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A vitality curve is a performance management practice that calls for individuals to be ranked or rated against their coworkers. It is also called stack ranking, forced ranking, and rank and yank. Pioneered by General Electric's Jack Welch in the 1980s, it has remained controversial. Numerous companies practice it, but mostly covertly to avoid direct criticism.
The often cited "80-20 rule", also known as the "Pareto principle" or the "Law of the Vital Few", whereby 80% of crimes are committed by 20% of criminals, or 80% of useful research results are produced by 20% of the academics, is an example of such rankings observable in social behavior. In some cases such "80-20" tendencies do emerge, and a Pareto distribution curve is a fuller representation.
According to Welch, "A" players had the following characteristics:
The vital "B" players may not be visionary or the most driven, but are "vital" because they make up the majority of the group. On the other hand, the "C" players are nonproducers. They are likely to "enervate" rather than "energize", according to Serge Hovnanian's model. Procrastination is a common trait of "C" players, as well as failure to deliver on promises.
In 2013, one human resources consultant estimated that 30% of Fortune 500 companies still used some sort of ranking system but often under a different name. A 2013 survey by WorldatWork, however, showed that it was used by about 12% of U.S. companies, whereas another by CEB in the same year found that it was used by 29% of companies.
According to a 2015 CEB study, 6% of Fortune 500 companies had ditched the forced ranking system, though it did not provide an estimate of how many companies still practiced it.
Jeffrey Pfeffer and Robert I. Sutton have criticized the practice on the grounds that there is limited empirical evidence of its overall usefulness to organizations. citing Pfeffer, J., & Sutton, R. I. (2006). Evidence-based management. Harvard Business Review, 84, 62–74.
Some critics believe that the 20-70-10 model fails to reflect actual human behavior. Among randomly selected people assigned to a task, such a model may be accurate. They contend, however, that at each iteration, the average quality of employees will increase, making for more "A" players and fewer "C" players. Eventually, the "C" players comprise less than 10% of the workforce.
The style may make it more difficult for employees to cross rate from one division to another. For example, a "C" employee in a company's Customer Service division would be at a disadvantage applying for a job in Marketing, even though they may have talents consistent with an "A" rating in the other division.
Rank and yank contrasts with the management philosophies of W. Edwards Deming, whose broad influence in Japan has been credited with Japan's world leadership in many industries, particularly the automobile industry. "Evaluation by performance, merit rating, or annual review of performance" is listed among Deming's Seven Deadly Diseases. It may be said that rank-and-yank puts success or failure of the organization on the shoulders of the individual worker. Deming stresses the need to understand organizational performance as fundamentally a function of the corporate systems and processes created by management in which workers find themselves embedded. He sees so-called merit-based evaluation as misguided and destructive.
According to a 2006 MIT study cited by Bloomberg Businessweek, forced ranking can be particularly detrimental for a company undergoing layoffs: “As the company shrinks, the rigid distribution of the bell curve forces managers to label a high performer as a mediocre. A high performer, unmotivated by such artificial demotion, behaves like a mediocre.”[1] citing http://web.mit.edu/chintanv/www/Publications/Chintan%20Vaishnav%20Punishing%20by%20Rewards%20for%20Publication%20Final.pdf
MIT Research Fellow Michael Schrage has argued that the forced ranking policy has perverse effects even in organizations that are successful: "Organizations intent on rigorous self-improvement and its measurement inevitably confront an evaluation paradox: The more successful they are in developing excellent employees, the more trivial and inconsequential the reasons become for rewarding one over the other. Perversely, truly effective objective employee-evaluation criteria ultimately lead to personnel decisions that are fundamentally rooted in arbitrary and subjective criteria. ... The coup de grace occurs when the top employees are all told that they must collaborate better with one another even as they compete in this rigged game of managerial musical chairs." archive.fortune.com also quoted by Stewart, Gruys and Storm (2010)
In a new version for the fourth quarter 2013, sources said the percentages are changing, but only at the discretion of leadership within the units: Greatly Exceeds (10%), Exceeds (35%), Achieves (50%), Occasionally Misses (5%) and Misses (0%). This new evaluation system resulted in 600 in the fourth quarter of 2013.
