Forced Ranking, a Failed PIP, and a Senior Engineer Termination
A Beijing internet company with 600 employees, including 220 engineers, has applied a forced ranking of 20% A, 70% B, and 10% C for two years. In the last cycle, 22 engineers were rated C; 14 left within three months. Engineering engagement scores fell 18 points. Managers say they inflate ratings because HR links C ratings to a fixed 5% bonus-pool cut. Performance improvement plans are one-page forms without measurable goals, and no calibration meetings are held. Senior engineer Wang has four years' service and a monthly salary of ¥38,000. He has two quarters of “needs improvement” ratings, but no signed PIP, no training, and no reassignment. His manager wants to terminate him this week for incompetence. The company has no union, and its employee handbook describes performance management but was never discussed with employee representatives.
1. Diagnose why the forced-ranking system is producing attrition and weak performance evidence. What would you redesign first?
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Diagnosis. The forced 10% C quota is disconnected from actual performance distribution and is used to allocate a fixed bonus cut. Managers rationally inflate ratings to protect team members, so the C label becomes political rather than evidence-based. Because there is no calibration, different managers apply different standards. The one-page PIP has no measurable goals, no weekly reviews, and no training or reassignment, so it cannot support an incompetence termination. The 14 exits among 22 C-rated engineers are a predictable result: high performers leave first because they see the label as unfair. The engagement drop of 18 points confirms a trust problem, not just a pay problem. Redesign priorities. First, remove the forced C quota and replace it with calibrated rating distributions reviewed across departments. Second, separate development ratings from bonus funding; if the bonus pool is fixed, fund it through company performance, not a forced individual cut. Third, require SMART goals, mid-cycle check-ins, and written evidence. Fourth, train managers on feedback and calibration. Fifth, add an appeal and skip-level review. Keep differentiation, but base it on demonstrated results and behaviors, not a predetermined percentage.
2. Advise the manager on the lawful and practical handling of Wang. Can the company terminate him this week? Show the legal reasoning and cost exposure.
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No, not this week on the current record. Under Article 40(2) of the Labor Contract Law, an employer may terminate for incompetence only if the employee is proven unfit for the work and remains unfit after training or adjustment of the post. The company must give 30 days' written notice or one month's pay in lieu, and pay severance. Wang has ratings, but no signed PIP, no measurable standards, no training, and no reassignment. A tribunal is likely to find the evidence insufficient. Immediate steps. Place Wang on a documented 60–90-day PIP with specific, measurable goals, weekly written reviews, manager support, and a clear statement of the consequences. Offer genuine training or a suitable alternative role. Keep records of deliverables, peer feedback, and missed targets. Cost exposure. If terminated lawfully under Article 40 after a failed PIP, severance is N = 4 months × ¥38,000 = ¥152,000, plus one month's pay in lieu if no 30-day notice = ¥38,000, total about ¥190,000. If the termination is found illegal, the remedy is 2N = ¥304,000 or reinstatement. Handbook issue. The performance policy may not be enforceable because it was not subjected to democratic procedure or communicated. Do not rely on it as the sole basis. If Wang refuses to improve, consider a negotiated separation with a signed agreement and release.
3. Design a manager calibration and documentation process to prevent similar cases. Include roles, cadence, and evidence standards.
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Roles. HR owns the framework and legal review; department heads own rating accuracy; skip-level managers chair calibration; employees receive written goals and check-ins. Cadence. Set goals in January, hold monthly one-to-ones, run a mid-year calibration, and a year-end calibration. Use a quarterly risk review for employees on PIPs. Calibration. Managers present a short evidence pack for each employee: goals, results, behavioral examples, peer feedback, and attendance or compliance issues. The panel challenges inflated or unsupported ratings and reviews distribution across teams, not a forced quota. Document the rationale for any rating change. PIP standards. A PIP must state the gap, 3–5 measurable goals, support provided, review dates, and consequences. It must be signed by the employee; if refused, witness the refusal. Weekly notes must be specific. Evidence standards. No termination recommendation without a job description, prior goals, at least two documented review cycles, and evidence of training or reassignment. HR audits a sample each quarter. Appeal. Give employees a 5-day appeal route to HR and a skip-level manager. Legal check. Before any incompetence termination, confirm the handbook has been through employee consultation and publicity, and that the union or employee representative has been notified where required.