Staff rankings come under scrutiny

'If you score a three, you can be a happy camper,' says the head of performance management at a global investment bank. 'Anything less would indicate that attention needs to be given to personal and professional development.'

A numerical ranking system is used in many banks and other companies. Scoring a three may bring peace of mind, but scoring a one need not necessarily cause palpitations. Theoretically at least, many banks' performance appraisal systems are not designed to select staff for the chop. They are often used instead merely to identify development needs.

Evelyn Tressitt, global head of private banking and asset management organisational development at Deutsche Bank, says: 'We're not looking to make direct comparisons between staff, but rather at how staff have met the objectives they and their manager have agreed are most important to support the business's goals.'

This may be just as well. In a recent article, Loren Gary, editor of the Harvard Management Update, says that forced ranking - meaning ranking by comparison with a peer group - may do more harm than good. The practice has become a lightning rod for anxiety about redundancy, she says. Because it emphasises position relative to performance, rather than absolute performance, it can undermine co-operation and encourage employees to work against one another.

This has not put off the likes of Goldman Sachs. When the bank first announced redundancies last year, it said that the cuts were merely part of its annual exercise to weed out the lowest performing staff. Similarly, companies such as GE and Enron have used forced ranking as a means of putting staff in their place.

Chris Parsons, at Penna Change Consulting in London, says that dealing with poor performance using relative measures alone is not a good idea. 'It's appropriate to rank people on their achievement of measurable objectives and targets, but that isn't the whole equation.'

Organisations also need to look at whether individuals have the absolute capability and competency to do the job, says Parsons. This is a question of development it should not be assessed only through a rating scale, but also through a discussion between the line manager and the individual concerned.

In the UK, 'competency-based assessment' has been given fresh impetus by the Financial Services Authority's new regulatory regime. This requires firms to ensure that staff are capable of performing the tasks assigned to them. The result has been a rush to increase appraisals' developmental focus and to make appraisal systems clearer and more objective.

Hilary Jackson of City Personnel Group, an organisation of HR professionals, says: 'Formal assessments are required prior to certification of competence. It makes sense to incorporate the assessment into the normal appraisal process, which means that the process and assessment tools have to be robust and documented.'

George Wilson, head of HR at NM Rothschild, says: 'Our performance appraisal system has changed a lot since last year. We have introduced a competency framework to provide absolute role clarity versus a less formal and less defined process in previous years.'

Defining what it means to be competent in each position is an arduous process. Last year Rothschild hired Helen Batchelor, a former consultant at Towers Perrin, to undertake the task. 'We had to be clear what people need to do, how they need to do it, and whether they are plugging the gaps,' says Batchelor, now Rothschild's head of learning and development.

Batchelor visited each of Rothschild's business areas and asked managers to list the kinds of competencies considered core to each position. During a '360 degree' appraisal, bosses, colleagues, subordinates, and internal clients were asked to judge whether individuals possess such competencies. To make things easier, competencies were articulated as Smart (specific, measurable, agreed, realistic and time-bound) objectives.

Rothschild is not alone in overhauling its system: UBS Warburg has made changes so as to look more deeply into competency. So has Deutsche Bank. But the German firm has not confined its attention to meeting the UK's new regulatory guidelines. In a more ambitious project, Deutsche has spent the past year implementing 'an entirely new, wholly computerised, global performance management system'.

Under the new scheme, the performance of all employees in a particular business area, wherever they are in the world, is judged in relation to fundamental business objectives outlined by divisional directors. Managers formulate questions probing whether employees' behaviour is consistent with these objectives.

In conversations with line managers, employees also devise their own personal development plan to coincide with business aims.

Nils Mehr, project director of global performance management at Deutsche, says: 'Individuals align their individual performance goals with the goals of their business. We can talk about success in a consistent way all around the globe.'

Deutsche Bank's scheme for aligning individual and organisational goals follows the 'balanced scorecard' approach, a holistic method that meets with the approval of many performance management experts. Chris Parsons at Penna says: 'Without placing undue emphasis on financial achievements, the balanced scorecard is a mechanism for delivering focus to an organisation. It will ensure that the bank has the right people aiming to deliver the right things, in the right way. Ultimately, this will enhance the bottom line.'

Doing things right is not the only advantage. Michael Molinaro, chair of the bank's corporate and investment banking division performance management practice board, says: 'When achievements versus objectives are viewed en masse, they can also provide an indication of how well Deutsche Bank itself is performing. Achievement of well-aligned individual performance targets can be viewed as a first measure of organisational success.'

It is early days, but whether or not Deutsche is a happy camper may soon become clear.