Forced Ranking

What is forced ranking?

Forced ranking, also known as stack ranking, is a performance appraisal system that categorizes employees into top, average, and low performers. Managers typically place a certain share of employees into each category. For example, 20% are rated top performers, 70% are satisfactory performers, and 10% are categorized as low performers.

A forced ranking system evaluates employee performance against all other employees in a department or organization and not on individual performance standards.

Organizations that use forced ranking performance appraisal may use it to offer rewards, bonuses, or promotions. Low performers may face disciplinary action or termination.

Forced ranking is a controversial method because it can create a competitive rather than collaborative workplace environment. Critics argue that it can demotivate employees, encourage unhealthy competition, and potentially lead to unfair assessments, as the system requires a set number of employees to be classified as low performers, regardless of their actual achievements.

The forced ranking method explained

How exactly does forced ranking work? Here is an overview of the key steps:

1. Setting clear criteria and performance indicators: This involves establishing the performance criteria and indicators specific to different job functions and relevant to the organization’s goals. It may include certain skills, achievements, and desired behaviors for different performance levels (e.g., top, satisfactory, low).
2. Evaluation period: Set a particular timeframe to evaluate employees (e.g., quarterly, annually). During this time, managers should keep track of employee performance through ongoing performance reviews, feedback, and other observations of employee contributions.
3. Ranking employees: The essence of a forced ranking system is to categorize employees based on pre-determined performance categories. The process involves comparing employees’ performance against each other and not on individual performance standards. A typical system can be to categorize 20% of employees as top performers, 70% as average performers, and 10% as low performers.
4. Outcomes and feedback: Once rankings have been determined, employees are notified of how they rank. Top performers may receive rewards, bonuses, or promotions. For middle performers, managers may identify specific areas for improvement. Low performers may face disciplinary actions or termination.

Risks and benefits of forced ranking

Benefits

• Promotes a high-performance culture: By differentiating between high and low performers, forced ranking encourages a culture of excellence. Employees may be more motivated to improve their performance, knowing that their efforts and results are closely monitored and compared.
• Facilitates talent management: This system makes it easier for managers to identify employees with the potential for growth and development, as well as those who may require additional training or support.
• Drives strategic alignment: By linking performance evaluations directly to the strategic goals of the organization, forced ranking ensures that employees’ efforts are aligned with the company’s objectives. 
• Streamlines decision-making in layoffs: During downsizing or restructuring, forced ranking provides a systematic approach to making difficult decisions about which employees to retain and which to let go. It offers a rationale that is based on performance, potentially reducing biases.

Risks

• Unhealthy work environment: A forced ranking system may also create a toxic work environment, where employees are actively competing against each other to achieve top performance status.
• Low morale: Employees who do not achieve high-performance rankings may disengage or feel demotivated. Over time, this can lead to low employee engagement and high turnover.
• Overlooking individual contributions: The focus of comparing employees against each other may lead to a lack of acknowledgment of individual goals and contributions for those who do not meet the criteria of top performers.
• Reduced innovation: Having predefined performance criteria can limit creativity and innovation within teams. Employees may not want to stray away from certain performance indicators, fearing they will be penalized for thinking outside the box.

Forced ranking example

Here is how forced ranking could be used in a marketing department with 15 employees:

1. Setting clear criteria and performance indicators: The HR team, in collaboration with the Head of Marketing, develops the key performance criteria for different roles in the marketing team (e.g., Social Media Manager, Content Marketing Specialist, etc.). Depending on the role, the evaluation areas may  include the following performance indicators:
   • Website traffic and engagement from marketing campaigns
   • Social media engagement (lead generation, follower growth)
   • Content marketing performance (organic search traffic)
   • Campaign performance (ROI, brand awareness).
2. Evaluation period: During the quarterly evaluation period, marketing managers track employee performance using the predefined performance indicators. They document key metrics and data, as well as any areas for improvement.
3. Ranking employees: Using a forced ranking scale of 20/70/10, the marketing manager assigns each team member to a performance category based on their performance compared to their peers:
   • Top performers (20%): These team members were identified as the top performers due to their exceptional achievements, exceeding their targets, and contributing innovatively to projects.
   • Middle performers (70%): These employees met most of their objectives and performed competently but did not stand out significantly from their peers.
   • Low performers (10%): Over the last quarter, these team members were categorized as low performers, as they consistently failed to meet their targets and showed little improvement despite feedback and support.
4. Outcomes and feedback: Based on these rankings, each employee receives performance reviews and feedback. Top performers are eligible for bonuses at the end of the year if they maintain their performance. Medium and low performers may be supported with development plans and training. In some cases, consistent low performers may receive disciplinary action or face termination.

Alternatives to forced ranking

Alternatives to forced ranking have emerged as organizations seek more collaborative, developmental, and flexible approaches to performance management. Here are some of the most notable alternatives:

• 360-degree feedback: This multisource performance evaluation method typically gathers feedback from various internal stakeholders, including peers, direct reports, and supervisors. Depending on the role, external stakeholders such as customers and suppliers can also provide feedback. Although traditionally for leaders and managers, a 360 review is becoming popular for all employees.
• Competency-based behavioral assessment: This method evaluates employee’s skills, competencies, and knowledge relevant to their job role. The overall goal is to determine how well an employee’s skills and behaviors meet the requirements of their position and the organization’s expectations.
• Management by Objectives (MBO): Managers and employees work closely to set goals aligning with departmental and organizational objectives. This evaluation method’s success depends on regular feedback and progress checks to ensure an employee is on track.
• Individual Development Plans (IDPs): This is a future-focused performance management method. IDPs involve setting future goals and determining the most appropriate training or development opportunities to support employees in achieving their goals. Employees are then assessed against their IDPs.
• Self-appraisals: In addition to the above methods, self-assessments can be added to an employee’s performance evaluation. It allows them to reflect on their performance, achievements, and areas for improvement. Some managers use self-appraisals as a starting point for performance review discussions.

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