Barrier:
We're drowning in a sea of carrots! How can we swim to shore?

It is a very complex challenge that you have presented. Here’s my opinion and I could be wrong. First, you need to be clear about why you want to change a mature system that has been used for some time. Are you getting feedback that it is flawed? Or, that it is unfair? Or that it works against the company’s values and goals? Or, whatever. Honestly, what’s your motivation and intent? You can reflect on those questions and I will move on assuming change would be beneficial

The Evaluation Process: Most forced ranking systems at the center are unethical although this is unintended in most cases. They originate from a Theory X mindset. That is, we (top management) can trust our middle/upper managers to measure and reward our best people and improve or exit our marginal people. Then you have the measurement instruments that evaluate people many times based on traits and assigning a rating number to purport a degree of accuracy and objectivity that covers up the mostly subjective nature of the ratings. Although some jobs lend themselves nicely to objective measurement. But even in these jobs, you are (objectively) measuring roughly 50% of the essence of the contribution required. We all know about the “Halo” effect and it is a real issue for many raters. You also have subtle (sometimes not so subtle) political dynamics that can interfere with the evaluation process and result in unfairness, unhealthy competition, conflict/false agreement, favoritism, etc. Merit and Bonus Process: I think you used the key word “reward” as this process is a big part but all of a company’s rewards system. The best test of a reward is if the person(s) feels rewarded. Can’t make it much simpler than that. A great rule when you are thinking about using “stuff” as a reward or incentive.

So on to your issue. Does the current system fulfill my definition of a reward? My experience would tell me that if this process is like many others, neither the evaluating managers or the employees look forward to this activity. Surveys would bear me out since they typically show that everyone involved dislikes this activity. If you can show, the “holes” in the system centered around subjectivity and opinion and then strengthen your position with measures of what the people in the system think about it. You will either learn that it is working OK or that as a reward system it does not accomplish what the company says it wants. Build you case around the company’s objectives in a continuous improvement, multiple bottom line model. Realizing this assessment is a bit reductionistic, I hope some of the ideas are helpful. Good luck…

Yours is a company that operates at the (b)leading edge of continuous improvement. 11/12th of the year, consultants, executives, staff help clients achieve continuous improvement in a mature, adult fashion. It seems, therefore, that the culture in relation to bonuses is out-of-date. Either everyone receives the same percentage bonus (this is standard practice in the non-profit sector) because everyone contributes to the success of client projects and therefore the success of the company, or no one receives a bonus because being pro-active and a creative thinker is part of the expectation of every employee. This shifts the company from a culture of 'acting grown-up until we hit the playground' to 'taking responsibility for our actions, 100% of the time'. To me, this feels like a move in the right direction. This change will, of course, need to begin at the top because we expect our leaders to lead by example.

This may sound harsh, but you asked for opinions!

To remove forced ranking without changing overall bonus pool would necessary mean top performers getting lower bonus and lower performers getting higher bonus pool since bonus pool is fixed. But what would be your justification for increasing overall bonus pool if indeed your bonus pool is fixed?

The value of a forced ranking system is it weeds out relative poor performers and ensures quality of employees increases overtime as poor performers exit and better performers are retained and hired, provided you have:
- performance management / target setting system that is robust
- assessment system that appears fair to employees
- exit and compensation system for lower performers that is effective and does not affect overall morale

So you may want to think very carefully whether you want to change the system or tweak the processes for
- how performance management / target setting is done
- how forced distribution is carried out e.g. Is there distribution by job-grade, moderation exercise
- how exit due to performers is done humanely

As well as introduce processes for identifying employees suitable for rotation, accelerated development during force ranking process and introduce team bonus pool for teamwork on top of individual bonus. Team gets to decide how to use bonus pool. But you have to figure out whether the budget fir team bonus will come from: existing bonus pool or new sources?

If you really want to change this, I suggest you form cross functional task forces to propose options. But do lay down constraints such overall bonus budget being fixed, cannot erode performance management etc.. A good model to adapt from may be the Netflix model. You can see the slides at

http://s3.amazonaws.com/files.posterous.com/jasoncalacanis/mlY1DhPWbxBQN...

But I suspect the team may conclude forced distribution is still a better choice given constraints.

Contact me if you wish to discuss more. Would be happy to have a healthy exchange.

Good luck!

You say that 'The outcome is that every Autumn 90% of our colleagues are (to a greater or lesser extent) disenchanted.' but then go on later to say ' 'We have recruited and rewarded people who follow and are turned on by the current model so removing such a scheme has cultural and contractual issues' .There seems to be a contradiction between these two statements; if 90% are truly more or less disenchanted then there is a potential coalition for change regardless of what they signed-up to on joining. But if they are truly turned-on by the current model and accept the end-of-year angst it generates and quickly move-on then that is not the case. Maybe you can clarify as a first-step to exploring this further?

There are a couple of aspects that are important to understand before considering any change. The first aspect is about the bell curve.

Bell curve is nature's reality. The question is where does bell curve come in - is it year on year on performance or is it around potential of people. Also, when nature's reality is force fitted, there is bound to be a dissonance. Unless the bell curve is happening naturally and shape is changing in line with the organization performance. For example, if the organization has exceeded all goals, is it not natural that it could have happened only by the contribution of many exceeding their goals. In that case, is the bell curve skewed to the right or still the same bell curve used every year. If it mirrors the organization performance, then there will be less of an issue.

The second aspect is about rewards. Rewards and performance bonuses are a way of life today in most organizations. Since they have been used to attract people, is the assumption that they have to get the rewards irrespective of how the organization has done? If that is the case, then the organization will feel a heartburn and expectations of earning bonus every year will be set. When couple with a bell curve that does not change every year, problems will get compounded in years where the organization does exceedingly well. It will be important to examine the thinking behind this. So, it is not about the bonus culture. It is about what the bonus is linked to.

If the underlying philosophy on performance management and rewards is linked to organization performance, and communicated well across the organization, chances are that there will be less heart burns across and greater acceptance of the same.