General Electric Corp. (Fairfield, CT) uses as a "20-70-10 plan" that identifies the top 20 percent, the middle 70 percent and the bottom 10 percent of its managerial and professional employees. It's not unusual for the top 20 percent and the middle 70 percent to trade places often. However, the bottom 10 percent tend to remain there and eventually get forced out of the company.
Ford Motor Co. (Dearborn, MI) recently dropped a very subjective program that assigned all managers an A, B or C grade. The "Performance Management Practice" divided employees into groups of 30 to 50. From each group, 10 percent received an A, 80 percent got a B and 10 percent earned a C.
Those who received Cs at Ford were ineligible for either a raise or a bonus. A C grade for two consecutive years was grounds for demotion or termination. A C-level employee was classified as someone who is slow to embrace learning, is not meeting business objectives and does not demonstrate effective leadership behaviors.
Ford is facing eight individual reverse discrimination cases and one class-action lawsuit in connection with its former employee review process. As a result, the company pulled the plug on the grading system in mid-July. Senior Ford officials claim they decided to drop the review practice after "negative feedback . . . centered around what was viewed as an inflexible system by some, and as discriminatory by a few others."
Most performance review ranking systems are based on subjective judgments that depend on many different factors, such as a manager's biases about the qualities he or she values. Instead of measuring employee performance against a set of objectives, each employee is measured against others with similar job titles. Because the rating system pits employees against each other, it tends to undermine the concept of teamwork.
The use of grading systems has also triggered class-action lawsuits and lowered morale. Some lawsuits allege that the practice discriminates against older employees. In other cases, companies pushing for ethnic and racial diversity have been accused of disproportionately ranking white men in the bottom 10 percent.