Cut to the Curve: Underrecognition and Talent Loss from Forced Ranking in a Multinational Firm

This paper examines unintended consequences of enforcing a curve on performance rankings. I examine a multinational company where some employees are downgraded from the top levels of rankings due to a strict recognition cutoff. I show that downgraded employees are at least 34% more likely to voluntarily exit, and that attempts by the organization to manage employee concerns, particularly regarding concerns of fairness, envy, and self-image, do not have the intended retention effect. Underrecognized employees leave even though the organization avoids calibration bias, offers reassurance about their career prospects, and compensates them with larger bonuses than their top-ranked peers. In robustness checks, I show that under these conditions even high-performing employees not nominated to the top ranks are more likely to voluntarily depart despite receiving the largest bonuses. These findings suggest that, where underrecognition occurs due to the restriction of top rankings, the mechanisms producing demotivation are more powerful than the management strategies meant to combat them. This paper was accepted by Lamar Pierce, organizations. Supplemental Material: The online appendices and data files are available at https://doi.org/10.1287/mnsc.2023.01204 .