Forced Ranking as a Performance Management Approach for Holmes and Crest - Case Study Example

Performance Management Name: Tutor: Course: Date: Executive Summary The first part of the report is introduction into the discourse of performance management as a Human Resource (HR) strategy that contributes to organizational success and as a means of maximizing employee input to organizational performance. It again proposes the use of Forced Ranking system in the Holmes and Crest case in order to solve some of the wanting HR changes found in the expanding organization. The second section given the justification of the case that forced ranking system will rank and rate depending on factors such as knowledge, skills, experience and expertise which may be abused or misinterpreted in traditional appraisal scales. When point ceiling is allocated to problem-solving, complexity and decision making it remains discretional to the manager. The third section identifies and discusses the factors that will need to be taken into consideration to ensure effective implementation. It suggests that dialogue is needed in a forced ranking performance management strategy. Reasons for poor performance and communication of expectations with the staff member are important so as to drive employees to acceptable management standards. Managers commit to developing the staff members and identify reasons why they underperform. It also notes on shareholders perceptions being essential entity to the organization. They are acknowledged to have reservations regarding the organization’s use of forced ranking system given the increased frequencies of negative consequences or lawsuits. The report concludes by reiterating the performance management strategy earlier picked. It affirms that decision is to use forced ranking is beneficial to employees and the organization as it maximizes their behavior and competence. The rating scale takes into consideration the job evaluation of every work weighting. The competences required are knowledge, expertise, leadership, problem-solving, decision making and accountability. Table of Contents Executive Summary 2 Table of Contents 3 1.0 Introduction 4 1.1 Performance management at Holmes and Crest 4 1.2 Forced Ranking as a Performance Management Approach for Holmes and Crest 5 2.0 Justification of Forced Ranking 5 2.1 Identifying Poor Performers 7 2.2 Impact on Managers 8 2.3 Criteria for Performance Appraisals 9 3.0 Effective Implementation 10 3.1 Managing Poor Performance 10 3.2 Differentiating Talent 11 3.3 Quality of Workforce 12 3.4 Short-Term Initiatives or Goals 12 3.5 Shareholders Perceptions 13 4.0 Conclusion 14 5.0 Recommendations 15 5.2 Cost/Benefits 16 Reference list 17 1.0 Introduction Organizational employees determine its competitive standing and overall performance. Productivity and consistency will be affected if employees underperform. There has been increased use of upward appraisals and self-assessment by subordinates. Experiential learning plays a huge role in handling low performance. Baron and Armstrong (2005) suggested five ways to manage poor performance; identifying and conceding the problem, establishing reasons for underperformance, deciding and agreeing on needed action, resourcing the action, monitoring performance and providing feedback. The process needs repetition when performance is found to be below standards. Actions may include offering alternative work or dismissing the employee. Some literature has found that with antecedent conditions kept constant, management of poor performance can include talking to the person, addressing the problem and giving them space to perform. The loop closes or terminates when the individual has be found to meet the performance standards. Performance management as a Human Resource (HR) strategy contribute to organizational success and as a means of maximizing employee input to organizational performance (Hartog et al. 2004). Performance management is appreciated across the globe with the UK finding motivation and communication also essential. Performance management systems help in decisions regarding promotions, pay, downsizing and assignments, control, coordination and cooperation. 1.1 Performance management at Holmes and Crest Employees are evaluated against other employees instead of the ordinary measures inflated against pre-determined standards. The conventional process has often seen the bottom 10 percent shown the door while the top 20 percent heavily rewarded (Holbeche, 2005). In the case of Holmes and Crest, there is a general concern over recruitment and management of talent. The application of traditional appraisal schemes has been patchy and least understood by the managers being appraised or conducting appraisals. Employees are cynical about the current system because it neither merits the employee nor the employer. Managers find it difficult to understand since culture of feedback and coaching is lacking (Hartog et al. 2004). Reward system of allocating annual bonuses and promotions is unclear and undefined creating resentment and dissatisfaction. There is no uniformity in entry salaries or promotional scales. The scheme fails to reward long serving staff who feel shortchanged by the increased rewards to new entrants (Renwick, 2003). 