American firms apply merit systems for accountability in the workplace

July 31, 2012

Free Market Foundation

Many large U.S. companies are turning to ranking systems to identify workers who perform poorly with the aim of replacing them with more promising talent. The systems will also allow companies to identify top performers and reward them.

Some critics see the new top-to-bottom ranking systems as unfair; and they are being met with a wave of lawsuits, including age and race discrimination and reverse discrimination lawsuits. Conoco has even been hit with a rare citizenship discrimination lawsuit.

Undeterred, many large companies are pursuing rankings. Here are some examples:

Last year, Ford Motor Co. graded all of its 18,000 managers by dividing them into groups of 30 to 50, 10 percent of each group was assigned an A, 80 percent a B, and 10 percent a C with the C group later being reduced to 5 percent and informed that they would have no possibility of a pay raise, with either termination of employment or demotion likely if performance did not improve in two years.

After dividing its employees into groups of about 30, Sun Microsystems warned about three in each group that they had 90 days to improve those who didn’t could resign and take severance pay or stay on with a commitment to improve (and be terminated without severance if they don’t.)

Cisco Systems has had a goal of getting rid of one in every 20 employees each year even when it was growing so fast it could not fill new positions.

General Electric identifies the top 20 percent, the middle 70 percent and the bottom 10 percent of its 100,000 managerial and professional employees, with the bottom-ranked given a brief time to improve.

GE chairman Jack Welch says those workers would eventually be fired anyway and delaying the inevitable until they are in mid-career is “a form of cruelty.”

Source: Del Jones, More Firms Cut Workers Ranked at Bottom to Make Way for Talent, USA Today, May 30, 2001.

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