Forced distribution rating systems and the improvement of workforce potential: a baseline simulation.

Through simulation we investigate how characteristics of forced distribution rating systems (FDRS), which require firing a certain percentage of the workforce each year, might interact with ratings reliability, selection validity, selection ratio, and voluntary turnover to improve average workforce performance potential. Results suggest that a FDRS could lead to noticeable improvement in workforce potential, that most of the improvement should be expected to occur over the first several years, and that improvement is largely a function of the percentage of workers to be fired and the level of voluntary turnover. Greater improvement is associated with higher numbers being fired and lower levels of voluntary turnover. The effects of bundling FDRS with recruiting and retention initiatives are also investigated.

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According to Jack Welch, former CEO of General Electric, "A company that bets its future on its people must remove the lower 10 percent, and keep removing it every year--always raising the bar of performance and increasing the quality of its leadership," (General Electric Company, 2000, p. 4). That message seems to resonate with many in the business community. By some estimates, as many as a quarter of the fortune 500 companies, including Cisco Systems, Hewlett-Packard, Microsoft, Lucent, Conoco, EDS, and Intel, may be currently using some type of performance management system built around that principle (Meisler, 2003).

Proponents of policies that require managers to regularly identify and remove poorer performers believe that this benefits the company in several ways. It motivates the best employees, eliminates dead wood, forces managers to be honest with workers, cultivates a climate of meritocracy, and develops strong leaders (Boyle, 2001; Jenkins, 2001; Welch, 2001). Welch contends that this also benefits poor performers by encouraging them to move on to other jobs for which they are better suited (Welch, 2001).

Such forced distribution, or "rank and yank," systems are not without their critics, however. Some charge that they are unfair, subjective, and vulnerable to bias of various sorts (Boyle, 2001). They argue that forced distribution rating systems (FDRS) often penalize good employees who happen to work on good teams and reward mediocre employees who are members of poor teams. Pfeffer and Sutton (2000) argue that FDRS are counterproductive for the organization as well, in that they discourage collaboration and teamwork among employees.

The pros and cons of FDRS have recently been examined not only in professional HR journals (e.g., HR Magazine, Bates, 2003; Workforce, Meisler, 2003), but also in The Wall Street Journal (Jenkins, 2001), Fortune (Colvin, 2001), and US News & World Report (Clark, 2003). The arguments have also been made in the courts. Employees at Microsoft, Conoco, Ford, Goodyear, and General Motors have filed class-action lawsuits, claiming that FDRS resulted in discrimination against blacks, women, older workers, or noncitizens. All of this has prompted one observer to describe FDRS procedures as "probably the most controversial issue in management today" (D. Grote in Bates, 2003, p. 64).

Given the intense interest in FDRS, it is surprising that there is virtually no published research that can inform practitioners about their effectiveness. According to Gray (2001), the fundamental issue that underlies much of the FDRS controversy concerns the extent to which the implementation of a FDRS can be expected to improve the average quality of an organization's workforce. Our primary purpose in this article is to make an initial baseline assessment of that question by examining how the quality of the workforce might be affected if a FDRS were introduced into an organization with typical performance evaluation processes and personnel selection systems, as well as average levels of voluntary turnover.