Forced Ranking is a controversial performance management tool which uses intense annual evaluations to identify the company’s best and worst employees, using person to person comparison. General Electric is famous for using this performance management tool. In this method, managers rank workers into three categories. The top 20% are rated A category, the middle 70% are rated B category and the bottom 10%are rated C category. The A category employees are given bonuses and stock options, the B category people are given small raises and the C category employees are offered training or asked to leave.
Forced ranking tends to be a big hit among the large corporate houses as it allows them to systemize their HR processes. The long run implications are increased productivity, profitability and shareholder value.
The strength of this type of performance management is that by identifying the top employees, companies can jolt top managers out of complacency, combat artificially bloated performance ratings and nepotism. The biggest problem is that the method could have undesirable repercussions. It could lead to departure of employees who can go on to become excellent performers in some other firm. The compulsion to fit people into a distribution has the risk of force fitting strong performers into B category in order to fill the quota.