We’ve come to expect larger organizations, the ones that have been around long enough to accumulate hundreds of employees, to have stellar performance management practices. Unfortunately, that’s not always the case. Rack and stack performance review practices still account for an estimated 21% of Fortune 500 organizations. Although major companies like General Electric and Microsoft have changed their antiquated ways, a few organizations like Amazon still use stacked ranking as a way to assess the performance of each employee. The issue: forced distribution can rank a great employee in the bottom percentile. 

It’s Still Rather Common…

Amazon has been placed under the microscope recently for their performance management practices. Because of the stacked rankings the company still uses to assess employee performance, it’s in everyone’s best interest to outperform their teammates. Unfortunately, according to the article, this has lead employees to create secret pacts to bury other coworkers simultaneously. Despite the recent responses to accusations of a “brutal” workplace, Amazon’s CEO Jeff Bezos, explained the inaccuracies of the employee allegations and noted:

“The article doesn’t describe the Amazon I know or the caring Amazonians I work with every day. I strongly believe that anyone working in a company that really is like the one described in the [New York Times] would be crazy to stay. I know I would leave such a company.”

Simply put: stacked ranking, albeit seemingly helpful and streamlined for performance management, is destructive for the organization and the employees who work there. Look at the evidence that explains exactly why this practice is flawed.

The Hunger Games

You’ve hired the best of the best, but when it comes to review time, their “best” that quarter wasn’t good enough. They are put on probation until the next performance review, when it is expected they are to perform better… better than their coworkers. When everyone is a top performer in a company with stacked ranking, even great employees are succumbed to poor performance reviews. Nathan Sloan, Principal at Deloitte Consulting’s Human Capital Practice, said:

“If a company is hiring the best of the best out of the best schools, would we say 60% of its employees are average? That’s what forced distribution says.”

Forced rankings can cause animosity among teams in the workplace, unconsciously (or obviously) placing a superiority complex within the team. If your coworker is higher on the bell curve than yourself, you’ll subconsciously see them as superior despite their title equity. It quickly becomes a game of who can reach the bottom ranking last.

Effects to the Bottom Line

Although this rack and stack method makes raises and bonuses predictable, which is beneficial to the organization, it has its fair share of pitfalls. Because only a select few – the perceived elite – are placed in the top 10%, it can severely damage employee morale. Regardless of employee performance, it can lead team members to feel underappreciated or undervalued. Forced distribution destroys team loyalty, trust, and morale.

Even managers have a strong disdain for the forced distribution. If the same performance standards are set for every employee, why then would you rank employees who meet those requirements? The problem – from a managerial standpoint – with forced distribution is that even those who meet or exceed performance expectations can be placed in the bottom percentile. Ideally, the employees who don’t perform up to standards wouldn’t be around much longer.

Although Amazon was put under scrutiny for their performance management practices, it’s not necessarily an attack on the company itself, but rather the way the organization manages performance. Stacked ranking creates a highly competitive workplace and can deteriorate teamwork. The effects of the rack and stack method affect your bottom line, and with many major league organizations changing their review practices, it’s time you do too.

Bio: Chris Arringdale

Chris Arringdale is the Co-Founder and President of Reviewsnap, an online performance appraisal software that allows you to customize performance management, competencies, rating scales and review periods. Reviewsnap serves more than 1,200 customers worldwide including, Penske Racing, CubeSmart, PrimeSource and Nonprofit HR Solutions.