Many Millennial and Gen X employees in corporate organizations would have undergone an annual performance review at some point in time and might be familiar with the dreaded ‘bell curve.’
We are talking, of course, about stack ranking for employee performance evaluation. Many people also call it forced ranking or forced distribution.
This employee evaluation method ranks each employee into one of three or more categories based on their performance. Jack Welch, CEO of General Electric in 1980, pioneered this method that was widely used at one time.
However, this performance management system has proven to harm employee morale in the modern workforce.
While it offers a straightforward way to distinguish the top performers from the others in different teams, stack ranking can also foster a competitive culture and undermine collaboration. Multiple surveys of HR and business leaders have shown that most organizations no longer consider stack ranking beneficial. Most corporates have dropped this approach to performance measurement and adopted more modern performance management strategies.
In this blog, we will explain stack ranking and its potential pitfalls and benefits. We’ll also tell you about alternate systems for managing employee performance. Let’s begin!
How to Use Stack Ranking to Track Employee Performance
Summarize this article for me pleaseWhat is Stack Ranking?
Stack ranking, also known as forced ranking, is a performance management system that evaluates and ranks employees against one another within a particular group, team, or organization. This method is based on the principle that a certain percentage of employees will be designated high performers, while others will be labeled average or low performers.
GE CEO Jack Welch advocated this controversial approach, where 10-20% of the organization’s employees fall under the high-performing employees, while another fixed percentage (around 10%) are identified as underperformers. Underperformers are often placed on probation or a performance improvement plan or laid off. He named this ‘differentiation,’ but critics often call the practice the ‘rank and yank’ methodology.
The remaining 70% of employees are labeled as ‘vital’ employees or those who perform adequately or reliably. These employees may not get a promotion or reward but will continue within the organization in the same job roles.
This process typically involves the following steps:
- Establishing performance criteria: Managers define the specific metrics and criteria for performance evaluation, such as productivity, quality of work, customer satisfaction, etc.
- Employee evaluation: Managers assess each employee’s performance based on the established criteria, often through a combination of quantitative data and qualitative feedback
- Ranking: Employees are then ranked from highest to lowest performer within their team or department, forming a ‘stack ranking’ or ordered list (known as the bell curve or vitality curve)
- Categorization: Based on the rankings, employees are divided into predetermined categories, such as top performers, average performers, and underperformers
- Consequences: Decisions regarding rewards, promotions, professional development opportunities, or even terminations are made based on an employee’s ranking and category
Since it utilizes a bell curve distribution to categorize employees, it is also known as the vitality curve method. The top of the curve represents high performers, the middle section encompasses average performers, and the bottom portion identifies poor performers.
Summarize this article for me pleaseWhen and How to Use Stack Ranking
While stack ranking has its pros and cons, there are certain situations where it can be a beneficial performance management tool if implemented correctly. Stack ranking for employee performance management can be the ideal situation if:
- You are part of a highly competitive industry, such as manufacturing, technology, or other space where you need top-tier performers
- If a specific skill set is critical for success within a team or department. For example, tech giants that want to reward their best performers or team members who have specialized skills in AI and other emerging technologies
- You have a limited budget and can only reward a few top-tier performers. For instance, the 2020 COVID-19 situation where companies were low on funds and had to focus on rewarding only top performers
- If the organization has clearly defined and measurable performance metrics
A step-by-step guide to using the stack ranking system
If you fit this criteria and plan to use stack ranking, ensure you can track performance metrics correctly. To do this, follow these steps:
Step 1: Define clear performance criteria
Establish specific, measurable, and relevant performance criteria that align with the organization’s goals and values. Involve employees in the process to ensure transparency and buy-in.
Step 2: Collect data and evaluate employees
Gather quantitative and qualitative data on employee performance based on the defined criteria. Conduct regular performance reviews and encourage open communication between managers and employees.
Starting from scratch might be a challenge for a performance review at times. Use the ClickUp Performance Review Template to create a ready-to-use yet customizable document to assess employee performance.
