Ranking Employees: Why Comparing Workers to Their Peers Can Often Backfire

"It's often assumed that employees who are benchmarked against each other work harder, to either hang onto a high ranking or raise a low ranking. However, Iwan Barankay, a management professor at Wharton, calls that assumption into question in a new study titled, "Rankings and Social Tournaments: Evidence from a Field Experiment."

"Many managers think that giving workers feedback about their performance relative to their peers inspires them to become more competitive -- to work harder to catch up, or excel even more. But in fact, the opposite happens," says Barankay, whose previous research and teaching has focused on personnel and labor economics. "Workers can become complacent and de-motivated. People who rank highly think, 'I am already number one, so why try harder?' And people who are far behind can become depressed about their work and give up."

Barankay's interest in rankings as a motivational tool intensified during the aftermath of the 2008 financial crisis, which "showed us that offering employees financial incentives based on their performance can have unintended consequences," he notes, referring to the sky-high bonuses earned on Wall Street in the run-up to the downturn.

"The practical question I wanted to answer is: What should employers do to make their employees work harder when financial incentives [aren't effective] anymore? It is often thought that people care about their status compared to others -- that people derive some happiness or dissatisfaction from knowing they're better or worse than their reference group," Barankay states. "Of course, rank should matter if money is at stake. But I looked at rank as its own reward. I wanted to find out whether workers truly want to know how they rank against their peers and ... if they knew how they ranked, did it cause them to adjust their effort?"

For full article go to: http://knowledge.wharton.upenn.edu/article.cfm?articleid=2567

Tags: Ranking, benchmark, employee, measures

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Permalink Reply by Richard Natoli on August 23, 2010 at 12:51pm

Call center managers/leaders tend to take issues such as this in a vacuum and either declare it works or it doesn't work. The fact of the matter is that peer rankings only work when they are effectively integrated into the culture of a call center. Peer ranking can not be a stand-alone "initiative" or it will certainly fail over the long-term.

I do call the entire "study" performed into question. To assume that this study has any relevance to full-time employees is a fallacy. The study was conducted using people that could best be describes as ultra temporary employees. The very nature of the jobs they are performing virtually ensures the results they found. If someone is performing a task for a company and has no long-term accountability, no career aspirations with that company, no ties to the company, etc then why would anyone assume they would care how they rank? They are essentially nameless, faceless entities that are doing a little bit of work for a couple dollars. Now, if these "turkers" were doing these mini-jobs in order to obtain a full-time position then you can be sure they'd care how they rank.

Furthermore, the author's argument that financial incentives are more powerful is silly. Why rank employees by performance if you do not have a performance management and compensation plan tied to it?

I can offer this...My contact center employs employee rankings on a monthly basis. My crew knows where they rank (quartile) and exactly what they need to do in order to improve or maintain their current rankings. Here are some observations from the last 2+ years using this approach to managing talent:
1. Overall performance of the average rep has improved exponentially.
2. Top new-hire candidates regularly comment that they love the fact we rank everyone.
3. Our culture is one of "friendly competition" and fosters collaborative work and peer coaching.
4. We regularly have new faces breaking into the top group, and quite often renewed focus from those that drop out of the top group.
5. Our representatives are very engaged in their own development and performance.

I could go on, but you get the idea (I think). Almost every tactic to managing people will fail if it is not part of a greater management strategy. Sometimes I wish the "professors" would step out of the classroom and actually manage before pontificating on the pros and cons of management practice. Theory works in classrooms but rarely in board rooms.