1.2 Forced Ranking as a Performance Management Approach for Holmes and Crest The traditional appraisal system has seen many employees complaining about an amorphous appraisal conducted by ill informed managers to produce undesirable ranking and rewards. Forced ranking looks at an evaluation that measures performance against other employees. The common grading has is inflated and measures performance against set standards. The rational of forced ranking is to create an environment of true meritocracy (Grote, 2005). It is meant to drive employees to achieve superior performance each time. It is possible that long serving employees with greater experience will find a reprieve in a system that recognizes their input. Forced ranking will enable a more productive workforce that recognizes talent, rewards and retains accordingly. Holmes and Crest have no specific culture or feedback to the organizational success hence the aspect of forced ranking will bring performance to acceptable levels. The antidote to the failure to differentiate or solve inflated ratings is forced ranking. This is the only way to bring the truth into the performance management process so that employees in different countries will not find anomalies and discrepancies in rewards at similar competence and performance levels (Wood & Marshall, 2008). 2.0 Justification of Forced Ranking Employees complain of discrepancies in annual rewards for similar competency levels. Ranking and rating depends on factors such as knowledge, skills, experience and expertise which may be abused or misinterpreted in traditional appraisal scales. When point ceiling is allocated to problem-solving, complexity and decision making it remains discretional to the manager (Holbeche, 2005). There are other aspects of accountability, people management, teamwork and leadership which are important during employee appraisals. The idea is to remove the bottom 10 percent of the workforce annually. A pool of 100 employees are ranked from one to hundred in groups of three, four or five in unequal sizes to show the worst, medium and best performing workers. Forced ranking is a great development tool especially to a company interested in moving in the direction of muscle-building the organization and jump-starting real leadership development process (Narcisse & Harcourt, 2008). The method is independently implemented by companies with varying results. Many companies have been able to budget by knowing the employees to take a promotion or those on pay increase (Grote, 2005). An option can also involve purging the bottom 10 percent given that top employees outperform by 40 to 100 percent of the average workers. Bottom 10 percent are deemed to cut into company profits and productivity. They will be there for one cycle after which they are expected to exit if they are not improving performance. The manager is responsible in their development or moving them out since they cause collateral damage, lowering standards, discourages talent and driving good people away. The likelihood of discrimination is settled once the disparities in minority, age and gender cases are considered. This is not seen as killing employee productivity and morale (Latham et al. 2004). Forced ranking simply transcends performance measurement to exposure of poor performance. Performance ranking systems follow the performance management cycle through defined business goals. The business goals are translated into job objectives to match the specific competence and behavior of the employee. This stage involves setting objectives and communicating agreeable expectations. The ranking diagnoses the strengths and weakness of each employee while understanding their development needs. In the learning needs analysis, the forced ranking system agrees and formulates the development plan. The hallmark is managing performance by use of tools and techniques for monitoring and review (Hartog et al. 2004). The appraisal is complete once the feedback is obtained as suggested in the Control Theory. Forced ranking system is directly linked to functional behavior which describes high performance in the work places. Functional behavior is directed to organizational goals achievement where employees are focused on organizational sustainability and survival. The common characteristics of underperformance are absence, incapability, inappropriate behaviors and attitudes towards customers and colleagues. Poor standards of work and failure to meet organizational objectives are other reasons. In addition, underperformance is underscored by bad time keeping, failure to meet deadlines, insubordination and disregard to rules and norms of the workplace. This is also marked by low output (Holbeche, 2005). Forced ranking unravels the root causes of the problems such as job and its design or other characteristics of the workplace or change on individual circumstances causing sickness. Measures of under performance in this system are clearly understood and articulated. 