Annual rite: IBM layoffs, rebalancing underway

The numbers of employees affected by IBM's restructuring efforts are debatable, but the evidence piles up that they're underway.

Birds fly south once a year. We gather around our televisions to watch the Super Bowl annually. Bears hibernate in the winter. The bulls run in Pamplona, Spain every year. And IBM "rebalances" its workforce this time of year like clockwork.

Welcome to that annual rite that's called IBM layoff watch. Reports have indicated that IBM is setting up for Project Chrome, a massive layoff. IBM has scoffed at the report and said the numbers inaccurate. Nevertheless, reports appear to be trickling in that IBM is cutting workers either outright or in a passive aggressive way. IBM has set aside $600 million for the restructuring effort.

The actual numbers are unclear and you'll never get a full accounting of workers affected. But IEEE Spectrum is recounting the layoffs and Alliance@IBM, a Communications Workers of America union that wants to represent IBM workers, has its own tally. India's Economic Times also noted layoffs. Rest assured the more reports will follow. Other tech companies such as EMC and Citrix also have layoffs planned.

One of the more interesting nuggets is the how IBM rebalances its workforce. Some workers are cut, but a lot of the rebalancing work comes in an annual review, dubbed Personal Business Commitment. The ranking is relatively simple.

  • Get a 1 and you're a corporate savior with promotions to follow.
  • Land a 2 and you're doing your job and stay employed.
  • Get a 3 ranking and you better start looking for a new gig because there's a performance improvement plan in the works.

Generically speaking, IBM has a stack ranking system with a bell curve. The rub is that the system can lead managers to keep mediocre people around so they can cut in future rounds. At some point, good workers have to get ranked 3 because there has to be a sacrificial lamb somewhere.

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Microsoft cribbed its employee rating system from IBM only to later scrap it over morale issues. GE popularized the stack ranking approach, called Rank and Yank by former CEO Jack Welch, and later backed off. Stack ranking isn't unique in the Fortune 500, but often has variations of the technique following a Vanity Fair expose on Microsoft's system.

Academics have found that stack ranking can help or hurt depending on a number of variables. Wharton professor Iwan Barankay found that removing rank feedback increased sales performance by 11 percent. He also found that men react differently to rank feedback than women.