by Nicola Rowe

Created on: November 27, 2008

I once worked for a firm that made a point, in its recruiting material, of stating that it only hired top performers. But the firm was able to work magical transformations on these top performers. Once through its doors, a certain percentage of them were transformed, by virtue of performance ratings along a forced curve, into underperformers. And underperformers didn't last long: the outplacement programme (or, in the States, the coyly-named "counselling-out programme") saw to that.

This rank-and-yank concept was made famous at General Electric under CEO Jack Welch. There, managers sorted their direct reports into three categories: a top 20%, a middle 70% and a tailing 10%. According to USA Today,the top twenty percent were to be "rewarded in the soul and wallet"; the bottom 10%, the paper says, were to be "actively weeded out".

As Businessweek reports, academics at Drake University have found that firing the bottom 5% to 10% of performers boosts productivity by 16% - an impressive statistic. But it seems to be a short and medium-term effect, the gains reaching a 6% productivity increase in year 3 still not to be sneezed at and planning to 0% returns by year 10.

How does the effect work? Two hypotheses are possible. One, poor performers somehow act as a drag on corporate performance, actively destroying value while they work; two, the gains come not from eliminating poor performers per se, but from the effect that elimination has on those who remain.

Let's look at the first hypothesis. How could poor performers actively destroy value? In organisations involving processes, where employees are highly dependent on each other to get a job done, poor performers can cause delays imagine, for example, a conveyor-belt worker who can't keep up with the line. More insidiously, many people believe although actual evidence is scant that poor employee attitude "spreads" from a poor performer to his or her adequately-performing colleagues, just as one bad apple turns the barrel.

The second hypothesis, though, is more convincing: you get more (although not necessarily the most) out of employees if they know they're fighting for their jobs. Looking back at my own firm, what was the point of the programme? Not to get rid of poor performers, though that was the ostensible goal. Instead, I believe it was
pour encourager les autres to provide a spur to those further up the curve. Because, no matter how good you were, you could always hear the jaws of the outplacement programme snapping at your heels.

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