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Forced Ranking Could Improve Business Performance

March 2, 2005
Related Topics: Latest News
Forced-ranking systems, where a predetermined percentage of low-performing employees is fired every year, can improve a company’s workforce, according to a new study.

The results were published in the latest issue of Personnel Psychology, from Blackwell Publishing.

Steve Scullen, an associate professor in the department of management at Drake University, was one of the authors, along with two North Carolina State professors. Scullen says they used a computer simulation to have fictional companies hire, appraise and fire people, and then rehire replacements over the course of a simulated 30-year period. The researchers also took into account voluntary turnover.

The complex question on the table, Scullen says, was, "Are we really able to find people who are poor enough, that we can find people who are good enough that hiring them will give us a net gain." The answer, the researchers found, was that "in all our scenarios, workforce performance potential at the end of the simulation was higher than it was at the beginning."

Forced ranking, the study finds, is more successful in the first several years of implementation. Its degree of success depends on a number of factors, including the level of voluntary turnover (if more high performers quit, success decreases). Researchers believe that one reason the system loses its potency over time is that some of the poorer performers have already been weeded out.

Effect on morale
One thing the study did not cover is the effect of a forced-ranking system on employee morale or on a company’s reputation, positively or negatively.

"We recognized that’s a critical, important variable, but we weren’t really able to put our finger on it and say, ‘This is how morale would be affected,’ " Scullen says. "Some people would be drawn to something like this and others find it repulsive."

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