Yahoo’s Latest HR Disaster: Ranking Workers on a Curve

16 Nov Yahoo’s Latest HR Disaster: Ranking Workers on a Curve

Marissa Mayer at the TechCrunch Disrupt SF 2013 conference

By Joshua Brustein – businessweek.com

If Marissa Mayer is as good at identifying winning startups as she is at embracing contentious human resources practices, Yahoo! (YHOO) is going to be just fine. Several months after the great work-at-home kerfuffle of 2013, Yahoo employees were up in arms about a new policy that forces managers to rank employees on a bell curve, then fire those at the low end. According to AllThingsD, Marissa Mayer reportedly told Yahoo workers that the rankings weren’t mandatory, but many people disagree. The company hasn’t responded to a request for comment.

With its embrace of rankings, Yahoo has waded into the “third rail of human resource management.” Forcing managers to rank their employees along a bell curve was popularized in the 1980s (thanks, Jack Welch), but lately it has fallen out of favor. The Institute of Corporate Productivity says the number of companies using either a forced ranking system or some softer facsimile is down significantly from previous years. Companies performing well were less likely to be using forced ranking systems than those that weren’t. Just over 5 percent of high-performing companies used a forced ranking system in 2011, down from almost 20 percent two years earlier.

Basically, many people have lost faith that ranking employees works, and some research suggests that employee performance doesn’t follow a bell curve at all. Instead, most people are slightly worse than average (PDF), with a few superstars. And while a bit of pressure can motivate people, constantly pitting employees against one another is terrible for morale. In a company that is going through layoffs, this gets worse over time (PDF), wrote several MIT professors in a study of forced rankings in 2006. “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.”

This can have a particularly bad impact on innovation, arguably the thing Yahoo most needs now. When employees worry about being ranked at the bottom of the pile, they take fewer risks, said Cliff Stevenson, who studies workforce issues for i4cp.

However, rankings also suggest increased data about employees, which plays into Silicon Valley’s weakness for hard numbers. In Stevenson’s study, tech companies were over three times as likely to implement a forced ranking system than the respondents overall—although he cautioned that the sample size was too small to make any authoritative declarations.

The continued appeal is largely that rankings appear to take the “human” out of human resources. Rigidly formatted evaluations generate a stockpile of crunchable information that can be used to run various types of systematic analyses. Even this will work only if the seemingly objective information is valid. Stevenson has his doubts.