Popular Management Method Might Harm Productivity, Says New Study

Forced Rankings of Employees Bad for Business

A new study suggests that productivity suffers when managers use forced-ranking systems to evaluate the performance of an employee against other employees.

Researcher Stephen Garcia believes that forced-ranking “may negatively affect employees’ willingness to maximize joint gains that will benefit the organization.” Garcia is adjunct assistant professor of management and organizations at the University of Michigan’s Ross School of Business, and is also assistant professor at the Ford School of Public Policy.

“Individuals [subjected to forced-ranking] will care less about performing better on a given task and will, instead, shift their focus to performing relatively better on a scale comparison—in other words, being surpassed in rank,” says Garcia.

This study, conducted by Stephen Garcia and his colleague Avishalom Tor of the University of Haifa, appears in the current issue of Organizational Behavior and Human Decision Processes. Garcia and Tor examine the forced-ranking system by conducting a series of studies of task comparisons vs. scale comparisons.

Task comparisons concern relative outcomes or standing in specific tasks (e.g., anticipated earnings of one’s company vs. a partner company in a joint venture), while comparisons on the scale—the metric that defines a standard—occur at a more general level (e.g., those concerning a company’s standing on annual earnings).

The researchers found that rivals ranked near the top of a standard are more competitive and less cooperative than those far from a standard. Only 25 percent of the study participants were willing to maximize joint gains when they and their rivals were ranked No. 1 and 2, compared to 79 percent when ranked No. 101 and 102. However, when the rivals’ relative standing on the scale was not in jeopardy, participants uniformly behaved more cooperatively—74 percent for No. 1 and 2 and 77 percent for No. 101 and 102.

Similar results were found in a second study that manipulated the threat of an upward comparison on the scale in the business context of the Fortune 500. However, competitive behavior was not only more prevalent among the highly ranked, but also among those at the bottom—those vying to just make it in to the Fortune 500.

Although their findings suggest that forced ranking does not always diminish the likelihood of maximizing joint gains within an organization, they do reveal a significant and overlooked weakness of this new and increasingly popular management system, the researchers say. “While highly ranked employees may be more competitive and productive through simple self-selection, the championing of forced rankings fails to anticipate how competitive forces may ultimately inhibit the profit-maximizing exchange or pooling of information and resources among those ’star’ employees,” Garcia said.

General Electric is the most famous proponent of the forced-ranking model, but other companies have used it in some form at one time or another, including Cisco Systems, EDS, Hewlett-Packard, Microsoft, Pepsi, Caterpillar, Sun Microsystems, Goodyear, Ford Motor and Capital One.