It is ideal for beginners and includes:
- Custom Statuses to keep track of the progress of each review
- Custom Fields to categorize and add attributes to manage your reviews
- Custom Views to help you gain a holistic view of your reviews, including List, Gantt, Workload, Calendar, and more
- Project Management to track performance reviews with comment reactions, notifications, automation, AI, and more
Step 3: Rank employees
Rank employees within their respective teams or departments based on their performance evaluation. It’s essential to use a consistent stack ranking process and ensure that managers understand the criteria and ranking methodology.
Step 4: Categorize and communicate
Divide employees into predetermined categories based on their rankings. Communicate the results to employees, providing feedback and justification for their rankings.
Step 5: Implement consequences and rewards
Based on the rankings, implement appropriate consequences or rewards, such as promotions, bonuses, professional development opportunities, or, in some cases, terminations or reassignments for poor performers.
Step 6: Ensure a fair ranking system
To ensure a fair and unbiased stack ranking process, it’s crucial to:
- Base the logic of stack ranking on concrete performance metrics and documented achievements rather than subjective opinions
- Use peer review processes to minimize the influence of individual biases on rankings
- Implement regular calibration meetings where managers can discuss and align their rankings to maintain consistency across the organization
- Allow for appeals or review processes to address any perceived unfairness or discrepancies in the rankings
Summarize this article for me pleaseThe Drawbacks of Stack Ranking
While stack ranking aims to identify and reward high-performing employees, it has faced significant criticism and skepticism from various quarters. Some of its drawbacks include:
- Creates a competitive and toxic company culture: Since employees are ranked against their teammates based on their performance, they compete against one another. This can create an overly competitive and cutthroat work environment and is not ideal for a collaborative space where team members need to work together
- Discourages risk-taking and innovation: Since any out-of-the-box action comes with the inherent risk of failure, employees in the stack ranking system may become risk-averse to avoid being in the bottom tier. This leaves no space for innovation and stifles creativity
- Promotes a culture of mistrust and demotivation: The constant pressure of being evaluated and ranked can breed mistrust, demotivation, and resentment among employees, particularly those who consistently rank in the low-performance bracket
- Potential for bias and favoritism: Despite efforts to maintain objectivity, stack ranking employees can be susceptible to conscious or unconscious biases, leading to unfair evaluations and favoritism towards certain employees
Summarize this article for me pleaseAlternatives to Stack Ranking
Several high-profile companies and tech giants like Microsoft, Uber, and Yahoo have faced criticism for using stack ranking to evaluate staff. These companies have experienced problems such as employee dissatisfaction, high turnover rates, and negative impacts on company culture and morale.
That’s why exploring stack ranking alternatives is a must.
Here are five alternatives to stack ranking for employee performance management that you can consider instead:
360-degree feedback
The biggest drawback of the stack ranking method is the risk of individual biases seeping into the evaluation methodology. Companies can use this alternative to get not just one perspective but a diverse range of opinions about individual performance.
360-degree feedback tools gather input on an employee’s performance from multiple sources, including managers, peers, subordinates, and even clients (when applicable). By considering diverse perspectives, 360-degree feedback provides a more comprehensive and balanced view of an employee’s performance, minimizing potential biases and promoting self-awareness.
Continuous Performance Management
Rather than relying on periodic rankings, continuous performance management emphasizes ongoing feedback, coaching, and development. This approach involves regular check-ins, goal setting, and real-time feedback to help employees continuously improve and grow.
Objectives and Key Results (OKRs)
This framework establishes clear, measurable goals (objectives) and key results that define how those objectives will be achieved. OKRs promote transparency, alignment, and a focus on achieving measurable outcomes.
Take advantage of the ClickUp OKR Template to track goals, identify project hurdles, and more—all in one place.
This feature-rich and easy-to-adapt template includes:
- Custom Statuses, such as Complete, In Progress, and To Do, to keep track of the progress of each goal
- Custom Fields with attributes like OKR Type, Department, Progress, OKR Point, Team, and more to save vital information about your objectives
- Custom Views to easily visualize your OKR progress, including Global OKR, Getting Started Guide, OKR Progress Board, and Timeline
- Project Management to improve goal tracking with time-tracking capabilities, tags, dependencies, and more
Agile Performance Management
Inspired by the principles of Agile software development, this approach emphasizes flexibility, collaboration, and continuous improvement. Agile performance management involves regular retrospectives, frequent feedback cycles, and the ability to adapt goals and processes as needed, fostering a culture of learning and innovation.
