Truth and Consequences

Why tough ''360'' reviews and employee ranking are gaining fans.

Joan Moore, president of The Arbor Consulting Group, an HR management consulting firm in Northville, Michigan, suggests one reason some companies back out quickly is that, “You have to have guts to do it. We see a lot of companies start down the path and peg compensation to it. Then, when the reviews don’t come out the way they want, they back off.”

At Boeing, the 360 that a finance executive does with Sears won’t affect compensation. His process is used only for personal-development purposes and, in fact, “I don’t even keep a record of it,” he says. Nor is it used companywide; Boeing also has a more-traditional performance-skills-based appraisal process. But the CFO says problems identified using his method frequently show up in the formal performance evaluation, which is tied to compensation. “I don’t usually see a lot of negative comments that I didn’t already know about,” he notes.

Some disagree with their appraisals. “I have seen reactions that go from ‘I didn’t know that I did that, but I’ll work on it’ to ‘That’s not true; that’s not me,’” says Sears. “I remind them that this is a gift of honest feedback from direct reports, and there aren’t many people who get the opportunity to get that kind of feedback.”

What’s “Reasonable”?

Attracting an unusual amount of controversy lately has been the ranking technique. In the most commonly used form, managers evaluate their direct reports relative to one another, and must at least categorize each candidate as being in the top, middle, or bottom group of performers. This “forced distribution,” called rank-and-yank by some critics, was popularized by General Electric Co., which routinely weeds out many among the bottom tenth. Ranking draws fire from employee groups and HR consultants, some of whom believe it can be used to discriminate against various employee demographic groups. The ranking practice has spawned numerous employee class-action lawsuits at such companies as Microsoft, Ford, and Conoco. The Conoco suit, filed by a group of middle-aged white males, alleges that British and European managers selectively discriminated against them during ranking.

In reality, of course, claims Hewlett-Packard Co. CFO Bob Wayman, ranking is inherently discriminatory — against low performers. “Ranking is an outgrowth of a fundamental American entrepreneurial principle,” he says. “The whole idea of our economic system is competition and relative performance. Companies that do well win, and employees who do better than others move up faster and get paid more. People do relative ranking in their lives every day, making performance-based judgments about people.”

At HP, which has used ranking for more than 30 years, managers annually rank all employees based on preset goals, and general competencies like teamwork. In Wayman’s finance department, cross- organizational involvement is also an element, and cost control and related issues get more weight than they do elsewhere. All of HP’s 90,000 workers are ranked in one of five “bands,” says Wayman, based on a “reasonable distribution” that the company keeps relatively fluid. “We don’t have a specific percentage that must fall into each band,” the CFO says. The results all come to Wayman, who standardizes the findings, “but we don’t have it all diagrammed out on a blackboard. It’s not that specific. You make a judgment about what the person did in their job, and how hard it was, versus how hard it was for others.”

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