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. \n\nThe 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\u2019t 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\u2019ve been in IT management for long, you\u2019ve probably had to deal with employees who aren\u2019t 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\u2019s 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\u2019re being evaluated.You Can Run, But You Can\u2019t HideNo question, it\u2019s 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\u2019re not good enough. God, that\u2019s 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\u2019t change his behavior to the degree needed. "When you say to someone, \u2019You can improve a little bit in this area,\u2019 they take it literally\u2014that 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\u2019s especially true in companies that have downsized, where there\u2019s more work for remaining employees to do. "Nothing drives your good performers away faster than knowing that a supervisor isn\u2019t 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\u2019re having to take that person\u2019s call or they\u2019re having to redo that individual\u2019s work," she says.Nonetheless, managerial lenience with poor performers is so pervasive that many companies have turned to forced ranking. It\u2019s a controversial practice, because it effectively forces managers to make tough decisions that they otherwise wouldn\u2019t or couldn\u2019t 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\u2019s no single way to do it\u2014the 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\u2019s 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\u2019s success.Forced-ranking schemes all assume that something is amiss in an organization\u2019s 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\u2019t as good as the performance reviews would lead us to believe," he says.McKesson\u2019s Smith has advocated distinguishing employees\u2019 relative contributions to the company since moving into IT management from Ernst & Young in the early \u201990s. 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\u2019t give them a raise and you don\u2019t give them a bonus, leave the company [on their own]," she says.Smith would seem to have found the perfect management model\u2014a 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\u2019s Marshall School of Business, argues that rather than raising the bar for performance inside organizations, forced ranking\u2014as it is usually applied\u2014creates a dysfunctional, hypercompetitive work environment. While interviewing current and former Enron employees about the company\u2019s 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\u2014for 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\u2019s sales or profits.Clearly, forced ranking shouldn\u2019t be used lightly. Even Grote, the performance consultant who\u2019s a vocal proponent of forced ranking, doesn\u2019t believe it should be done every single year. "The first time [you do it] you\u2019re cutting the obvious fat. The second time, you\u2019re cutting the interstitial fat. By the third time, you\u2019re getting down to muscle and bone," he says.Five Steps to Upgrading Workforce PerformanceIf you elect to use forced ranking\u2014whether a scorched-cubicle variety or a kinder, gentler approach\u2014there 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\u2019re 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\u2019s 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\u2019s 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\u2019s values and skill sets. She then composed a graph separated into quadrants. The X-axis indicated employees\u2019 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\u2019s 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\u2014for instance, delays in a software implementation are due to the worker\u2019s lack of skills or poor attitude.If your relationship with HR is strained or distant, now is the time to turn that around. "It\u2019s important to engage our professionals in HR to make sure we\u2019re following all corporate and HR policies appropriately, we\u2019re being fair to the employee and that we\u2019re looking at all sides of the problem," says Wachovia\u2019s Davis. HR can bring its expertise to bear on performance issues and provide you or your managers with coaching, if needed.3. Confront the employee. There may be a good reason for the individual\u2019s poor performance. Then again, there might not be. But it\u2019s your responsibility to find out what\u2019s going on. Begin by discussing the person\u2019s work with his supervisor, peers and the users he supports so that you get specific examples of shortcomings. Once you have that information, sit down face-to-face for an honest and direct discussion about your expectations, where the failings are, and what impact that performance is having on the IT organization or the company at large. Also ask him why he thinks he\u2019s falling short. Davis believes managers owe employees the opportunity to explain themselves. If there\u2019s an obstacle impeding their success or performance, this is the way a CIO will find out, he says.4. Shift the onus for improvement to the employee. If the employee shows interest in doing better work, ask her to come up with an action plan. Offer your help if she needs it. You might suggest books to read, courses to take or people to talk to. But ultimately, her performance and her improvement are up to her. "I think a company has a responsibility to make sure you\u2019re in the right spot, that you\u2019re trained correctly, that you have the right tools to do your job. After that, your job and your performance are what you make of it," Smith says.If the employee denies that there\u2019s a problem, is offended by your evidence of poor performance or says something like "That\u2019s not what I was hired for," then tell her to take the rest of the day off to figure out what\u2019s best for her. "This is effectively a one-day suspension from work," says Grote, the performance appraisal guru. This dramatic gesture brings home to the employee that her poor performance is serious business, Grote says, and gives her a decision to make: Return to the office the next day ready to change behavior, or look for a new opportunity elsewhere. If the employee comes back promising to improve but doesn\u2019t live up to her word, "then you\u2019re about as bulletproof as can be" when you pull the trigger, says Grote. If, however, the worker seems sincere about doing better, then you have something to work with. Sheleen Quish, global CIO and vice president of corporate marketing for U.S. Can, says that when it comes to determining whether an underperformer merits some sort of training or second chance, she bases her decision on the attitude and effort displayed. "No one\u2019s going to flip a switch and become somebody different the next day. It\u2019s a process. But if they exhibit the right attitude and energy and they\u2019re willing to start the process, I\u2019ll support them for a long time," she adds. 5. Follow up frequently. "When you\u2019re trying to get someone to perform at a higher level, you have to measure and monitor them a lot more often," says Quish. "There\u2019s a lot of following up and a lot of breaking projects down into bite-sized pieces." She advises that an employee on an improvement plan should be given weekly tasks and goals, to be tracked by the person\u2019s direct manager. Whether the employee is able to keep up with the weekly plan will quickly give you a sense of whether he can improve, Quish says. "If they\u2019re not making it in weekly buckets, how are you ever going to give them a major project?" she asks.It\u2019s important to document all performance-related conversations you have with employees. When you hold them, note what you discuss and what the two of you agree on. That way, if you have to fire an employee, you have important evidence on your side in the event that he contests the termination.Just Win-Win, BabyDealing with a poor performer usually means that you have to bring the situation to a head, but that\u2019s not necessarily a bad thing. Given the chance, most people want to do right by their employers, even as they\u2019re looking out for their own interests. While at energy provider Aquila, Paper promoted a systems analyst to a senior analyst position. The new role turned out to be too much for the woman, who worked countless hours to keep up yet still turned in subpar work. Paper told the employee she wanted to drop her back to the systems analyst position so that she could again excel. Her salary would remain at her current level, and no one would know she was demoted. The woman\u2019s pride was hurt at first, but when she realized that this move would be good for her, she was relieved and embraced the opportunity. She\u2019s still working for Aquila and thriving as a systems analyst. "If they\u2019ve got the right values but the skill isn\u2019t there," says Paper, "then put them in a place where they can bring value to the organization."