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Does Rank and Yank Put The Company At Legal Risk and Law Suits?
The simple answer is a resounding YES! Because the rank and yank system is somewhat mechanistic, is often based on poor or non-objective criteria and is subject to bias, the result is that some protected classes (minorities, women, older workers) may be disproportionally affected by forced ranking and rank and yank. That means legal actions through the EEOC (or other anti-discrimination legislation bodies), and even class action suits. Because of its high profile and importance in a company, any flaws in the system that push it across the legal lines will be obvious and challenged.
Is there precedent? Yes.
Ford, Goodyear, and Capital One have all been sued for age-related discrimination associated with forced rankings and rank and yank. According to this reference, both Ford and GM have abandoned the use of forced rankings and rank and yank. Here's a quote from the article linked above:
A survey by Pittsburgh-based Development Dimensions International, Inc. (DDI) suggested that the use of forced ranking systems had decreased more than 300 percent since 1993. www.ddiworld.com/pdf/CPGN43.pdf. DDI found that only 39 percent of companies using forced ranking systems found them even moderately effective. Kim Clark, Judgment Day, U.S. NEWS AND WORLD REP., Jan. 13, 2003, at 31. Adding the risk of litigation arising from the use of forced ranking systems to this poor performance ought to give pause for thought to any business considering implementing such a system.
Grading is highly subjective at Microsoft, according to Peter M. Browne, a former executive who is also suing the company, charging discrimination. Mr. Browne, who is black, said managers were forced to use a curve in evaluating even small groups. He said he had to rate a group of five on a curve, for example, in deciding which ones would not receive stock options.
"You weren't told anything — just meet the curve," Mr. Browne said.
He says managers ended up favoring people with whom they socialized. "People gravitate to people who are like them, and the system just forces that," he said.