Firing poor-performing employees may improve work quality

02/28/05

A study publishing in the latest issue of Personnel Psychology finds that forced distribution ratings systems (FDRS), where a predetermined percentage of low-performing employees is fired every year, can be an effective way to improve a company's workforce. By asking if it is "reasonable to expect that an organization would be able to improve the performance potential of its workforce by firing the workers judged to be performing most poorly, and replacing them with promising applicants," the authors create one of the first studies to address this performance management system. Supporters of FDRS believe it motivates the best employees, removes dead wood, and helps to develop strong leaders. Detractors see a myriad of problems including a system that is open to bias and discourages teamwork. The authors found that "in all our scenarios, workforce performance potential at the end of the simulation was higher than it was at the beginning." The overall impact of FDRS on the company's performance was not measured.

Using a computer simulation, they modeled organizations' ability to improve the quality of their workforces over a thirty year period after implementing FDRS. For the study to be accurate, they included the most significant variables: percentage of employees fired, reliability of ratings that determined who is fired, validity of methods to hire new employees, the selection ratio of new hires, and voluntary turnover. Under conditions where the greatest numbers of poorly rated employees were fired and the rating system used to fire them was reliable, the average potential rose forty-eight percent-- the highest. In general, the annual average improvement was approximately sixteen percent for the first two years falling to two percent in year six and one percent in year ten. After year twenty there was no improvement. "From a statistical or psychometric perspective, FDRS definitely hold promise for improving the average potential of organizational workforces," state the authors.

Source: Eurekalert & others

Last reviewed: By John M. Grohol, Psy.D. on 21 Feb 2009
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