Project-based Reviews
This approach focuses on evaluating an employee’s performance based on their contributions to specific projects. It assesses their ability to manage their workload, collaborate effectively, and deliver successful outcomes.
Project-based reviews can be valuable for evaluating employees who work on cross-functional teams or have project-driven roles.
Summarize this article for me pleaseClickUp: Your All-in-One Performance Management Partner
Performance management is a crucial aspect of human resource management. Lack of bias in the process is a must to boost employee morale and ultimately lead to improved performance levels.
With ClickUp, you can streamline this process and leverage the power of data-driven talent management software.
Since it offers robust end-to-end project management and goal-tracking features, it can be your all-in-one solution for managing all your tasks, files, collaboration, and performance management.
ClickUp for Human Resources is an all-in-one HR management platform that simplifies hiring, onboarding, and employee development. This allows you to perform multiple talent management activities in one place, using the power of data-driven insights for your decision-making. With the tool, you can:
- Set clear and SMART goals for individual employees and entire teams
- Assign specific tasks with clear deadlines tied to each goal, allowing employees to track progress visually and stay motivated
- Track employee performance, engagement, and development with an easy-to-use dashboard that allows you to gather data on each employee and provide relevant feedback
- Use ready-to-use and customizable templates and evaluation tools for employee onboarding, evaluation, and training, with the ability to track employee progress throughout the career journey
Summarize this article for me pleaseEvaluate Employee Performance With ClickUp
Effective performance management is a continuous process, not a one-time event. While most companies use this annual exercise to assess individual performance and determine performance appraisals, its utility extends beyond performance improvement plans.
With regular analysis of employee performance and proactive feedback, you can foster a culture of learning, growth, and collaborative development for all employees. While stack ranking for employee performance evaluation might seem straightforward, its drawbacks can outweigh its benefits.
If you want to implement a modern performance management process that leverages the power of data and insights for actionable feedback, choose a performance review software like ClickUp.
With ClickUp, HR teams can manage all their processes, from recruitment and onboarding to performance management and engagement, stress-free. ClickUp lets managers create clear team goals and objectives and track performance. It makes for a culture of ownership and transparency.
Drive efficiency and productivity at your workplace with ClickUp. You can get started quickly with ready-to-use people management and performance review templates.
With goals and dashboards in ClickUp, each individual can assess and understand their performance and areas for improvement, helping you create a high-performance workforce.
Embrace a people-first approach to performance management with ClickUp. You’ll create a thriving work environment that motivates and empowers employees to reach their full potential.
Sign up today to learn more about the all-in-one project and performance management solution.
Summarize this article for me pleaseFrequently Asked Questions (FAQ)
1. How do you rank employee performance?
There are several methods to rank employee performance. Stack ranking is one option, but alternative approaches like 360-degree feedback or continuous performance management can provide a more holistic view.
2. What is meant by stack ranking?
Stack ranking, also known as forced ranking or vitality curve, is a performance management system that involves ranking employees against one another within a team or organization based on their performance. Employees are categorized into predetermined performance buckets, typically with a fixed percentage designated as top performers and another percentage identified as underperformers.
3. How do you calculate stack rank?
The rank of an employee is based on set metrics within the organization. Managers evaluate employees based on pre-defined stack ranking criteria and then order them from highest to lowest performers within their group. The stack ranking system then ranks the employee, based on these results, into predetermined categories (e.g., top 20%, middle 70%, bottom 10%) based on their rankings.
4. What are the benefits of stack ranking?
While ranking employees based on their evaluation can often lower employee morale, proponents of the stack ranking system for employee appraisals argue that it helps identify and reward top talent. It also helps ensure a fair distribution of rewards and opportunities while clearly indicating to each team member what areas they need to improve upon to reach a certain level.
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