Amazon holds a yearly Organization Level Review, where managers debate subordinates' rankings, assigning and reassigning names to boxes in a matrix projected on the wall. In recent years, other large companies, including Microsoft, General Electric and Accenture Consulting, have dropped the practice — often called stack ranking, or "rank and yank" — in part because it can force managers to get rid of valuable talent just to meet quotas.The review meeting starts with a discussion of the lower-level employees, whose performance is debated in front of higher-level managers. As the hours pass, successive rounds of managers leave the room, knowing that those who remain will determine their fates.
Preparing is like getting ready for a court case, many supervisors say: To avoid losing good members of their teams — which could spell doom — they must come armed with paper trails to defend the wrongfully accused and incriminate members of competing groups. Or they adopt a strategy of choosing sacrificial lambs to protect more essential players. "You learn how to diplomatically throw people under the bus", said a marketer who spent six years in the retail division. "It's a horrible feeling." ...
Many women at Amazon attribute its gender gap — unlike Facebook, Google, or Walmart, it does not currently have a single woman on its top leadership team — to its competition-and-elimination system. ...
The employees who stream from the Amazon exits are highly desirable because of their work ethic, local recruiters say. In recent years, companies like Facebook have opened large Seattle offices, and they benefit from the Amazon outflow.
Recruiters, though, also say that other businesses are sometimes cautious about bringing in Amazon workers, because they have been trained to be so combative. The derisive local nickname for Amazon employees is "Amholes" — pugnacious and work-obsessed.
Microsoft was involved in lawsuits regarding its forced ranking system as early as 2001. Detractors argued that the use of the system in small groups was inherently unfair and favored the employees who socialized more heavily over actual technical merit. At the time, Microsoft officially claimed through Deborah Willingham, Microsoft's senior vice president for human resources, that it had no such "stack rank" system.
In 2006, Microsoft began to use a vitality curve, despite intense internal criticism. Posts on "the curve" by Who da'Punk, an anonymous blogger internal to the company, on his blog Mini-Microsoft became a hot topic of commentary by other presumed employees.
According to one source, by 1996 Microsoft had already adopted a stack ranking system which led managers to deliberately retain subpar staff in order to keep their higher performers:
Microsoft managers are generally supposed to allocate reviews according to the following ratios: 25 percent get 3.0 or lower; 40 percent get 3.5; and 35 percent get 4.0 or better. Employees with too many successive 3.0 reviews are given six months to find another position in the company or face termination. A manager who is top-heavy with valuable or talented people doesn't want to be forced to give them 3.0 reviews. So these managers kept a few extra slabs of deadwood around so as to save the higher reviews for the employees they want to keep.
In a memo to all Microsoft employees dated April 21, 2011, chief executive Steve Ballmer announced the company would make the vitality curve model of performance evaluation explicit: "We are making this change so all employees see a clear, simple, and predictable link between their performance, their rating, and their compensation". "Microsoft increasing employees' pay", Seattle Times, April 21, 2011. Retrieved 2011-04-25 The new model had 5 buckets, each of a predefined size (20%, 20%, 40%, 13%, and 7%), which management used to rank their reports. All compensation adjustments were predefined based on the bucket, and employees in the bottom bucket were ineligible to change positions since they would have the understanding that they might soon be yanked.
Following Ballmer's announced departure, on November 12, 2013, Microsoft's HR chief Lisa Brummel announced they were abandoning the practice.
The practice at Microsoft became a topic of significant media attention following Kurt Eichenwald's 2012 Vanity Fair article called "Microsoft’s Lost Decade". According to a subsequent article by Nick Wingfield in The New York Times Bits blog, "While that story overstated the harmful effects of stack ranking in the view of many Microsoft employees, it clearly represented the views of many others...The negative publicity around Microsoft's old employee review system reverberated loudly around the company, according to people who work there...The executive who spoke to on condition of anonymity recalled Ms. Brummel saying: "I hope I never have to read another article about our review system ever again."
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