Corporate Reform Data and Data Mining

Beware of Stack Ranking Employees

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Big data has captured the imagination of many corporate executives, but it has its limitations. When evaluations are turned into numbers and used to rank employees from best to worst, it crushes motivation. This was W. Edwards Deming’s advice many years ago, but then Bill Gates of Microsoft and Jack Welch of GE emerged as gurus of stack ranking.

But, lo! New studies confirm that stack ranking has negative consequences.

An article in the business section of the Néw York Times reports that stack ranking hurts morale.

“Big Data has made it possible to measure employee performance more thoroughly than ever. But two recent studies offer a warning: Be careful about how you deploy that data.

“Many managers assume that distributing a ranking of their employees’ performance is an effective motivational tool, said Iwan Barankay, an associate professor at the Wharton School at the University of Pennsylvania. The idea is that lower-ranking employees will strive to improve, while higher-ranking ones will work to maintain their edge.

“Professor Barankay sought to test this assumption in a study of 1,500 furniture sales workers that he conducted over three years in North America. One group of sales workers was shown how their sales ranked compared with their colleagues. Another group was not shown a comparison, but only their individual results.

“Professor Barankay found that the sales representatives who did not know how they ranked achieved higher subsequent sales than those who were aware of their comparative ranking. The results of the workers who had received high rankings neither improved nor worsened.

“Human nature combined with simple math caused the lower-ranking workers to falter, according to Professor Barankay. Most people optimistically assume that they are above average in their performance, he said. But real life is not Lake Wobegon, and most people, when measured against one another, will inevitably rank as average or below average. For these people, seeing their rank is demoralizing, causing their performance to wilt.”

Now it is time to read Deming. I recommend chapter 9 of Andrea Gabor’s book about Deming titled “The Man Who Discovered Quality.” Deming was adamantly opposed to perfoance pay or anything that undermined employees’ morale and collaboration. His message was to choose your employees well and give them the support to succeed. Most failures are system failures. Don’t blame the frontline workers for problems caused by the system.

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