Time to cull your workers

A perennial issue for any business
is getting the most from
your staff: commitment to the
cause is often the difference
between success and failure.

In the early days, a highly visible CEO in a
compact growing business
is the ideal stimulus for
productivity. But what
about larger maturing
businesses?
Jack Welch, CEO and
chairman of GE for 20 years
had an answer. He said you
should fire 10% of your employees every
year. Welch's HR policy categorised the
entire workforce into the 20% top performers,
70% average performers and
10% worst performers. He thus earned
the nickname ‘Neutron Jack’ after the
neutron bomb, which kills people and
leaves buildings standing.
Welch's ‘rank and yank’ system,
known as forced ranking, is as controversial
as admired. It is accused of inducing
fear and loathing among employees,
and of encouraging staff to concentrate
more on achieving a good ranking than
on helping the business succeed.
So does it work? Welch's stratospheric
success at GE, where stock price,
profits and productivity increased enormously
in his time seems to support thephilosophy. Now 20% of US businesses
have some sort of forced ranking.
Emphasising individual performance
can motivate staff, who see it as a chance
to achieve recognition for their contribution
to company success. Welch himself
puts the focus on staff development,
expressing a strong belief in communication,
particularly with those falling
into the lowest category. But smaller
businesses must remember that very
large organisations often have the
right kind of structure for
forced ranking, which
requires a clear and objective
set of criteria to be effective.
Welch's criteria included both
‘making the numbers’ that
is, doing your job well, and
operating according to GE's
core values. In big companies
ranking along these
terms is an effective way to
ensure values are common
throughout. These types of company
also have large numbers of employees
at similar levels. That makes comparison
easier and more meaningful.
So when it comes to entrepreneurial
businesses, although the results may be
desirable, a ‘rank and yank’ HR policy
is not.
Quite simply employees find the threat that forced ranking poses to their
culture too much to bear.
Faced with the possibility of being
ranked in the bottom 10% and the sack,
many employees choose to leave. As staff
churn is a big issue for growing businesses,
forced ranking would only compound
problems.
In a company where team work is
essential for success, introducing a policy
that encourages competition between
individuals can also damage collaboration,
if employees feel that helping
another member of staff will hurt
their own ranking.
Forced ranking is not
a panacea for HR problems
as it can create as
many as it solves. However, good
HR policies work whatever the size
of the company, if applied consistently
and communicated effectively.
The trick is to decide what constitutes
‘good policy’ for your company's size,
shape, sector and maturity. Welch and his
HR philosophy have their fair share of
detractors, but he was right to be brave.
That's what leadership is about.