of course the two are connected. If not by explicit ranking, how do you recommend companies set pay? Should they pay for performance? If there is an implicit ranking, should the company try to keep it secret from the employees?

    Any compensation system can be executed poorly. I didn’t mind ranking that much, myself. As long as it was combined with the continuous feedback and objective-setting you mention (which it usually was, for me).

    Life is all different now that I work for a public university and salaries are public record. Pay for performance? Ha!

  6. Ranking Employees

    Pam comments on Fortunes review of the Jack Welch rules, specifically ranking employees….

  7. Mike Kline says:

    I like Jack Black much more than Jack Welch…

    Performance Management not Ranking and Raving about how much one doesn’t really do. 🙂

    Surf with Sharks! That is fun.