Application Case "Rank and Yank" at LuxCar Emma Gilmart, the newly appointed CEO of LuxCar, a large luxury car manufacturer, had a lot on her mind. She had spent years work- ing her way up the hierarchy since joining as a graduate trainee, and she now realized that being at the top was not going to be easy. The firm was rapidly losing market share to more innovative, styl- ish, technologically advanced, and energy-efficient cars manufac- tured by rivals. In comparison, Gilmart's employees, particularly the designers and engineers, were content with the same old-fashioned, "boxy"-looking, petrol-devouring cars that they had churned out for years. It seemed that there was a culture of mediocrity: the LuxCar way of working was doing things the way they had always been done before, with minimal effort. Searching for answers, Gilmart thought about her earlier expe- riences managing one of the firm's production plants. Most of the staff around her seemed to be quite hard-working and committed, but others certainly weren't. On reflection, she realized that there had not been a single involuntary termination in all her time there. She started to think about what kind of motivation the staff needed to achieve excellence. She saw that, even if performance was poor, there were no obvious serious repercussions. Why was the performance the "rank and yank" method, it was inspired by General Electric's CEO Jack Welch, who famously argued that leaders should rank employ- ees' performance and then fire the bottom 10 percent each year. This approach made sense to Gilmart as a way to stimulate motivation. She reasoned, "Why should we be tolerating underperformance? Is it not better to focus benefits, training, and development on our best performers and not waste money on the worst? Poor performers must mot have the right skills to do their jobs; surely it is healthier for them and the company for them to find another job that makes better use of their skills?" She sent a memo to all managers that employees were to be rated using three categories and a cap would be placed so that no more than a certain number of a manager's subordinates could be placed in each One. These were role model (20% of employees), meeting expectations 70% of employees), and below expectations (10% of employees). The "role models" would obtain a significant salary increase and also receive the majority of the company's training and development. The meeting expectations" group would get a modest salary increase and some training, while the "below expectations" group would be marked For dismissal. Gilmart was not prepared for the consequent outrage and chaos. Within three months, staff were picketing outside the firm's head office. Others had simply left, claiming they would never be a "role model" because of their manager's bias or a lack of places available In that category (so no matter what they did they couldn't achieve it). appraisal process not effectively identifying employees' actual perfor- mance, whether it was supporting the organization, and how it could be improved? An employee survey was conducted to find the answers. It was found that the annual appraisal was essentially considered a "tick-box" exercise. Managers viewed the appraisal exercise as a waste of time and exaggerated ratings to avoid unpleasantness. Likewise, sub- ordinates paid it little heed and didn't feel it captured their perfor- mance accurately anyway. An integral part of employee engagement had been lost and the result was a lack of motivation for employees to innovate, look for cost savings, or generally improve. This appraisal process had changed very little since the firm had been founded more than 50 years ago. Once a year, a manager would fill in a graphic rating scale form for each subordinate (similar to that in Table 9-2 but with a range of performance values from unsatisfactory to excellent) and submit it to the HR department. The problem? In the last ten years, only six employees from more than 7,000 had been rated as less than satisfactory! Yet the ultimate performance of the company was far from satisfactory. Fundamental change was required. Gilmart had read an article about the forced distribution method, which places predetermined percentages of ratees into performance categories. Sometimes called Even the highest performers were leaving because of hostility from colleagues perceived as lower-performing and a general feel- ing of unease with the competitive environment. It was becoming apparent why GE all but dropped this system after Welch left, as had other high-profile proponents more recently, such as Microsoft and Amazon. But what was the solution? Both the original and new appraisal methods had, for very different reasons, proven ineffective. Gilmart read more literature on performance appraisal and found that these were far from the only methods. She also found behaviorally anchored ratings scales, alternation ranking, the critical incident method, man- agement by objectives, mixed methods, and many more. As anxious as Gilmart was to get the picketers back to work and the factories functioning effectively again, she wasn't sure that it was ever going to be possible to find a perfect performance appraisal system. Questions 9-17. Gilmart's proposal of using the forced distribution method was met with outrage and chaos. But do you think there is some merit in such an appraisal system? Why or why not? 9-18. Evaluate the other performance appraisal methods mentioned in this case. Which would you recommend for LuxCar? 9-19. Does this case prove that a perfect performance appraisal system is impossible? Discuss.