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Is Ranking Employees Good for Them?

A recent article about Microsoft’s organizational culture has sparked a heated discussion about the tech giant’s notorious employee ranking system in particular, and employee benchmarking in general. The article, which was published in Vanity Fair magazine, discusses Microsoft’s “stack ranking” system, which forces unit managers to declare a certain percentage of their subordinates as top performers, good performers, average, and poor. Due to this ranking system, good employees are fired just because some of their peers were ranked higher than them. According to the Microsoft employees who were interviewed, this system has crippled the company’s innovative minds and created a situation where employees are forced to engage in political games and invest much of their time competing with their peers.

One might wonder what was going through Microsoft managers’ heads when they decided to turn their own employees against each other, but many businesses make this mistake. It is often assumed that benchmarking your own employees will make them more motivated. In a time when financial incentives are not an option, companies look for other ways to encourage employees to excel and work harder. Unfortunately, employee-ranking systems sometimes have the opposite effect; people who are ranked as top performers think to themselves, “Why fix what isn’t broken? I should just keep doing what I’m doing.” On the other hand, people who are ranked the lowest might feel helpless and depressed and decide give up.

A recent field experiment conducted by Iwan Barankay, a management professor at Wharton Business School at U-Penn, shows just that. Barankay’s experiment was set out to check if workers really wanted to know how they were ranked against their peers and if knowing their ranking would encourage them to adjust their efforts and work harder.

In his experiment, Barankay used 330 workers who were recruited through Mechanical Turk, Amazon’s crowdsourcing platform. In the first experiment he posted two identical tasks that offered $.05 for every four tasks completed. The quality of the response on each task did not affect the receipt of payment. Hence, monetary incentive did not affect performance. One task included receiving a feedback on the worker’s accuracy in preforming the task, while the other didn’t. Barankay assumed that the first task would be more popular considering most people like to know their status compared to others; however, the second task attracted three times as many workers as the first one.

The second experiment tested if receiving feedback with a ranking on a task performance would increase workers’ motivation to work harder and better on future tasks. Workers who had their task performance ranked were less likely to come back for more work and were less productive than workers who only received feedback without ranking.

Barankay’s findings strengthen the claims of Microsoft employees; ranking systems that focus on comparing peers do not achieve the desired effect and can have a negative effect on employees’ performance.

Based on: Knowledge@Wharton. “Ranking Employees: Why Comparing Workers to Their Peers Can Often Backfire.” 18 August 2010. http://knowledge.wharton.upenn.edu/article.cfm?articleid=2567/

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