A Blog by Jonathan Low

 

Jul 21, 2016

Performance Of Workers Varies Over Age and Time

Former GE Chairman Jack Welch's system for rating executives and then culling the bottom 5 or 10% always seemed to pat. And one wonders if the company might have exceeded its mediocre decade of performance after his retirement had it been more focused on the future than on adhering to rigid processes. JL

Lauren Webber reports in the Wall Street Journal:

The chance of an employee receiving the same rating from one year to the next was 33%—meaning the practice of “managing out” workers who rate low relative to their peers in annual rankings could result in companies firing next year’s solid B players or even stars. The study adds some heft to recent decisions by bellwethers such as Goldman Sachs and GE to coach workers more and reduce the focus on annual performance appraisals and ratings
If you think the workforce can be divided into high achievers, slackers, and a big crowd in the middle, think again.
It turns out that workers’ performance varies over time—much more so than previously thought, according to a new research paper from Peter Cappelli of the University of Pennsylvania’s Wharton School and Martin Conyon of Bentley University.
The authors analyzed seven years of performance-review data from a Fortune 50 retailer, and concluded that the chance of an employee receiving the same rating from one year to the next was 33%—meaning the practice of “managing out” workers who rate low relative to their peers in annual rankings could result in companies firing next year’s solid B players or even stars.
Jack Welch’s ‘vitality curve’?  No evidence for that at all,” said Mr. Cappelli, referring to the system popularized by Mr. Welch at General Electric Co. GE -0.63 % in the 1980s, in which employees were segmented into a bell curve with 20% rated as high performers, 10% rated as low performers, and the majority in between.
In the system’s most rigid form, low performers were fired each year, under the premise that they would never deliver value to the business. “The variation [in performance] is much closer to random,” Mr. Cappelli said. That is both good news and bad news for employers. Performance can improve and the authors say “how employees are managed matters.” On the other hand, it means bosses should be actively coaching workers; they can’t try to simply hire superstars and then get out of their way.
The study adds some heft to recent decisions by bellwethers such as Goldman Sachs Group Inc. GS 0.11 % and, yes, GE to coach workers more and reduce the focus on annual performance appraisals and ratings in favor of more continuous check-ins and feedback.

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