Self-Determination Theory vs. Forced Ranking
Forced Distribution aligns employees in accordance with pre-assigned performance-distribution percentages (e.g., exceeds expectations, meets expectations, does not meet expectations). It is a person-to-standard comparison.
Peer Ranking, on the other hand, ranks employee performance from best to worst. This is a person-to-person comparison (e.g., Amy is 1, Bill is 2, Sherry is 46, etc.). From a Self-Determination Theory perspective, force ranking seems to work very well on all levels of relatedness, autonomy, and competence. But while it may seem that way, in practice it can be very different.
Employees have a lot of autonomy. In fact, the problem with forced ranking when it comes to autonomy is that it promotes it so much that it harms relatedness. Individual performance is emphasized over team work (it’s not teams being ranked, after all) and they are all aware of being in competition with each other to stay in their jobs.
Employees relate to each other by a ranking system; they know clearly who is above them and who is below. But this harms morale, because not everyone can be a high performer. So what happens to employees when they realize they aren’t in the top ranking?
Employees know how competent they are. Your ranking leaves no doubt as to where you stand in the company. Top-performers typically receive better perks than the mid-performers, who have the added perk of getting to keep their jobs. Low performers usually receive coaching and are put on notice to improve or be eliminated.
For years, it was fashionable to eliminate low performers entirely. This causes a lot of voluntary turnover as employees know where they stand and if they’re potentially on the chopping block. In gamification terms, this is a player-vs.-player environment.
Rankings matter; they may not be visible (relatedness may well be powered by the rumor mill of who stays, who gets promoted, and who goes) but there’s absolutely a brutal level-based system. Or to put it another way, level-based systems work in isolation – say, a manager looking at all his 1st-level players – but not when those players are aware of each other’s rank. Suddenly, that changes the game.
Multi-user games provide a parallel microcosm to why forced ranking fails. Unlike role-playing games where players are in a relatively isolated environment controlled by a Game Master, multi-user dimensions (MUDs) have multiple users. These users tend to congregate in social groups. Because level systems are usually linear, it becomes very clear "who is the best" and "who is the worst." People make all sorts of social judgments about the game and each other, especially if the game mechanics are hidden from players. This leads to some very unwise choices based on what the high level players did, and the lower level players seek to emulate.
But the parallel isn’t quite apt, because to make a level-based system match forced ranking would require capping the total number of players in the system. For example, out of 100 players there could only be 20 players level 80 or higher, 70 players levels 11 to 79, and 10 players who are level 10 or below – and then once a year, anyone who wasn’t level 10 got purged. This is precisely what happened to new employees at Microsoft:
“If you were on a team of 10 people, you walked in the first day knowing that, no matter how good everyone was, 2 people were going to get a great review, 7 were going to get mediocre reviews, and 1 was going to get a terrible review,” says a former software developer. “It leads to employees focusing on competing with each other rather than competing with other companies.”
In short, newbies knew that they would have to immediately perform well and, given that they were new, wouldn’t have much time to prove themselves in comparison to their peers. In turn, the group would be hostile to newcomers who might upstage their ranking, which is relative to each other.
So what’s replacing it? Feedback-and-development:
In light of competition for scarce talent, practitioners from some Deloitte member firms suggest companies implement performance management practices that help them build required capabilities internally. That means replacing annual performance appraisal processes that revolve around competitive forced ranking with regular feedback and continuous coaching and development.
Feedback and development makes sense, but there was a reason forced rankings were so widely embraced, and it's because they made it very easy for management to determine pay. In a much squishier grading system where feedback and performance is gradually assessed, a raise once a year doesn't make nearly as much sense.
This isn't necessarily different from most games, in which you gradually gain experience points and gold. Leveling up, gaining power and experience points, are all part of fantasy gaming and provide a very clear path to power, rewarding hard work. It seems work is finally starting to take a hint from gaming.
Join me at the Enterprise Gamification Forum on Wednesday, October 7 to explore this topic further at my session, “From Kids to Kidults: Gamification as We Grow Up (or Don’t)”.
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