Truth and Consequences

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

The process doesn’t end there. Wayman reviews the overall band distribution, and probes more deeply if the “reasonable” distribution isn’t achieved. “As the boss, you want to put people in the middle or upper bands,” he says. “You don’t want to have to face people who aren’t performing relatively well.” Wayman says he often “pushes back” on managers to get more accurate — and in some cases more brutal — appraisals.

To avoid any discrimination problems with ranking, HP performs a thorough demographic analysis — age, race, “and anything else that we can legally look at” — to identify any statistically significant biases. If he finds them, Wayman seeks “a lot of backup to justify why all those people were there.” Would he move people up to reduce the size of one group in a lower band? “Not if they were all underperformers,” he says, adding that, so far, no lawsuits have been filed against the system.

HP uses ranking to determine compensation, promotions, and options packages. In addition, the company will soon incorporate a 360 peer- review component in the mix, although 360 results will be used primarily to determine future courses of training for employees.

Flexibility is the most important component in a ranking system, says Wayman. “The managers have to make the necessary judgments if a certain department is really strong, with lots of star performers,” according to the CFO. “And I would be OK if they’re not meeting the distribution.” Managers must consider other factors besides rank when making job or compensation decisions — for good reason. “When I moved to the CFO position,” says Wayman, “my ranking dropped from a 5 to a 2. It was because I didn’t know how to do the whole CFO job.”

Ranking can be an economical way for companies to make difficult staffing decisions quickly, supporters of the technique say. And “it’s a great tool when you want to get people’s attention and say ‘new day, new rules,’” adds Mercer’s O’Neill. “But for some companies, it’s just not the right system,” she maintains. “Applying it from top to bottom can be incredibly burdensome and complicated. It’s best to do it within discreet groups. The devil is in the details.” Ranking must be conducted with a blind eye to demographic variables, she adds. “If you try to work the system, you’re in trouble.” And like the 360, ranking is easy for companies to drop after a bad experience.

Susan Gebelein, an executive vice president with the management and HR consulting firm Personnel Decisions International, in Minneapolis, adds that “a lot of companies are ranking based on current performance. That’s really wrong,” because so much of an employee’s value is in his or her potential for the company, which also can be measured in a ranking. “A lot of managers aren’t very good at seeing potential,” says Gebelein.

Believing in Your Assets

Another alternative appraisal approach — at the far end of the spectrum from ranking — is the employee-driven evaluation, or “bottom-up” critique, conducted by companies that want workers involved in standard-setting. In the most extreme cases, employees conduct their own research on their business units’ long- and short-term needs and goals, and draft job-specific goals and standards while interviewing their own peers, supervisors, and reports for feedback. The supervisor then gets the findings. Still a very rare tack, it is not far from what’s being done at privately owned Flint Ink, an Ann Arbor company that makes ink for newspapers, magazines, and consumer packaging.

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