2.1 Identifying Poor Performers This is where the problem lurks in the organization. Holmes and Crest showcase a system of rewarding non-performers without sufficient data to guide the reward process. Forced ranking identifies high potential employees for purposes of promotions, financial incentives and training. Bottom performers are also identified to be assisted up or edged out. The method is appropriate for a company struggling to gain market dominance (Renwick, 2003). HR management recognizes performance as a process and an output. This involves looking at the process by understanding the behavior and competency of the staff. It can also be through looking metrics of outcomes in the form of quantifiable themes, absence of errors and sales. Competency and behavioral frameworks are essential in determining both inputs and outputs. Each employee needs to make a contribution in attaining the objectives of the organization. The competence should match the objectives required since a competent person is more likely to achieve the objectives of the function (Schuler & Jackson, 2007). Each employee must meet the core competencies like customer service, value addition and innovation. Family-based competencies such as organization of tasks, communication and performance monitoring are important. Job specific competencies are lastly required to complement the above roles such as probing skills for marketers, creative skills for software developers and others. These frameworks allow for communication and value creation (Grote, 2005). In the case of Holmes and Crest, the key competencies in financial services consultancy is being communicative and open, valuing people, innovation and learning, acting professionally and taking personal responsibility. The recognition that poor performers exist despite their competencies being leveled, a cognitive script will help to deal with emerging issues on performance. These stages involve dialogue, addressing the problem and allowing the employees to perform. Forced ranking identifies the 10 percent poor performers in each group irrespective of whether the grouping has all stars or hopeless cases. The decision is to rank the employees in relation to their behavior and competence. The rating scale takes into consideration the job evaluation of every work weighting. The competences required are knowledge, expertise, leadership, problem-solving, decision making and accountability. The behaviors needed are planning, innovation, thinking, freedom to act, responsibility and environment (Hartog et al. 2004). In the Klein’s Model of Control theory, vague goals are likely to engender poor referent standards since in all respect, the discrepancies will be indicated hence no need for any corrective action. When goals are defined in numerical terms, it is more quantifiable than those mentioned qualitatively (Smither & London, 2009). Behavior change is anticipated when subjective utility of goals expected are met. When good performance is attained, the feedback or sensor takes on a comparison drive of which it is based on the continuation or change in the previous behavior. Cognitive structures and over learned performance programs prevail on individuals who frequently encounter scripts than those who hardly experience any. Routine work will help to embed the scripts and general plans. 2.2 Impact on Managers Holmes and Crest will need to choose forced ranking for few reasons. Its managers have failed to be tough and objective when conducting the appraisals. More accurate performance assessments are made or managers clearly inform their employees of their position. Managers have not been holding their workforce more accountable hence forced ranking becomes a wakeup call or an emergency tool. The company is able to differentiate among its employees hence able to guide company’s decisions in areas of investment, creating the next generation of leaders and encouraging performers (Holbeche, 2005). All individuals in forced ranking are not merely objects of an appraisal but serious participants in assessment sessions. Thos employees found to be poorly performing are given room to improve. Warnings are given to the bottom performers while offering promotions to those found to be topping the rankings. The ranking method considers the GE model of identifying the bottom 10 percent, middle 70 percent and top 20 percent (Grote, 2005). Current performance is used while the raters are forced to be certain of what they are doing. At Holmes and Crest, each employee will be given a numerical score by 10 coaches and workers supervisors. The score of each employee is averaged then the averages place the workers into five categories. Managers are able to differentiate talent by meeting the distribution requirements by supporting information not present in conventional performance appraisal systems. The talent cycle involves understanding talent and identifying pipeline, attracting and acquiring talent, employee engagement, and career progression, deploying right people and retaining and recognizing employees (Sels et al. 2006). Managers are encouraged not to think of dismissal but work hard to find solutions. 