Grading on the Curve

compensationSent: August 8
From: CEO
To: Department Heads
Subject: Stack-Ranking Deliverable Department Heads

I want to see all of your rankings for your employees in my inbox by Friday. I know you all disagree with my methodology; however, it’s not up to you. I’ve listened to your arguments and concluded that I was right in the first place. So please adhere to the following procedure:

  1. Evaluate all of your employees with a score of 1–10 based on the following:
    • Timeliness
    • Neatness
    • Ability to be an independent worker (doesn’t ask too many questions)
    • Quantity of work performed on a scale of 1–10 (10 being the highest)
    • Quality of work performed (how many times do you have to correct them?)
    • Overall ability to fit into the team
    • Cultural fit
  2. Take their total score and divide it by seven to get their average, and then do the same for the entire team to get your team average.
  3. The people above the average will get raises; the people below will not.
  4. Then send your data to HR, and he will compile the “team” average to compare. Again, those of you above the curve will be in line for annual raises; the rest will not.

I want to put my reasoning and thought process in writing so that I don’t hear any more feedback about this—ever. This is the final word on the subject.

I learned this method in graduate school for my MBA at Wharton, which we all know is the most elite business school in the US (and probably worldwide). The behaviors I value in performance are listed in the ranking. These are the only things that make sense and make us profitable. If we aren’t profitable, no one gets raises, so it doesn’t matter anyway.

You’ll notice I added the seventh item just because you all would not stop talking about culture, so there you have it. I have no idea how you are going to evaluate this, and frankly, I don’t care as it was never listed in my MBA training at Wharton. So, if you want to drop it altogether, feel free to do so.

I want a competitive culture here, and not everyone is entitled to annual raises—those are entitlements and I refuse to ever start that here. We are a performance-based company, and therefore, only performance above the norm gets rewarded, none below. I gave you all the opportunity to grade your employees and only give raises to A’s and B’s, but you whined so much about the C’s that I took that option off the table. Raises are for winners; losers get nothing. We are not giving out trophies just for showing up. That’s not how business works, and these people need to get used to the real world. And I don’t care if they cry and go work somewhere else—good riddance to them. Let them be someone else’s whiner.

I also do not want to hear any more talk about some of our underperforming teams and that if we rank this way, we are still rewarding the highest of the underperformers. We have to start with something, and if they see that half of their team is getting raises and they are not, maybe they’ll work harder so they can be in that top half of the curve.

Conversely, I also don’t want to hear any more talk from some of you who have over-performing teams, and therefore this isn’t fair because half of your team won’t get a raise, even though you rank them 9s or 10s. You have to have some way to get them to want to be a 10, so don’t reward them for being a 9.

I do realize that no method is completely fair, but this is the one I learned at Wharton; and if it’s good enough for the most elite school in the country, it’s good enough for all of you.

I’ll look forward to seeing your ranking—good luck on getting a raise!

What I say goes,

CEO

LET’S GET REAL

Stack ranking employees was all the rage for a lot of large companies and is still used widely today. It comes in different shapes and sizes, but ultimately, it is not universally regarded as the best way to reward employees. In fact, because it is usually done in complete secrecy, it often has a very negative effect on morale.

First, you want to make sure that all of your employees are paid fairly for the jobs they do. This means there is a range of pay for each position, they know what’s required to move from the low end to the high, and there is visibility about the process. It can’t be done in secret, and, worse yet, it can’t depend on completely subjective factors, such as how much the manager likes someone. That will ultimately get you into legal trouble.

Your ability to get a raise should not be dependent upon how a teammate performs. Employees will not perform well if they are graded on factors outside of their control, including other team members’ performance. They either are or are not doing the job well.

In contrast to what our wrong-headed Wharton CEO claims, knowing they will not get a raise, even though they are performing at their peak, will not inspire anyone and will cause them to leave or, worse, become a cultural terrorist inside the organization. If they are a chronic underperformer on an underperforming team and get a raise, what is their inspiration to do better?

Pay needs to be fair. Performance needs to be evaluated fairly. Employees are much happier and perform better when both of these are carefully considered and implemented.

To purchase a copy of How (NOT) to Build a Great Team click here.

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