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We’ve compiled a list of the 100 most commonly asked questions we have received on the federal Fair Labor Standards Act (FLSA) overtime regulations.
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This report, "Top 100 FLSA Q&As", is designed to provide you with an examination of the federal FLSA overtime regulations in Q&A format, including valuable tips for bringing your workplace into compliance in an affordable manner.

At the end of the report, you will find a list of state resources on wage and hour issues. This report includes practical advice on topics such as:
  • FLSA Coverage: How FLSA regulations apply to all employers and any specific exemptions from the overtime requirements
  • Salary Level: Qualifying for exemptions and nonexempt employees
  • Deductions from Pay: Deducting for violations, disciplinary reasons, sick leave, or personal leave

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February 04, 2003
Are All Your Employees ‘Above Average’?

Accurately and fairly assessing employees’ job performance has always been a hard task. The main reason for that is finding enough performance "metrics" to build a foundation of objectivity around a performance-grading process that many workers (and their supervisors, too) often complain is subjective. Aggravating this reality is the understandable tendency of many supervisors to be lenient in their grading of employees’ job performances.

For managers, the performance appraisal process comes down to this: How did my work group perform this year? Can I identify the high achievers and the laggards on my staff? Does our company’s performance appraisal process align with the awarding of year-end bonuses, raises, and promotions?

Because many companies have trouble answering those questions, performance appraisals constantly are the target of new grading initiatives. The appraisal landscape is littered with trendy processes—for example, the 360-degree assessment, in which employees are appraised by their peers and subordinates, as well as by their bosses.

Forced ranking to lend discipline to the process

Relatively new on the scene is an employee performance grading process, called forced ranking, that is gaining popularity among larger companies and also prompting lawsuits by employees.

Forced ranking is a performance management process in which all workers (in a company, division, department, or work team) are ranked from top to bottom, "best" to "worst." Companies adopt such an approach to mete out pay raises or bonuses, or to plow the ground for a layoff. Forced ranking also adds discipline to the job evaluation process. Leniency in performance rankings is widespread, according to Dallas, Texas, HR consultant Dick Grote. To underscore this leniency, he invokes writer and public radio storyteller Garrison Keillor’s mythical Lake Woebegone, where the children are all "above average."

In a typical forced-ranking application, managers place each subordinate in one of three job performance categories—for example, "exceeds," "meets," or "fails to meet" job requirements. In doing so, bosses are advised to plot their employees on a bell curve, with 5 percent in the "exceeds" realm, 90 percent in the "meets" area, and the remaining 5 percent in the bottom "fails to meet" category.

Proponents, including now-retired General Electric chairman and CEO Jack Welch, believe that forced ranking enables a corporate "meritocracy" that constantly competes with itself to develop ever-stronger leaders. During Welch’s regime at GE, the bottom category was increased to 10 percent of all workers each year, who were then terminated. The process is estimated to be in use in 20 percent to 25 percent of U.S. businesses. Besides GE, companies that have adopted forced ranking include Ford Motor, Conoco, and Microsoft®.

From ‘needs improvement’ to ‘the weakest link’

In rosier economic times, according to HR experts, forced ranking was a useful tool to identify workers who needed training and development to boost their job performance. During the late 1990s, for example, many businesses built substantial budgets and dedicated big blocks of time to employee training and job development. Then, it was clearly in employers’ best interests to keep all workers and encourage them to better their job performance. Unemployment rates were very low, and most companies in all industries had difficulty finding enough qualified workers to help them sustain their business growth.

Now, however, the U.S. economy has stalled. Companies have fewer opportunities for training and tiny or nonexistent budgets. In these times, then, forced ranking is being used as a measure to cut workers instead of as a goad to improve their performance. At companies where the process is used, worried workers call it "Rank and Yank" or "Up or Out." Some HR experts are dubbing forced ranking the corporate equivalent of Survivor, the reality TV hit show, or The Weakest Link the TV trivia game show. What opponents of the process flag is its tendency to foster competition among workers, instead of cooperation and teamwork.

Me, myself, and I vs. all for one and one for all

Opponents fear that employees who are concerned over their ranking may have less incentive to roll up their sleeves and help a colleague who has a job problem. Their fear is driven by the realities of an increasingly postindustrial workplace. Businesses that manufacture products typically have jobs where worker output is easily numbered and compared against others on the same assembly line. But such an output-driven job is harder to define in the Information Age economy, where many companies make money by designing, developing, and selling ideas and solutions—"products" that often can’t be packaged in a box and shipped on a truck, train, or container ship.

The manufacture of ideas—even if the eventual use is in a tangible product such as a software program or digital device—is an organic process that flourishes with collegial sharing of information and experience. As the U.S. economy grows increasingly knowledge-based, employee interdependence is more necessary to foster innovation. Forced ranking damages that teamwork ethic, claim opponents. And, say some workers whose job performance has been deemed wanting, the process is discriminatory.

Despite its bell curve basis, the forced-ranking process is sham science (or math), say opponents. It doesn’t offer a way to deal with a department or division that happens to be home to a large number of outstanding employees—for example, a laboratory, creative department, or innovative division that is capturing market share with new products. By forcing 5 percent or 10 percent of that department into the lowest end of the scale, the process devastates morale. The flip side of this situation also occurs, say opponents: The bell curve boosts a mediocre performer into stellar ranks when the process is used in an underperforming department.

Lawsuits and liabilities

Ford, Conoco, and Microsoft all face suits filed by workers who allege that their companies’ forced-ranking program discriminates against them. The case against Ford claims that older workers were disproportionately placed in the bottom tier of the ranking system. Begun in January 2000, Ford’s process initially required that at least 10 percent of the managers and supervisory-level employees measured by the program be placed in the lowest category. In July 2001, Ford bowed to the complaints and changed the process. The class action lawsuit against the company continues, as do suits filed by workers against Conoco and Microsoft.

Conoco employees who filed suit alleged that the forced-ranking process discriminates against U.S. workers, whose colleagues in the company’s European operations fared considerably better. And, the suit against Microsoft claims bias against African American workers.

Despite much media attention about forced ranking and the lawsuits, labor attorneys say the process is legal and can be effective if employers implement it properly and strive to ensure fairness in its application. To achieve this, they say, employers should take such steps as these:

  • Inform all affected workers that the policy will be used.
  • Explain why the forced-ranking process will be used—e.g., its objectives and the expectations of job performance that are to be measured.
  • Involve employees in the setting of job performance goals and measurements.
  • Provide regular and ongoing feedback on employees’ job performance.
  • Document evidence for ranking by highlighting, for example, attendance, written warnings, commendations, complaints, sales figures, or other production measurements.
  • Continuously monitor performance results across the department to shed light on whether rankings based on age, ethnicity, gender, or other attributes, are affecting any group disproportionately.

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This article reprinted with permission by the publisher Business and Legal Reports, Copyright 2002, BLR.

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