Should You Fire Your Least Productive Employee?

For many multinational firms, the question of whether to terminate the employment of the least productive employees seems to be a no-brainer. With international competition so intense nowadays, most of them feel they have no choice but to get rid of poor performers if their company is to thrive. This attitude is especially common in the United States with people being laid off even if the business is profitable. However, here in the Philippines, few companies practice this approach.

Filipino companies tend to give employees far more leeway to avoid getting fired. This often leads to less productivity, although there are also many advantages to being more conservative in this aspect. It is widely believed that being less willing to terminate workers would encourage more loyalty.

Although our labor situation has its flaws, job security is more secure once hired as a regular employee. Here, you cannot fire employees without just cause. In legalese, “just cause” means meeting certain strict criteria for the termination to be legally valid. In the U.S., the applicable rule is “employee at will,” which means you could fire a person for no reason as long as there are no laws violated.

Weeding Out The Bottom Performers

At first glance, it may seem that from a monetary standpoint, being quick to get rid of the least productive is the rational option. It is to be expected that companies would adapt management tools to ensure that this policy is applied. One of the most potent tools to bring about the elimination of the bottom performers is the use of stack ranking. Jack Welch, formerly CEO of General Electric, has popularized this idea of getting rid of the bottom performers by essentially forcing managers to rank their employers from top performers to lowest performers and then firing those at the bottom.

The ruthlessness of the weeding out process has earned Jack Welch the nickname “Neutron Jack”, which means he is like a Neutron Bomb—a type of nuclear weapon that kills people but does relatively little damage to buildings and other infrastructure. Nevertheless, despite the controversy, during his term as CEO in GE, he managed to grow the company into a colossus with the highest stock market value in the world.

Despite the seemingly unassailable logic of stack ranking, the recent decision of Microsoft to abandon its system of forced ranking of employees makes it the latest major corporation to execute a turnaround from the teachings of Jack Welch, who is considered one of the most iconic figures of American industry. Microsoft has blamed the system for creating an atmosphere of distrust, poor morale and lack of cooperation, among many other problems. In this system, even if the bottom performers are great employees, they will still be terminated as long as they are at the bottom.

While the demise of forced ranking in Microsoft was generally applauded, another tech titan, Yahoo, decided to adopt the hated system. This prompted many analysts to question the wisdom of implementing a system that apparently has turned out to be a disaster in so many companies. What indeed was the reason for this apparent blunder?

Looking deeper, there were significant differences between the situation at Microsoft and Yahoo. Yahoo was in the middle of an effort to cut payroll costs as its financial situation is nowhere as robust as Microsoft’s. In the case of Microsoft, the policy was a permanent feature of their assessment system while some say that at Yahoo, it is just a temporary tactic to identify objectively those that should be retrenched.

While it appears that most currently think that stack ranking is not a good idea, as a temporary measure, it may indeed be a good tool to select those that would be eliminated. As of this writing, the jury is still out on whether it was a sound decision for Yahoo. What seems apparent here, however, is that a good decision for one company may not be applicable to another.

Here in the Philippines, there is much less pressure to optimize operations—even in the case of publicly listed companies. While I do not advocate being as aggressive as doing stack ranking, there must be less tolerance for deadwood who are just coasting along and basically riding on the efforts of others. It is up to the management to device a process to put pressure on unproductive individuals. The system should not terminate good employees just because they are at the bottom of rankings. While it is good that in this case we just mimicked a trend in the U.S., the core idea is that peak performance should be a strategic objective that could be adopted—but with humanitarian and cultural considerations to avoid internal strife within the company.

*Originally published by the Manila Bulletin. C-6, Sunday, December 1, 2013. Written by Ruben Anlacan, Jr. (President, BusinessCoach, Inc.) All rights reserved. May not be reproduced or copied without express written permission of the copyright holders.