Photo: iStock
Photo: iStock

Should employees be ranked?

The response to being informed about one's rank is ambiguous as it can either be motivating or demoralizing

Rankings is the one metric employees either love or hate, mostly based on what their bosses assign them. It has become intrinsic to organizations as it is linked to the reward money that comes with a good ranking.

While there is a lot of debate on whether we need to rank employees or not, research shows rank incentives provide a cost-effective way to boost performance even when they are not linked to financial incentives, as people may put additional effort to improve their ranking tied in to their self-image.

The response to being informed about one’s rank is ambiguous as it can either be motivating or demoralizing. A Wharton research paper, Rank Incentives: Evidence from a Randomized Workplace Experiment, written by Iwan Barankay, an associate professor of business economics and public policy at the Wharton school of the University of Pennsylvania, shows removing rank feedback actually increases performance, as does giving a benchmark which tells employees how much effort they have to put in to get into the top 10%, 25% and 50% of the company, along with the ranks.

Barankay based the paper on a three-year experiment he conducted with 1,754 full-time furniture salespeople across the US and Canada, with 56% of the salespeople being female. Barankay’s research states, “When a furniture salesperson is told only that her rank is worse than expected, without telling her how much more she needs to sell to achieve a desired rank, she is more inclined to be demoralized and to shift her attention to other tasks."

More actionable feedback, with the addition of benchmarks, could diminish the negative effect of rank feedback in the multi-tasking environments that we operate in.

During and before the experiment, all salespeople had access to a Web page where they could review their sales performance data. They were divided into four groups—one which received no relative performance feedback, one which received rank feedback alone (they were privately told only their own rank), one which was given benchmarks informing them about the current sales performance required to be in the top brackets, and one which was given rank feedback and benchmarks together.

Showing benchmarks alone did not affect performance compared with other treatments. Showing both rank together with benchmarks increased sales for men by 20.3%, removing rank increased monthly sales by 16% for men, but these had no significance on the sales by women.

The study concluded that this was in line with gender differences in the response to incentives and competition, which could be one reason for the persistent gender gap in compensation.

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