Copyright The Sunday Times (070925)
How would you feel if your boss told you that, no matter how well the company does in the next year, those deemed the worst-performing staff will be out the door?
This is the reality facing thousands of Lloyds Banking Group staff after it was reported last week that the UK’s largest high street bank is overhauling its “performance management” programme, with about 3,000 people among the bottom 5 per cent potentially facing the boot. Despite outrage on social media — one LinkedIn writer said they felt “sickened to see human beings ... reduced to numbers on a spreadsheet” — the truth is that performance management has been around for decades. This HR process, used by organisations to set goals and track progress, was very severe when popularised by Jack Welch, then boss of General Electric, in the 1980s . He had a “rank and yank” approach where staff were graded on a curve. The top 20 per cent were then rewarded, the middle 70 per cent developed, and the bottom 10 per cent fired each year. He argued that this relentless culling kept GE lean, competitive and packed with top talent.
Where GE led, others followed. It is thought that management consultants, law firms, investment banks and some of the world’s largest tech firms, including Amazon and Uber, have used “up or out” models. Reed Hastings, the Netflix co-founder, is said to favour the “keeper test” where managers regularly assess whether they would fight to keep an employee; if not, the individual is let go with a generous severance package.
But what place does such tough love have in today’s business environment? Proponents say rigorous performance management is vital for competitiveness.
With UK productivity growth still sluggish and employment costs at an alltime high, many leaders want more bang for their buck and feel they cannot afford to carry staff who fail to deliver.
Ann Francke, chief executive of the Chartered Management Institute, said she is “not against” this HR process if it is “transparent” and “objective” — and not “all about who does the best job of catering to the boss”.
One argument in favour of these schemes is that if high-flyers see weaker colleagues shielded indefinitely from the consequences of poor performance, confidence in the system collapses. Taking decisive action against consistent underachievers, this thinking goes, protects those who deliver. “If you’re a high performer, you don’t want somebody who’s ... just skiving along and getting promoted,” said Francke.
Another factor is that for many firms, their revolving doors have stopped spinning and few employees are leaving or new ones arriving. According to the Financial Times, which first reported the Lloyds story, the bank is keen to increase staff turnover, which is now thought to be about 5 per cent against a historic rate of 15 per cent. A decent level of churn is thought preferable as new staff bring fresh perspectives, skills and ideas into a business, which can prevent stagnation and foster innovation.
However, critics warn that cutting a fixed percentage of staff is a blunt instrument. In a tight labour market, it risks forcing out capable people simply because the “curve” demands it.
Collaboration between colleagues can suffer, too, as they feel pitted against one another in a “survival of the fittest” culture, said David D’Souza at the CIPD, the professional body for HR staff. “It creates an environment where you are trying to out-compete the people around you because you don’t want to be in that bottom category and you want the rewards from the top category.”
And it’s not easy to get it right. The latest Management and Expectations Survey for the Office for National Statistics found that British companies score just 0.42 out of 1 on using key performance indicators, such as setting formal targets, regularly monitoring progress and acting on the data accordingly.
Despite the potential pitfalls, a tightening labour market could mean other organisations follow in Lloyds’ footsteps. Employment fell by 0.5 per cent in the three months to August — the largest decline since 2021 — according to a survey from the Bank of England published last week.
“In the pandemic, all the power was with the employee, but now everything’s tightening,” said Francke. “There’s also the rise of AI and all of that is creating greater concern about job security, which means the balance is shifting back in favour of the employer. So this kind of performance management culture, I think, will come back.”
The smart approach seems to be not toughness for its own sake but fairness and clarity. That means setting clear goals, giving timely feedback and addressing underperformance with coaching and support, before moving to staff departures. A system that develops people while acting decisively when improvement fails is more sustainable than ritual sackings.
This means the firms most likely to thrive will be those that stretch people to excel — and know when to let go without turning performance management into a bloodsport. hannah.prevett@sundaytimes.co.uk
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