2.3 Criteria for Performance Appraisals Besides differentiation, the criteria of using forced ranking leads to organizational success. Holmes and Crest will emulate the GE Model which is a success story identified by 4Es. They are; high energy levels, energizing others towards shared goals, edging yes or no decisions, and executing and delivering on promises. The criteria can be altered or remodeled to suit the organizations objectives. Senior managers will be able to establish, define and understand what they deem generally important in organizational success. Even if no further action is taken, forced ranking has value. The knowledge of ranking criteria to senior executives will help in assessing talent (Hartog et al. 2004). It increases the probability of organizational members altering behavior to depict more attributes leading to organizational success. Transfers are facilitated for those found to be below the forced ranking grades. Other measures include cross-utilizing people after understanding their skills and strengths. In the case of Holmes and Crest, it will be able to articulate specific criteria and clear goals. It will also merge rankings with other human resource metrics, reward top performers and train assessors well. The claims of an unfair process or threat of lawsuits is lowered (Lord & Keman, 2007). The process favors the energetic, talented and sulk the dull and lazy which is not discriminatory in productivity and legal terms. Each employee’s performance is discussed by coaches and managers in about 10 minutes so that they can evaluate them on numerical scores (Renwick, 2003). The scores are then averaged. Employees are spread on a full spectrum so that by the end of the session, there will be a bottom and a top performer and others falling in between. The performance management system is customized and developed to meet the specific criteria of Holmes and Crest. The ranking of employees is not in the grouping of nominal characters like A,B,C and others but should use the likert rating of unsatisfactory, meets expectations and exceeds expectations. Forced ranking will bring about the effects of identifying the bottom and top performers (Grote, 2005). There has to be room from improvement before any reassignment or discharge in case the individual is performing unsatisfactorily. 3.0 Effective Implementation 3.1 Managing Poor Performance Dialogue is needed in a forced ranking performance management strategy. Reasons for poor performance and communication of expectations with the staff member are important so as to drive employees to acceptable management standards. Managers commit to developing the staff members and identify reasons why they underperform (Hartog et al. 2004). Addressing the problem is very significant given that the manager and the staff member agree to solve the issue of poor performance. This can involve providing training, removing obstacles and encouraging the staff members. Training demands that the staff member bridges the gap on abilities, skills and knowledge. These are taken as factors that may have prevented the individual from performing in the organization (Wood & Marshall, 2008). Encouragement is to enable the individual perform in the best environment provided. Letting them perform provides the room for the employee to act with minimal supervision from the manager. This also involves monitoring the successive performance. Information is sieved in terms of staff performance reporting, frequency of reporting and double checking the work of the staff member. The script is therefore terminated at this point (Holbeche, 2005). The script reiterates once performance is not met and in each reiteration, the managers gets forceful in messages like warnings to termination of employment. By using a capability procedure, Holmes and Crest will have a means of establishing performance criteria and monitoring performance. Staff with differing duties and responsibilities is provided with opportunities based on a degree of consistency to attain satisfactory performance levels. The most appropriate form of support is identified and provided. Failure by the staff to overcome the difficulties will mean a consequent action being taken. The procedure is fair and considers sufficient evidence that the staff member is completely incapable of satisfactory performing their duties (Sels et al. 2006). The rationale of exit should be based on the fact that the member of staff got reasonable amount of support to overcome the difficulties. 3.2 Differentiating Talent Forced ranking is an unrecognized business outcome that is able to provide the organization with essential data on manager’s ability to champion and spot talent. In the case of Holmes and Crest, forced ranking is one critical criterion that will allow managers to make and stick to tough decisions. Even in senior executive meetings, the senior managers will be privy to best sources of data that will direct reports and enabling best HR decisions to be made (Wood & Marshall, 2008). The performance management strategy has a unique way of describing the weakness and strengths of employees hence attempting to provide solutions into their weaknesses. Here, the managers are forced to understand the developmental needs and major strengths of their subordinates. They will also