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Experts mixed on use of annual employee reviews

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Howard Guttman: “You've got to make distinctions.”
Howard Guttman: “You've got to make distinctions.” - ()

The end of the year can bring a number of good things to companies: holiday parties, end-of-the-year bonuses and hopefully a few extra days off between Christmas and New Year's.

Of course, it often always brings something dreaded by employers and employees alike: annual reviews.

If done correctly, they can be a helpful, constructive tool, leading to more productivity and workplace happiness. But done incorrectly, they can be a morale killer that does far more harm than good.

The recent decision by Yahoo! to implement a bell curve-style ranking system — one where managers must divide employees into five different levels, with the bottom level being pushed out of the company — has brought the issue to the forefront again.

And while most experts disagree with such a stacking system, not all do.

Management consultant Howard Guttman, founder of the Mount Arlington-based Guttman Development Strategies, said the practice of ranking employees isn't necessarily a bad one.

It would be "irresponsible" for a company to not have some type of barometer, he said.

"They all make distinctions because you've got to make distinctions," Guttman said.

The practice came into vogue when Jack Welch ran General Electric in the 1980s and '90s. Guttman says having a system that allows managers to differentiate employees and measure them for purposes such as performance and compensation reviews "makes total sense."

But it's what a company chooses to do with the ranking and how it transmits that information to its employees that really matters, he says.

Having some degree of transparency between manager and employee is key, Guttman said. The more employees know where they stand, the greater the chance they'll use that information constructively to improve their standing.

"It's got to be congruent with a culture of transparency," Guttman said. "That's when the game can work."

Others disagree.

Ann Buchholtz, a professor of leadership and ethics at the Rutgers Business School in Newark, said forced rankings can be a "mixed blessing."

While she says they can be an "effective antidote against complacency," employee rankings "often create more problems than they solve." Though employees may work harder as a result of wanting to improve their standing, they will most likely undercut their coworkers in the process, Buchholtz said.

"Teamwork and cooperation take a direct hit from it," Buchholtz said in an email. "The practice promotes back-biting and sabotage."

That's one reason Eugene Simko, an associate professor of management at Monmouth University's Leon Hess Business School, feels employee ranking systems have little value and do "a lot more harm than good."

Going back 30 or 40 years, Simko said, the system was seen as a "motivator" for worker productivity. Today, the workplace environment has changed into one more suited for collaboration.

"So much of what's going on in corporate America involves teams," he said.

New Jersey Business & Industry Association President Phil Kirschner said he thinks employee ranking systems are a fading trend.

"I think it was a little more popular a few years ago than it is now," Kirschner said.

While the NJBIA doesn't take an official stance on the practice, Kirschner said he can see how it has both advantages and flaws.

When used effectively, Kirschner says, the system is "more of an evaluation to build on strengths and weaknesses." That can help motivate a workforce and push employees to improve upon their performance in a constructive manner, he said.

Still, companies using ranking systems might not necessarily be afforded the most accurate depiction of their workers' achievements.

"A ranking system almost doesn't recognize your improvement," Kirschner said.

E-mail to: andrewg@njbiz.com
On Twitter: @andrgeorge

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