Judgment Day
It's survival of the fittest as companies tighten the screws on employee performance reviews
Companies are also changing how frequently they rate workers. The old once-a-year rating often really only covered the previous three months, since studies have found most people tend to forget events further back in time. But now, using computer programs similar to those that track telephone operators' minute-to-minute performance, companies are reviewing performance of all kinds of workers much more frequently. Health insurers and retailers are experimenting with monitoring systems that can appraise claims processors' and salespeople's daily performance, and hand out bonuses or warnings as often as every month. And Seagate Technology last year started requiring high-level executives and engineers to fill out computer forms reporting on their progress toward company goals each week.
Top to bottom. The most controversial change, though, dates to when Jack Welch took over as CEO of General Electric in 1981. Welch was intent on breaking up GE's legendary bureaucracy. His idea: Instead of following a traditional system, in which bosses could--and often did--rate all their employees as "above average," Welch had executives identify the top 20 percent of managers and mark them for advancement. They also had to identify the bottom 10 percent, who would then either have to improve or leave. As GE's profits soared, legions of executives copied that "forced ranking" system.
Today, one third of all employers use such rankings on at least some of their staff, more than double the 1997 level. And fully two thirds of all U.S. companies use performance as at least one factor when deciding whom to lay off. Dick Grote, a former GE executive who has helped dozens of companies install forced ranking systems, says executives like them because they are the fairest and easiest way to downsize. "The alternative is retaining people who are less competent" and promoting people who aren't stars, he says.
But in a slew of class action lawsuits, workers who have been given low ranks say that it is the companies that deserve the flunking grade in meritocracy. Until 2001, Jack McGilvrey, 59, got good ratings throughout his 36 years as a chemist for Goodyear. Then, executives at the Akron, Ohio, tire company said they would try to boost profits by insisting that 10 percent of the staff be rated as "A performers" and tagged for promotion, and 10 percent rated C and tagged for improvement or eventual dismissal.
In a complaint filed in federal court last fall, McGilvrey and seven other workers say that it was older employees like them and not the poor performers who got the C's. After McGilvrey received a second C rating in May of 2002, he says he was terminated. Just a few days after he was forced out, he received a patent for a new kind of aircraft tire. "It is very unfair to start out with the assumption that a certain percentage of your employees are unsatisfactory, " McGilvrey says. "It was very subjective and designed to weed out the older people."
Goodyear, which scrapped the forced ranking system shortly before McGilvrey's lawsuit was filed, is fighting the case, saying the appraisals weren't biased. Forced rankings "worked wonderfully for GE," says Goodyear spokesman Keith Price. But internal confusion over what the letter grades meant was distracting Goodyear employees from the goal of improving company performance, he says. Goodyear is now pinning its hopes on a revamped appraisal system. Managers are taking a one-day training course on how to give ratings such as "exceeds expectations" based on progress toward clearly stated and pragmatic company goals such as meeting delivery deadlines.
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