need to consider the magnitude on the quality of talent in the unit as opposed to the typical requirements of the conventional performance appraisal systems. The critical aspect of employee’s leadership abilities is provided as good indicator to verbalize and describe their assessments (Grote, 2005). Frustrations associated with the conventional performance appraisals is the reason from implementing the forced ranking procedures. Forced ranking provides for performance appraisal data that is independently verified. Conflict is worth looking into if there are serious variations in talent data drawn from the performance appraisal system and forced ranking process data provided. The ranking has a way of providing issues of great value where the best of employee performance appraisal systems can walk (Holbeche, 2005). It offers precise cross-departmental comparisons. In evaluation of larger groups, the criterion is applied equally throughout the various jobs in the organization thus permitting more cross comparisons in the departments. Holmes and Crest’s business environment should make the rationale for establishing the forced ranking procedures which are essential and has been on record in the last few years. The looming lay-offs within the years of slower growth have been a threat to several economic sectors but will the business will need to concentrate on identifying and developing talent (Hartog et al. 2004). The economy is crucial in times where the impetus of actively acting, retaining talent to diversify employment options and promoting financial growth of the company. 3.3 Quality of Workforce Forced ranking is keen in improving the overall quality the workforce. The employees and managers will keep revising their personal objectives and matching with that of Holmes and Crest. Once they find that their ideal self-concept no longer matches that of the organization, the can exit. They will no longer be productive but critique the forced ranking process as being biased (Lord & Keman, 2007). The view is that forced ranking process seeks to eliminate the bottom 10 percent all the time and replace with better employees drawn from the applicants’ pool. Quality of employees in terms of talent, competence and behavior are considered in the 10 percent as well as the top 20 percent. The bottom 10 percent are fired every year and replaced with the best available candidates from the resource pool. Assuming the there is voluntary turnover, the quality of the pool of applicants and their reliability and validity is made in the event of ranking assessments. The quality factor is strong where the poor performing employees are being replaced with better performing ones. The most promising employees are sought after since the gains are believed to be greater and coming in higher frequencies (Holbeche, 2005). Forced ranking system is more likely to engender noticeable improvements in the potential of the workforce. Improvement is not immediate but expected after some few months or years. This improvement is largely a function of voluntary turnover levels and the percentage of workers to be fired. Therefore, the rank-and-yank method is well founded since the results point to workforce potential where low potential employees, on average, are replaced after being identified with the those higher potential ones (Grote, 2005). 3.4 Short-Term Initiatives or Goals Releasing a smaller number of employees from the workforce is not beneficial that firing more poor performers. For instance, where Holmes and Crest resort to fire 10 percent and not 5 percent the effects is more superior in the event of examining the relative importance of selection process improvement. Increasing the overall effectiveness of the workforce is enhanced by the quality of the applicant pools. Getting rid of poor performers draws in the best results (Lord & Keman, 2007). Firing the low-ranked or the poor workers is the quickest route towards improvement. Equally important is reducing voluntary turnover. The forced ranking procedure is acknowledged to improve quality of company’s workforce in entirety. Though it goes at a steeped price, the consequences are not adverse to areas of employee concern such as teamwork, employee morale and collaboration. The prospective employees will not be obliged to sign on employments because they have the options to agree or not. The shareholders are also likely to perceive the process as biased or lethal if not conducted with objectivity. The potential challenges are balanced by equally compelling benefits (Grote, 2005). There is a possible wane of morale among the remaining employees who see the exited ones as not being much different in productivity to them. This can also be brought about by the feeling from retained employees that unjust treatment was met on co-workers. However, not all employees would view the forced ranking system in negative light. Eliminating underperformers is applauded by many employees in the organization. Regarding collaboration and teamwork, forced ranking system is more positive. The perceptions of the labor market have influence on the sustainability of forced ranking system. Job seekers are likely to develop