"Employees who are weeded out need not necessarily be incompetent; they could be in the wrong role" Bhaskar Das, Vice President (HR) Cognizant Technology Solutions

Between October 2003 and March this year, Satyam Computer Services had 900 of its employees packing their bags to find jobs elsewhere. No, there was no crisis at the Hyderabad-based company and neither had any rival mass-poached these code jocks. Rather, it was Satyam's performance management system at work. Innocuously named Value Creation Cycle, the hr tool works more like a scythe, weeding out a big chunk of the worst performers every year. The 900 departees amounted to, then, 5 per cent of Satyam's headcount. "Call it involuntary attrition," quips T. Hari, Vice President of hr at Satyam.

First introduced by Jack Welch at General Electric as Vitality Curve (in a moment, we'll explain why it is called so at GE), the controversial hr tool is finding eager adopters in India, including some big names like Wipro Technologies, ICICI Bank and Cognizant Technology Solutions. While its nature and implementation may vary from company to company, and it may go under different names (Value Creation Cycle, Capability Maturity Rating Scale, Performance Watch, Performance Differentiation Curve, TopGrading, and Forced Ranking are just some) the system's underlying philosophy is the same: Cull out the poor performers.

How does it work? Typically, managers slot their reportees in categories of A, B and C, with the first category representing the top 20 per cent of the performers and 70 per cent falling under the second category. The worst performers get slotted in C. Think of employee performance as a bell curve (GE's Vitality Curve is in reference to this statistical tool), where a small proportion of employees come at the top, a large number make up the middle and the underperformers fall on the line. At most practitioners of forced ranking, the underperformers are given a year to improve. If they don't move up even after that, they are simply shipped out. "Growth happens only when there are differential rewards for differential performers," says Ram Kumar, General Manager of hr at ICICI Bank.

At ICICI Bank, this macro-economic philosophy manifests itself in a six-point rating scale, where not more than 5 per cent of the employees are allowed to be categorised as excellent and a whopping 15 per cent are herded into the "unacceptable" category (this is a slightly different version of forced ranking and is often referred to as forced distribution). Similarly, Wipro Technologies employs a "capability maturity rating scale" as part of its assessment system. Employees are rated on parameters of performance, potential, criticality, market skills and competencies, and categorised as A, B or C. At Satyam, employees are slotted as one of the following: smart, meritorious, adequate, reasonable or trail (smart).

No employee at any of these companies is without his or her key result areas (KRAs), and business goals are planned for each employee at the beginning of the performance appraisal cycle. Performance is tracked annually, although half-yearly reviews are held to take stock. Quantifiable goals and qualitative issues are factored in by the line manager before the rating is assigned. "No rating comes as a surprise, since expectations are all discussed in advance," says Pratik Kumar, VP of HR at Wipro Technologies.

"New employees help a company's intellectual and innovative capacity keep pace with its physical growth" T. Hari, Vice President (HR) Satyam Computer Services

A Cruel System?

Behind this controversial system lies the need to create an organisation of super-performers. By necessarily forcing out a minimum number of employees, usually between 5 and 10 per cent of workforce, the system ensures that only the best are recognised, rewarded and retained. It also helps weed out those who do not have it in them to make it to the next level. Says ICICI Bank's Kumar: "Employees often outgrow their level of competency and the effort needed to get them in the acceptance level is Herculean." Bringing in new employees every year, says Satyam's Hari, helps infuse fresh ideas so that the company's intellectual and innovative capacity keeps pace with physical growth.

Underperformers usually get a year to shape up. They are put on a performance improvement plan (pip), which is monitored by heads of business units. Those who improve along the growth curve are inducted back into the system, and those who don't are given the pink slip. But as Bhaskar Das, VP (HR), Cognizant, points out, employees weeded out are not necessarily incompetent. It could well be a case of the person having been given a wrong role, wrong performance goals, or simply needed different skills to succeed in the job. "Sometimes the employees who are let go grow at a different trajectory in another place," notes ICICI Bank's Kumar.

"Growth happens only when there are differential rewards for differential performances" Ram Kumar, General Manager (HR) ICICI Bank

Understandably, then, not everybody is a fan of forced ranking. Its critics see a number of things that can go wrong with it. For one, they say, if some people are not performing to expectation, it possibly indicates the company hired the wrong person to start with. Therefore, shipping them out in two years' time is good neither for the company (in terms of time and money invested in hiring) nor the employee. Then, "it can result in an (internally) competitive rather than a collaborative environment", warns Sonal Agrawal, Director, Accord India, an executive search firm. In fact, it is quite conceivable that employees may want to work with one (powerful) manager over another. Also, as Hari Iyer, Head of hr at Sasken Communication Technologies (it ranked No. 1 in BT's Best Companies to Work For survey recently) points out: "People have enormous resilience to come back, and a theory like this is quite against the human spirit." At Sasken, for instance, the rating system is designed to develop and reorient the underperformers and not discard them.

In the us, practioners of forced ranking like Ford Motor have been hit with court cases by employees for alleged discrimination. Critics of forced ranking say that such a situation develops when line managers are not transparent enough with their employees in terms of appraisal. For instance, a manager who tells an employee that everything is fine with him or her, but suddenly assigns a poor rating at the end of the year, will necessarily be hard-pressed to explain the assessment.

Notwithstanding the concerns, more and more companies want to tighten their performance appraisal system. Come March 2005, HDFC (another of BT's Best Companies to Work For) will replace its subjective rating system with a 10-scale performance score that will bring transparency to appraisals and improve performance. "We've been very soft on people all along, but that will not do in this competitive scenario," says Manju Malkani, Deputy gm of hr. White-collar workers of the country, take note.