David,

FYI

Vince
---------------------- Forwarded by Vince J Kaminski/HOU/ECT on 03/19/2001 
11:31 AM ---------------------------


vkamins@enron.com@ms1.lga2.nytimes.com on 03/19/2001 09:35:38 AM
Please respond to vkamins@enron.com
Sent by: articles-email@ms1.lga2.nytimes.com
To: vkamins@enron.com
cc:  
Subject: NYTimes.com Article: Companies Turn to Grades, and Employees Go to 
Court


This article from NYTimes.com
has been sent to you by vkamins@enron.com.

Jeff,

FYI,

Vince

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Companies Turn to Grades, and Employees Go to Court


By REED ABELSON

An increasingly popular technique for evaluating employees is
prompting lawsuits charging discrimination at three big companies.

 At issue is the ranking of managers, professionals and sometimes
lower-level employees from best to worst, or grading them on a bell
curve, and then using that ranking to help determine pay and
sometimes whether to fire someone.

 In their suits, all filed over the last year or so, employees at
Microsoft, Ford Motor and Conoco say the rating systems are unfair
because they favor some groups of employees over others: white
males over blacks and women, younger managers over older ones and
foreign citizens over Americans.

 A growing number of companies are turning to grading systems, also
known as forced rankings or distributions, as a way of making sure
managers evaluate employees honestly and make clearer distinctions
among them. At companies that do not compare employees with one
another this way, nearly every employee can come away feeling above
average, like the children of Lake Wobegon. But under the grading
system, managers are forced to identify some people as low
performers.

 At General Electric, for example, supervisors identify the top 20
percent and bottom 10 percent of their managerial and professional
employees every year. The bottom 10 percent are not likely to stay.

 As John F. Welch Jr., General Electric's chief executive, wrote
last month to shareholders, "A company that bets its future on its
people must remove that lower 10 percent, and keep removing it
every year * always raising the bar of performance and increasing
the quality of its leadership."

 Ranking or grading employees is also common at technology
companies like Cisco Systems and Hewlett- Packard. But recently the
concept has been catching on more broadly, according to management
consultants. One reason is that as the economy slows, companies
often lay off employees. Cisco, for example, announced earlier this
month that it would let go as many as 5,000 workers * and would use
grading as one way to identify people to lay off.

 "Companies are playing their version of `Survivor,' " said David
Thomas, a professor at the Harvard Business School.

 Another reason is that some companies are eager to copy Mr. Welch,
long viewed as one of the most successful managers in America.

 Defenders of these systems say anyone who gets a low grade is
likely to view the process as unfair. " `A' students love grades;
`F' students hate grades," said John Sullivan, a human resources
professor at San Francisco State University.

 But the techniques, which some employees label with terms like
"rank and yank," have come under sharp criticism. While they appear
to offer an objective way to judge employees, they can be
vulnerable to bias, Mr. Thomas said. Managers may stereotype
employees when evaluating them on vague criteria like career
potential * deciding that older workers, for example, may have a
harder time keeping up with new technology.

 In some cases managers can view these systems "as a tool to be
used to weed out the ones you don't want," said Thomas S. McLeod, a
lawyer in Canton, Mich., who represents employees suing Ford in
another case.

 Critics of the system also argue that companies should not apply a
bell curve, in which a small number of employees get the highest
and lowest rankings and a much larger number are grouped in the
middle. The bell curve model assumes a normal distribution among a
very large group of random individuals, not small groups.

 What is more, across a company, people who belong to a
particularly talented unit will suffer if a certain number of them
must be given poorer grades than they would get in another unit.

 "You end up with dysfunctional results," said Edward E. Lawler
III, a business professor at the University of Southern California.

 Some lawsuits contend that Microsoft's grading systems are
discriminatory. One, filed last October, seeks class-action status
on behalf of blacks and women. The suit states that the rating
system "permits managers, who are predominantly white males, to
rate employees based upon their own biases rather than based upon
merit."

 According to the lawsuit, employees are rated on a five-point
scale, with only a certain percentage permitted to receive each
score. Employees doing the same job in the same unit are also given
a "stack ranking," from most to least valuable. Managers decide
those rankings largely using what are called "lifeboat
discussions," where they choose which employees they would want
with them if stuck in a lifeboat. Managers had no other clear
criteria, according to Christine Webber, a lawyer at Cohen,
Milstein, Hausfeld & Toll who is representing the employees.

 Grading is highly subjective at Microsoft, according to Peter M.
Browne, a former executive who is also suing the company, charging
discrimination. Mr. Browne, who is black, said managers were forced
to use a curve in evaluating even small groups. He said he had to
rate a group of five on a curve, for example, in deciding which
ones would not receive stock options.

 "You weren't told anything * just meet the curve," Mr. Browne
said.

 He says managers ended up favoring people with whom they
socialized. "People gravitate to people who are like them, and the
system just forces that," he said.

 Microsoft defends its system as fair and helpful. "We want to give
the highest compensation to the very top performers," said Deborah
Willingham, senior vice president for human resources, adding that
the system included checks and balances to ensure fair treatment.
Employees can appeal their ratings, for example, and are largely
responsible for developing the criteria by which they are
evaluated.

 Ms. Willingham also said the company did not ask its managers to
give a fixed percentage of their employees any given score. "We
don't force that curve to look any certain way," she said.

 Microsoft has no formal "stack rank" policy, she said. And when
managers do have lifeboat discussions, they are a tool to consider
which employees they would want to keep if they were starting
again.

 While the company would not comment on the lawsuits, Microsoft
"expressly prohibits discrimination," Ms. Willingham said.

 Similar criticisms emerged in a lawsuit brought last month against
Ford. It argues that the company's new grading system discriminates
against older workers. The company, which adopted what it calls its
performance management process a year ago, gives its 18,000
managers A, B or C grades. Last year, the company awarded 10
percent an A, 80 percent a B and 10 percent a C.

 Ford also faces a second lawsuit asserting that it unfairly
discriminated against older white males in its grading.It would not
comment on the litigation but defended its use of grades. "We
believe the system is fair and nondiscriminatory," a company
spokeswoman said. "We are in a very competitive industry, and we
need all of our employees to be the best they can be."

 At Conoco, employees contend that the company discriminated
against United States citizens and older workers when it laid off a
dozen geophysicists and other scientists in 1999 based on a ranking
from one to four, according to a lawsuit filed last year. The
majority of those let go were Americans, according to the suit, as
opposed to British, Norwegian and Canadian professionals.

 "The rating system was selectively enforced, and there were
instances of manipulation," said John Zavitsanos, the lawyer
representing the workers. Even though some were given higher
ratings on earlier rankings, they were eventually given the lowest
possible rating of four.

 Conoco, based in Houston, has extensive operations in the North
Sea, and many of the senior managers at the division in question
are British, according to Mr. Zavitsanos.

 While Conoco said it could not comment on the litigation, it said
its evaluations were based on several factors, including
performance, skills and expertise. The company said ratings often
changed as more information was collected and people were evaluated
in larger groups. Conoco company also denied that decisions were
based on anything other than individual capabilities.

 Companies "do need something in making pay decisions, downsizing
decisions," said Jim Kochanski, a consultant with Nextera
Enterprises. The problem is that companies may not take enough care
in deciding how people should be ranked. "They can get it very
wrong," he said.











http://www.nytimes.com/2001/03/19/business/19GRAD.html?ex=986016138&ei=1&en=e2
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