beliefs regarding the culture of the organization before seeking employment. The potential applicants are likely to eliminate the company from consideration when they discover that the employer uses the forced ranking systems. They harbor feelings that the company culture is more risky or stressful. This situation leads to loss of potential applicants or employment candidates (Grimshaw et al. 2006). High-quality applicants will find this opportunity enticing as they know that their contributions will be rewarded and recognized once they are in the organization. They demonstrate eagerness to work in this type of environment. In improving the quality of organizational applicant pools, Holmes and Crest will find forced ranking system the force to reckon with. 3.5 Shareholders Perceptions Shareholders are an essential entity to the organizations. They are acknowledged to have reservations regarding the organization’s use of forced ranking system given the increased frequencies of negative consequences or lawsuits. Long term investors who follow the performance of companies are keen on forced ranking system implementation (Grote, 2005). This remains a clear signal that the management has demonstrated commitment to be efficient and accountable in staff leveling (Armstrong & Baron, 2005). Such perceptions are also anticipated to have some positive effects on stock prices. Holmes and Crest in the long term will withdraw from the forced ranking system and adopt the talent management initiatives once the obvious and immediate benefits have been reaped from the former. This will be the climax of the forced ranking system deriving initiatives in the short term. When the company is attracted by the allure of new potential workforce, they are pursuing continuous workforce improvement. In the long run, it becomes difficult to pursue since every time the poor workforce are laid off, the good performers are retained to a point that it becomes difficult to hire new applicants. The new hires will no longer be superior to those currently in the force (Bratton & Gold, 2007). The benefits of the forced ranking system are between 3 and 5 years upon initiating the ranking system. In the case of Holmes and Crest, the results of forced ranking system will be immediate after its implementation. The rate at which the workforce improved is one aspect that will be monitored and evaluated few years into its implementation. This aspect is clear given that the bulk of improvement is achieved in the first few years in all employee scenarios (Grote, 2005). 4.0 Conclusion The report has suggested the use of Forced Ranking System to solve performance problems at Holmes and Crest. Performance management as a Human Resource strategy contribute to organizational success and as a means of maximizing employee input to organizational performance. Performance management is appreciated across the globe (Sels et al. 2006). Performance management systems help in decisions regarding promotions, pay, downsizing and assignments, control, coordination and cooperation. Forced ranking identifies the 10 percent poor performers in each group irrespective of whether the grouping has all stars or hopeless cases. The decision is to rank the employees in relation to their behavior and competence (Bandura & Schunk, 2001). The rating scale takes into consideration the job evaluation of every work weighting. The competences required are knowledge, expertise, leadership, problem-solving, decision making and accountability. The behaviors needed are planning, innovation, thinking, freedom to act, responsibility and environment. Forced ranking is a great development tool especially to a company interested in moving in the direction of muscle-building the organization and jump-starting real leadership development process. 5.0 Recommendations Adopt the Forced ranking system and monitor its impact in the first four years Resolve employee challenges through the exploits of forced ranking Once all the employees are found to be top performers a review is taken to evaluate and consider changing to a more suitable performance management system Prioritize on the current employees by allowing them the opportunity to showcase talent and improvement Conduct cost/benefits analysis every six months to find out the uptake of the new system and whether it is achieving intended objectives and goals 5.1 Timescales Responsibility Activity 2014 2015 2016 2017 2018 Holmes and Crest CEO Brainstorm for adoption of Forced Ranking System HR Manager Implement the system Independent monitoring unit Monitor and evaluate and report Company CEO Provide feedback to shareholders Management Board Change system to performance management initiatives 5.2 Cost/Benefits Costs: Employees likely to sulk and get discouraged Discriminates against minorities Negative influence on organizational culture Benefits: Top performers identified and rewards Poor performers given room to improve A radical short term measure Turnaround to a collapsing company Increased productivity Increased market share and profitability Reference list Armstrong, M & Baron, A 2005, Managing Performance. 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