Real employees who received poor performance reviews from Cheryl Smith, senior vice president and CIO of $57 billion McKesson Corp.: The IT manager who spent more time walking around the executive floor trying to be seen than working with his team to solve actual problems.
The senior programmer who worked very hard on an extra project she thought important, causing her group to miss key deadlines because her assigned work didn’t get done.
The employee who called in sick every other Monday and Friday, believing that no one would notice.
The programmer who signed up to work at home two days a week but then never seemed to be available those days for conference calls.
The senior staffer who felt that, because he had worked hard throughout his career, it was time to take it easy because the company owed him.
The programmer who refused to take her turn in the rotation for emergency night-call duty.
The analyst who spent a lot of time shopping online for personal items.
If you’ve been in IT management for long, you’ve probably had to deal with employees who aren’t up to the task, consistently perform below their capabilities or exhibit a bad attitude. These staffers fail to live up to "the agreement," as Smith puts it, that in exchange for a paycheck, they provide the company with their talents, experience and time.
It’s a wrenching task, but you have to face up to the need to confront poor performers and either fix their shortcomings or fire them. If your organization is still in layoff mode, then identifying and weeding out the undesirables is by far the best way to trim headcount. And when the economy does rebound, CIOs who have culled their staffs will be better prepared to take on new projects aggressively.
In recent years, many companies have instituted the concept of forced ranking, a tough-minded approach that obligates managers to rank their staffers against one another. The bottom-dwellers typically are pushed out or encouraged to leave. Forced ranking is not without its detractors, however. Some say it drains employee morale, eliminates cooperation and, if used every year, can result in even good performers being cut. But forced ranking can be applied in a less draconian and more effective way.
Smith identifies and rewards her best employees with bonuses, while the poor performers get nothing. Anything else would be unfair to her star staffers. "Life is a bell curve. Get used to it," says Smith, who prefers to refer to "relative contribution" rather than forced ranking, since she believes the first term more clearly explains to employees how they’re being evaluated.
You Can Run, But You Can’t Hide
No question, it’s often very hard to confront poor performers. "Managers would rather have a tooth pulled than have a performance conversation with a subordinate," says Dick Grote, president of a management consultancy specializing in performance appraisal, Grote Consulting, and author of several books on performance appraisal. "Dealing with poor performers is probably the most difficult job that anybody with supervisory responsibility has. The hardest thing to do is to look a person in the eye and tell them they’re not good enough. God, that’s tough."
Going soft on problem employees, however, can just end up creating more problems for an organization, says Tsvi Gal, senior vice president and CIO of Warner Music Group. If a manager is not abundantly clear with an employee about his performance during a review, the employee won’t change his behavior to the degree needed. "When you say to someone, ’You can improve a little bit in this area,’ they take it literally—that they only have to improve a little bit," Gal says.
If unskilled or careless workers fail to take care of software and systems properly, it can affect the business from a revenue and cost perspective, says Martin Davis, CIO of $24 billion financial services company Wachovia. When the business unit is funding the IT project, and the project ends up costing more than was established in the business case because of a botched implementation, the business unit will have to shell out more money.
Turning a blind eye to shoddy work can also eat away at your own IT organization. That’s especially true in companies that have downsized, where there’s more work for remaining employees to do. "Nothing drives your good performers away faster than knowing that a supervisor isn’t dealing with performance issues," says Kris Paper, senior vice president and CIO of Primedia Business Magazines & Media. "I know I have to pull the trigger and eliminate [underperformers] when my good kids are suffering, like when they’re having to take that person’s call or they’re having to redo that individual’s work," she says.
Nonetheless, managerial lenience with poor performers is so pervasive that many companies have turned to forced ranking. It’s a controversial practice, because it effectively forces managers to make tough decisions that they otherwise wouldn’t or couldn’t make about their employees.
Forced Ranking: Right for You?
Forced ranking was popularized by Jack Welch early in his tenure at General Electric. Several high-profile companies followed suit, among them Conoco, Hewlett-Packard, Microsoft and, notoriously, Enron. As many as 20 percent of large companies now apply forced ranking. There’s no single way to do it—the concept encompasses any system in which individuals are ranked against one another. Probably the most popular method is to set the distribution according to a bell curve, designating, say, 10 percent of employees as top performers, a middle 80 percent as the unspectacular but necessary backbone of the company, and the remaining 10 percent as the bottom-feeders. Other companies rank employees on a totem pole, one above another. Still others divide the staff into quartiles. Usually the stars in the top group receive the lion’s share of development and bonuses, while the bottom-dwellers get a pink slip or, at the very least, a warning.
Often, only senior executives and managers are force ranked, in order to identify and groom potential future executives. Other companies force rank all of their employees. When CIOs apply forced ranking to their IT organizations, usually all staffers get ranked against one another according to some criteria, such as the contribution that they made in IT to the company’s success.
