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High-performing employees are more likely to leave organizations whose evaluation systems strictly cap the number of employees recognized as "the best," Cornell research finds.

At a multinational U.S. pharmaceutical company, the analysis found, employees who were nominated for top performance ratings but not awarded them—because no more than 1 in 5 could be "exceptional" or "outstanding"—were at least 34% more likely to leave the company voluntarily. They were among the most likely to leave despite often receiving bigger bonuses intended to offset the sting of lesser recognition.

The research suggests that enforcing a curve on performance rankings comes with downsides that may outweigh any added motivation instilled among employees competing for the top tier, and is probably best avoided. Even when organizations strive to implement cutoffs equitably and transparently, and even when lower ratings have no negative career implications, high-performers denied top rankings are more likely to become dissatisfied, prompting higher turnover.

"If you're going to engage deliberately with recognition to get more from your people than just motivating them with money alone, forced ranking is the wrong way to do it," said Brittany Bond, assistant professor of organizational behavior in the ILR School. "When evaluation systems are tied to something arbitrary, like a 20% cutoff, they start to lose their power to inform, especially at the margins."

Bond is the author of the article "Cut to the Curve: Underrecognition and Talent Loss from Forced Ranking in a Multinational Firm," in Management Science.

Forced distribution ranking systems—commonly called forced or stacked ranking—were popularized in the 1980s by Jack Welch-led General Electric (GE), whose "rank-and-yank" system recognized 20% of employees as top performers while identifying 10% to be fired. Since then, large companies including Amazon, Goldman Sachs, Google and McDonald's have implemented some form of a curve in performance rankings.

Proponents of that type of system believe making top rankings scarce, and thus highly sought after, creates a powerful motivator for employees beyond base compensation. At "Pharma Co.," as the focus of the study is identified, Bond said the forced ranking system—rating the top 3% "outstanding," another 17% "exceptional," and most of the rest "solid"—was seen as helping to foster an innovative and competitive culture that, along with industry-leading pay, attracted top talent.

But scholars have also long recognized risks in recognition cutoffs: If perceived as biased or arbitrary, they could weaken motivation and organizational ties. Microsoft became a case study for how a GE-like evaluation system could backfire when applied to teams working on large, collaborative projects. And several high-profile CEOs are known to have achieved success after leaving companies where they felt underrecognized.

Bond said Pharma Co. presented an ideal opportunity to investigate forced rankings' potentially demotivating influence and the effectiveness of mitigation strategies, which have received little study. Management had implemented extensive and time-consuming processes to calibrate rankings fairly across nearly 7,000 employees.

The company allowed bonuses to be reallocated such that personnel who Bond classifies as "downgraded"—those nominated for higher rankings but ultimately labeled "solid"—might be paid more, while receiving assurances about their career prospects. And the system's hard 20% cap on top rankings naturally created a set of underrecognized employees whose performance was indistinguishable from that of top-ranked colleagues.

"This was a ripe test bed for exploring, in a circumstance where so much attention, effort and resources were devoted to it, did a forced ranking system actually work?" Bond said.

Data and interviews showed Pharma Co.'s recognition system produced a serious unintended consequence, driving higher turnover among high-performing employees. After the rankings were awarded in 2016, downgraded employees were at least one-third more likely to leave Pharma Co. voluntarily within 18 months than top-ranked colleagues, and were nearly as likely to depart as the worst-performing employees. Turnover was also higher among employees who were never nominated for top rankings but awarded the biggest bonuses.

One manager shared an anecdote illustrating the problem: Despite earning the same bonus as a top-ranked colleague, a downgraded employee was visibly shaken by his ranking, saying he'd "never been 'solid' at anything in my whole life"—and left Pharma Co. within two months. Some top-ranked personnel took little satisfaction from their achievement, knowing the process had upset peers and diverted bonus money to them.

Bond attributes the increased turnover to concerns about fairness, envy and self-image—ultimately finding a wounded self-image likely to be the most important factor prompting employees to find new jobs.

"Your manager is telling you you're the best and you'll be promoted next year, but at the end of the day, you're still bugged by what happened," Bond said. "When everything else has been addressed, you're left with a dissonance between how you see yourself and the results of these recognition schemes, and that not computing."