02.04 – Jeff Brodsky on Forced Distributions

I think you could make an argument on either side of the forced ranking and no ranking. And today, as you all probably know and you see in the news, there’s lots of companies that are completely going away from ranking. The problem with no ranking system in my mind is that talent analytics don’t mean anything if they’re not in context. So if we wanna talk about turnover in a business, talking about turnover broadly and saying, okay, we’ve got 15% turnover, versus understanding that we’ve got 15% turnover but 80% of that 15% is our bottom 20% and we’ve managed out. Those are two really different discussion.

So if you come to me and say, I’ve got a problem in my business, I need more money, I need more people, look at my turnover number, it doesn’t say anything. So without some sort of relative ranking I don’t know how to really understand what’s going on in the organization, and it’s everything. It’s pay, it’s promotion, it is when you look to downsize, understanding who those right people are. I had one of my new senior HR leaders, we had this debate just this week, and he said to me, so we let go our bottom 10%, so are you still gonna force me to identify my bottom 10%. Cuz I don’t have a bottom 10% now.

And I said to him, I go first of all, relax, okay? But you always have a bottom 10%. Bottom 10% doesn’t mean not performing. And so when you put the question together, you kind of talked about numbers and you talked about words, and to me that’s really the challenge for an organization to get right, which is does the deciles you use, do they easily translate to words? And how do the words affect behavior, right? So if you have a ranking system with three different levels, and the second one is good, is good, good, or is good not good, cuz everybody wants to be very good. And so my experience has been, the words are what really get people kinda crazy.

Because everyone wants to be better than the words might suggest. For us at Morgan Stanley, the way I think about it really, really broadly is that at the corporate level, I always wanna understand who the really top people are, and I wanna understand who the really bottom people are. And so when we distribute pay, when we promote people, we can see and understand if there’s a correlation between outstanding performance and those things I think for the chunk of people in between I’ve kinda created a system that gives independence to each business.

So if you’re running a technology business with 15,000 people globally or an operations organization more specifically, we’ve you’ve got more administrative type work and a one to five system really matters, right. Because you’re basically gonna take the salary increase system and you’re gonna take the average and you’re gonna apply to a numeric rating, and come out with an increase. If you need to do that for your business because that’s what your workforce suggests, then you should do it. But, I think having leaders have the independence to move within a broader system is really helpful.

Enables us to share with the board and external shareholders the sort of broader thinking about our talent, and then it enables business people to make good decisions. This is one of these where I don’t actually believe there’s a right or wrong answer. It’s what’s the tool you need at the time.