I had a discussion recently about the concept of topgrading. Tograding was made most popular by former General Electric CEO Jack Welch. Welch’s practice at GE was to locate the top 20 percent of performers, celebrate them and pay them handsomely. The middle 70 percent of performers would continue on as usual, not without the knowledge that they were not in the top. Lastly, the bottom 10 percent would be “invited to be successful else.” Welch advocates such performance evaluations up to 4 times per year.
Initially, the idea sounds great. It is unfair to allow employees to work without receiving feedback about their performance. Even the bottom 10 percent are done a great service by being told that their performance is at the bottom. However, is topgrading really in the best interests of the organization?
Topgrading rests on assumptions that may or may not be accurate.
It assumes that the bottom 10 percent are always loafers, always failing to meet the requirements of the job. What if they’re doing everything they’re being asked? Then you have the unfortunate task of firing people who have met expectations.
It assumes that suitable replacements are being found that will have higher performance. If the new employees are more talented, than next cycle, individuals who were told that they were average are now being told to “shape up or ship out.” In the short term, those average employees, whose performance met expectations, are now being eliminated. In the long term, eventually even the original top 20 percent employees will find themselves being “elsewhere invited.”
However, recent research into the portability of performance suggests this is difficult at best. Often times the new “star” employees hired into an organization experience a significant drop in performance that may or may not be recovered from. If the new employees are not performing better than the previous, than the organization has spent a lot of money for naught.
It’s a great question to ask whether it’s in the best interest of the organization. Maybe the more worthwhile endeavor would be to find out what the employees care about.
For example, in M&A, if a large company buys out a smaller innovative firm, the naturally innovative employees may feel stifled inside the larger organization with its many rules and regulations. Since these employees are probably going to leave anyway, knowing what drives them would identify them as candidates for “success elsewhere” and therefore allows the organization to strategically plan accordingly.
I totally agree. For the example you provide, a system like topgrading would usher them out, since they would likely be shown to have been low ranking performers. Yet the low ranking is a result of the system…not the individual.
Thanks for the comment Mike.
I too am intrigued by Welch’s practice in this, but hesitate in the absoluteness of his numbers. If I have a team of 10, does that mean I have to fire one person per year, every year? I’m not so sure the fear of being fired is always a good motivator.
I do think that organizations are sometimes too timid to deal with their low performers (or their HR reps are too chicken to assist the managers with this). It is frustrating to be on a team with members dragging it down, and the whole organization breathes a sigh of relief when they leave. It may also unburden the average performers from the low performers dragging them down.
I see your point. Welch had a great respect for the role of HR in large organizations, and organizations shouldn’t be fearful of releasing people who aren’t meeting expectations. But it is mathematically impossible for everyone to meet expectations if the expectations is “not the bottom 10%.” Force ranking forces someone to be last, even if everyone is doing above and beyond their job description.