Newswise — A study finds that forced distribution ratings systems, where a predetermined percentage of low-performing employees is fired every year, can be an effective way to improve a company's workforce, although these benefits diminish over time.
"A significant number of organizations either already use, or are considering using, 'rank and yank' systems of the type we studied, said Steve Scullen, one of the authors and associate professor of management at Drake University. "Many think these systems are a vital key to organizational success. Detractors argue strongly that 'rank and yank' systems are discriminatory and counterproductive. Unfortunately, there is almost no research available to inform business people about how such systems might affect the quality of an organization's workforce. This study provides the first step in that direction."
By asking if it is "reasonable to expect that an organization would be able to improve the performance potential of its workforce by firing the workers judged to be performing most poorly, and replacing them with promising applicants," the authors create one of the first studies to address this performance management system.
Supporters of FDRS believe it motivates the best employees, removes dead wood, and helps to develop strong leaders. Detractors see a myriad of problems including a system that is open to bias and discourages teamwork. The authors found that "in all our scenarios, workforce performance potential at the end of the simulation was higher than it was at the beginning." The overall impact of FDRS on the company's performance was not measured.
Using a computer simulation, they modeled organizations' ability to improve the quality of their workforces over a 30-year period after implementing FDRS. For the study to be accurate, they included the most significant variables: percentage of employees fired, reliability of ratings that determined who is fired, validity of methods to hire new employees, the selection ratio of new hires and voluntary turnover. Under conditions where the greatest numbers of poorly rated employees were fired and the rating system used to fire them was reliable, the average potential rose 48 percent — the highest. In general, the annual average improvement was approximately 16 percent for the first two years falling to 2 percent in year six and 1 percent in year 10. After year 20 there was no improvement.
"From a statistical or psychometric perspective, FDRS definitely hold promise for improving the average potential of organizational workforces," Scullen said. "We also found, however, that the large majority of improvement would occur in the first few years, after which little or no improvement should be expected. This raises several important questions, which our research so far cannot answer. Is the amount of potential improvement worth the potential cost? What are the nature and the magnitudes of the side effects on morale, recruiting, retention, productivity, etc.? And, finally, what should be done when the point of diminishing returns has been reached?"
This study is published in the current issue of Personnel Psychology, which publishes applied psychological research on personnel problems facing public and private sector organizations. Articles deal with all human resource topics, training and development, performance and career management, diversity, leadership, rewards and recognition, and work attitudes and motivation.
Scullen, who holds a Ph.D. in human resource management from the University of Iowa, has been published in numerous journals and books. His primary research interest is the measurement and management of job performance.