Yahoo’s Forced-Ranking System Results in Employee Lawsuit - American Society of Employers - Kristen Cifolelli

Yahoo’s Forced-Ranking System Results in Employee Lawsuit

Yahoo Chief Executive Officer Marissa Mayer is no stranger to controversial HR policies. In February 2013, she drew heavy criticism for her decision to terminate the company’s popular work-from-home policy which is such a common perk in the high-tech industry and a huge benefit to working parents. Then the announcement came, shortly after the birth of her first child, that she installed a nursery next to her office following a short, two-week maternity leave. She no doubt looked like a hypocrite to her employees and the public.


Mayer is in the middle of another controversy now that former employee Gregory Anderson has filed a lawsuit against the company for wrongful termination.  The suit centers around his claim that Yahoo’s forced-ranking performance review system, which resulted in the termination of 600 low-performing employees (including himself) in November 2014, created an illegal mass layoff that violated federal and California WARN (Worker Adjustment and Retraining Notification) laws regarding mass layoffs.  His claim also alleges that Yahoo senior managers regularly manipulate the rating system in order to meet the company’s financial goals by terminating employees without cause.


Mayer implemented Yahoo’s forced-ranking system (called Quarterly Performance Review or QPR) when she first became CEO in 2012. She needed to downsize the company to shore up its poor financial performance, and this was a way to identify low performers who could be let go.


Under the system, each quarter managers rank their employees in five “buckets” according to the following percentages: 10% in "Greatly Exceeds," 25% in "Exceeds," 50% in "Achieves," 10% in "Occasionally Misses," and 5% in "Misses."  If the employee ratings don’t match that distribution curve, they must be changed to fit the desired range, regardless of actual performance. Anderson’s lawsuit alleges that ratings by the employee’s direct supervisor were often changed by higher-level executives who had no direct knowledge of the employee’s actual performance. 


Employees in the lower buckets are flagged for performance improvement measures or are terminated. Since its inception, the system has been instrumental in terminating hundreds of employees.  Mayer insists that these terminations are for performance; many employees believe they are a cover for mass layoffs. Mayer has directed her managers not to use the “L-word” but instead call the terminations a “remix.” 


Under the Federal WARN Act, employers with 100 or more employees must give workers a 60 calendar-day advance notification of a plant closing or a mass layoff.  WARN notifications are triggered under the following circumstances:


  • Plant closing: When an "employment site," or part of a site, is shut down and causes an "employment loss" for 50 or more employees during any 30-day period
  • Mass Layoff:  When a reduction in force (RIF) occurs that causes an employment loss at a single site during any 30-day period of at least (1) 500 employees, or; (2) 50 to 499 workers if they make up at least 33% of the employer's workforce


The California WARN Act is broader than the federal law and will cover more employees under more circumstances than the federal law. 


Yahoo has never issued WARN notifications to workers even though from late 2014 to early 2015 it terminated over 1,100 employees. If Yahoo is found in violation of the WARN laws, penalties include having to pay each affected employee $500 a day plus back pay and benefits for each day of advance notice it failed to provide.


According to the suit filed by Anderson, “the Q.P.R. process was opaque and the employees did not know who was making the final decisions, what numbers were being assigned by whom along the way, or why those numbers were being changed,” the lawsuit says. “This manipulation of the Q.P.R. process permitted employment decisions, including terminations, to be made on the basis of personal biases and stereotyping.” 


In addition, Anderson claims he was terminated for several reasons unrelated to performance, including complaining to management about the impact QPR had on his direct reports and an attempted bribe he received to change another employee’s rating.  He has also alleged gender discrimination claiming the department he worked in favored women in hiring, promotions and layoffs.


Forced ranking first gained notoriety at General Electric in the 1980s and 1990s by former CEO Jack Welch, whose system came to be derisively called “rank and yank.” Forced-ranking systems have been popular in the past, but many large companies have phased them out because the sense of competition they create, along with the appearance of arbitrariness, has led to problems of low morale and demotivation. Ford Motor Company eliminated its system in 2001 in the wake of a $10.6 million settlement for alleged age discrimination.


Forced ranking systems are certainly not illegal. But they can easily become grounds for discrimination cases if ratings appear arbitrary and low-ranked and terminated workers tend to represent largely protected classes.


Sources: Fortune 2/1/2016; New York Times 2/1/2016, Business Insider 1/22/2015


Please login or register to post comments.


Filter by Authors

Position your organization to THRIVE.

Become a Member Today