Forced-ranking schemes all assume that something is amiss in an organization’s performance or development plans. Not everyone can be above average, after all. Bill Haser, CIO of Tenneco Automotive, a $3.5 billion manufacturer of car and truck parts, says he instituted forced ranking in his IT organization for that very reason. "We know our organization isn’t as good as the performance reviews would lead us to believe," he says.
McKesson’s Smith has advocated distinguishing employees’ relative contributions to the company since moving into IT management from Ernst & Young in the early ’90s. At McKesson, where she became CIO on Oct. 1, 2002, she identifies not who to fire, but who to reward. The superstars in the top group are in line for raises, bonuses, opportunities for advancement and other perks. The solid performers in the large middle group get some financial remuneration for their efforts. The low performers get zip. "Most people, when you give them a very poor rating and when you don’t give them a raise and you don’t give them a bonus, leave the company [on their own]," she says.
Smith would seem to have found the perfect management model—a self-fulfilling performance ranking. Yet opponents of the forced-ranking concept point out several negative side effects. Ed Lawler, who wrote Treat People Right! and other books on performance and founded the Center for Effective Organizations at the University of Southern California’s Marshall School of Business, argues that rather than raising the bar for performance inside organizations, forced ranking—as it is usually applied—creates a dysfunctional, hypercompetitive work environment. While interviewing current and former Enron employees about the company’s corporate culture and forced-ranking process before its fall from grace, Lawler found that employees refused to collaborate with one another.
"They would hoard knowledge, hoard customers, because the last thing they wanted to do was share information with the people they were competing with," Lawler says.
Another disadvantage of forced ranking, particularly when applied to IT groups, is the high cost of turnover and the difficulty of quickly finding employees with the right skill sets. For her part, Smith believes that any costs of hiring new people into her organization to replace poor performers are offset by an increase in overall productivity.
Some companies using forced ranking have become embroiled in discrimination lawsuits brought by employees upset over dismissal or lower pay. Conoco, Ford Motor and Microsoft have all faced such suits. Lawler says companies that use forced ranking get into trouble with litigation when the criteria they use to evaluate employees are too subjective—for example, a vague metric of "contribution made to the company." A more defensible measure is a relation to something concrete, such as sales figures. But that poses a difficulty for CIOs, Lawler says, since IT employees rarely have a direct impact on a company’s sales or profits.
Clearly, forced ranking shouldn’t be used lightly. Even Grote, the performance consultant who’s a vocal proponent of forced ranking, doesn’t believe it should be done every single year. "The first time [you do it] you’re cutting the obvious fat. The second time, you’re cutting the interstitial fat. By the third time, you’re getting down to muscle and bone," he says.
Five Steps to Upgrading Workforce Performance
If you elect to use forced ranking—whether a scorched-cubicle variety or a kinder, gentler approach—there are ethical and legal guidelines to follow, as with any employment-related matter. The following steps will help you diagnose which type of underperformer you’re facing, decide whether he merits training or dismissal, and help protect you and your company from any lawsuits filed by disgruntled employees.
1. Use a performance appraisal system. Defined as the art of determining how well employees do their jobs, performance appraisal is distinct from forced ranking. Think of a rigorous and uniform system of performance appraisal as a solid foundation for making all decisions on promotions, employee development and terminations. You must first formulate a set of organizational or departmental goals for worker performance and then implement a fair and consistent method for judging how well workers meet those goals. Only then will you have a defensible basis on which to make personnel decisions.
Various performance appraisal systems have been developed over the years. (This is the province of the HR representatives, so consult them before proceeding.) Primedia’s Paper developed a method to evaluate her IT staff when she joined the company in October 2002. First, she helped formulate a document that defined the IT organization’s values and culture. Each employee was evaluated on his cultural fit. Next, she looked at past performance appraisals and met personally with everyone in the IT department. Based on those evaluations and conversations and her 20 years in IT management, she got a good sense of people’s values and skill sets.
She then composed a graph separated into quadrants. The X-axis indicated employees’ values; the Y-axis indicated their technology skills. She plotted each staff member on the graph according to his technical skills and cultural fit. Paper finds that plotting all of her people on a chart helps her determine who are the stars, who needs training, who is in the wrong job and who needs to exit the organization.
2. Keep HR in the loop. When facing a potential problem with an employee’s performance, immediately bring it to the attention of the human resources group. By alerting HR staffers that someone is having problems, you get them in the loop before the situation gets out of hand, and you cover your bases in the event that the person eventually is fired. Be prepared to be specific about your complaint—for instance, delays in a software implementation are due to the worker’s lack of skills or poor attitude.
If your relationship with HR is strained or distant, now is the time to turn that around. "It’s important to engage our professionals in HR to make sure we’re following all corporate and HR policies appropriately, we’re being fair to the employee and that we’re looking at all sides of the problem," says Wachovia’s Davis. HR can bring its expertise to bear on performance issues and provide you or your managers with coaching, if needed.