The following article appeared in today's Chronicle.



Jan. 25, 2001, 10:59PM

Enron rating setup irks many workers 
By L.M. SIXEL 

TONGUES ARE WAGGING at Enron Corp., and it's not because of the bonuses 
they're expecting next month. 

Employees are irate about a new performance-review ranking system that pits 
them against each other. 

Under the system, nicknamed "rank and yank," employees will be put in one of 
five categories: 5 percent will be identified as "superior," 30 percent will 
be labeled "excellent," 30 percent will be called "strong," 20 percent will 
be labeled "satisfactory" and 15 percent will be called "needs improvement" 
or "issues." 

An insider said "needs improvement" means "you have one leg hanging out the 
window." And "issues" is Enron lingo for "you're gone." 

The rankings, whose names reportedly took Enron officials hours to come up 
with, are not based just on performance. 

Instead, they compare employee against employee. 

"It is possible, therefore, for someone to perform at the same or higher 
level compared to prior periods, yet receive a lower rating for the current 
period if other employees' performance raised the bar," according to a memo 
from Chief of Staff Steven Kean and Executive Vice President Cindy Olson that 
was distributed this month. 

While employees are competing against each other for ratings, they're also 
expected to be team players, according to the memo. 


`Horse-trading' of rank denied
The problem, according to someone familiar with the new system, is the 
horse-trading that goes on when the rankings are divided up. 

Managers trade rankings like baseball cards, explained the insider, offering 
to downgrade one employee if they can get a better rating for another 
employee. 

An employee's ranking is more a function of the negotiating skills of the 
manager he is working for, the insider said. 

Olson, who's over human resources and community relations, said no 
horsetrading is going on. The rankings, due out this week, aren't set in 
stone, she said. Only 9 percent of employees were rated in the bottom 
category while 6 to 7 percent were labeled superior, she said. 

But Olson said she can see how employees might be worried about the prospect 
of bargaining. 

She speculated that one reason employees might worry is because it's a new 
system for about 60 percent of Enron's employees. In years past, only the 
wholesale energy services group was ranked this way. 

Some human resource managers expressed surprise that Enron, which is known 
for hiring superstars, apparently feels that it must get rid of so many 
employees -- or at least put them on notice that they're not doing well. 

It doesn't say much about the confidence of your recruiting system if you're 
getting rid of 10 to 15 percent of your work force each year, said a human 
resource manager in Houston who asked to remain anonymous. 


Some may not fit in
Some people, as smart and talented as they are, just don't fit into Enron's 
culture, Olson said. It's a company that doesn't tell people what to do; you 
have to know what adds value, she said. Some folks just have a hard time in 
that environment. 

After thinking about it for a moment, Olson added that maybe Enron's 
recruiters aren't doing a good enough job weeding out the people who wouldn't 
do well in an entrepreneurial environment. 

Forced ranking systems were popular several years ago. But they fell out of 
favor, in part because they were seen as damaging employee motivation. 

Several years ago, Houston Lighting & Power put in a forced ranking system, 
dividing all employees into four groups, with "1" the top group and "4" the 
lowest. Employees were so angry with the system that some work crews had 
T-shirts printed: "Don't ask me -- I'm a 3." 

Olson said she doesn't see a problem with motivation. People like to know how 
they stand and will work hard to reach the top category, she said. 

But many of the employees -- at least the ones who rate above satisfactory -- 
won't know how they're rated. Managers don't have to reveal the ratings. 

And as for figuring out what it takes to be superior? You've got to reinvent 
your job, add new business lines or create something totally new. 

"Employees understand that when it's explained to them," Olson said. 




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