Vitality curve: Encyclopedia II - Vitality curve - Rank-based employment evaluation

Vitality curve - Rank-based employment evaluation

The concept of a "vitality curve" has been used to justify the "rank-and-yank" system of management, whereby 10 % of workers are fired at each evaluation. Jack Welch, former CEO of General Electric, used a "vitality curve" model in an attempt to justify his "rank-and-yank" practices.

Jack Welch's vitality model has been described as a "20-70-10" system. The "top 20" percent of the workforce is most productive, and 70% (the "vital 70") work adequately. The other 10 % ("bottom 10") are nonproducers and should be fired. Rank-and-yank ideologues credit Welch's rank-and-yank system with a 28-fold increase in earnings (and a 5-fold increase in revenue) at GE between 1981 and 2001.

Vitality curve - Straight from the Gut

In Straight from the Gut, Welch says that he asked "each of the GE's businesses to rank all of their top executives". Specifically (in accordance with the 20-70-10 model) the top executives were divided into "A", "B", and "C" players. Welch admitted that the judgments were "not always precise".

"A" players, Welch claimed, are

• filled with passion
• committed to "making things happen"
• open to ideas from anywhere
• and blessed with lots of "runway" ahead of them,
• have charisma, the ability to energize themselves and others,
• can make business productive and enjoyable at the same time.
• and exhibit the "four E's" of leadership:
  • very high Energy levels
  • can Energize others around common goals
  • the "Edge" to make difficult decisions,
  • the ability to consistently Execute, or deliver on their promises

The vital "B" players may not be visionary or the most driven, but are "vital" because they make up the majority of the group.

"C" players are nonproducers. They are likely to "enervate" rather than "energize", according to Welch's model. Procrastination is a common trait of "C" players, as well as failure to deliver on promises.

These designations apply not only to workers at the bottom levels, but also managers. Managers unable to recognize "C" players will often perform as "C" players themselves.

Welch advises firing "C" players, while encouraging "A" players with rewards such as promotions, bonuses, and stock options.

Vitality curve - Criticisms of rank-and-yank

Critics believe that the 20-70-10 model fails to reflect actual human behavior. Among randomly selected people, assigned to a task, such a model may be accurate. However, at each iteration, they contend, the average quality of employees will increase, making for more "A" players and fewer "C" players. Eventually, the "C" players comprise (at general agreement) less than 10 % of the workforce; they may all be gone. At this point, managers will staunchly object to a mandate that they recommend 10% of their subordinates for termination.

Once rank-and-yank has expelled all the weak employees, further iterations may not improve average workforce quality, but instead result in office politics and lowered morale that will ultimately reduce productivity, damage communication and interoffice relations, and encourage cheating. Rank-based performance evaluations (in education and employment) are said to foster cutthroat and unethical behavior. Such behavior resulted when Enron implemented a rank-based system, and this is sometimes credited as a contribution to the downfall of the company.

A further alleged fallacy of the "rank and yank" ideology is that, applied to small groups, it fails. The law of small numbers dictates that on small teams, actual distributions may deviate from any "vitality curve" model.

As a managerial motivation tool, it is similar to the ancient Roman military practice of decimation as a means of punishment of conscripted troops, whereby the remaining 90% were motivated out of fear of becoming the next 10%.

Adapted from the Wikipedia article "Rank-based employment evaluation", under the G.N U Free Docmentation License. Please also see http://en.wikipedia.org/wiki