Goldman Sachs' new way of selecting people for the chop
When Goldman Sachs cleared out underperformers last week, it did so based on the results to staff appraisals. The move marked a resumption of Goldman’s strategy of eliminating the bottom 1%-5% of performers, which was put on hold during the pandemic.
In the bad old days, Goldman would have used its five-quartile forced ranking system, based on results to its 360-degree appraisals, to identify its laggards. Historically, Goldman employees were either ranked as top quartile (top 25%), second quartile (next 25%), third quartile (next 25%), fourth quartile (next 15%), or bottom decile (next 10%) - bad.
This ranking system is the source of bitter complaints in the recently published allegations in the ongoing gender bias claim being brought against Goldman.
The plaintiffs in that claim say that the firm’s historic appraisal system both encouraged and perpetuated discrimination against the firm’s women. Traditionally, Goldman staff were appraised according to multiple criteria, including: quality of performance; long-term commercial impact or contribution; potential for assuming increasing responsibility; leadership/management skills; and their diversity and citizenship-related activities.
While Goldman women are said to have scored highly on things like “teamwork,” “diversity,” and “citizenship,” the allegations state that Goldman men usually scored best on the categories that led to promotion: technical skills,” “client relationships,” and “execution skills.”
As a result, they argue that Goldman “systematically disadvantaged women” through its appraisals. The system lowered their pay, and it reduced their promotion potential.
While this all sounds damning if true, it’s worth noting, however, that Goldman revamped its appraisal system in 2016 and then again in 2020. The selection of this year's underperformers will have happened differently.
In 2016, Goldman gave up its forced ranking system and switched to a new system of continuous feedback instead. It also cut the number of employees reviewing each employee from 10 to six (possibly making it harder to game reviews by finding favorable reviewers).
Two years ago, however, the firm changed its system of staff appraisals yet again. The ranking system that had been jettisoned was brought back, but in a simplified fashion. The new system only has three levels: "exceeds expectations;" "fully meets expectations;" and "partially meets expectations." 25%, 65% and 10% of Goldman employees are supposed to fall into each category, respectively.
Along with these new categories, Goldman's new appraisals are based on "three conversations." Speaking after the launch in late 2020, David Landerman, Goldman's head of talent assessment, said the idea is that Goldman's managers have three significant conversations with their people during a year. The first conversation, in the first quarter, is about setting goals and "the tone and the expectations of the year." The second conversation, midway through, is "a light touch coaching conversation asking things like, "How's it going? How can I help?" and offering feedback. The third conversation, happening sometime soon, is all about performance against goals and "expected behaviors." It's supplemented by the 360 appraisal process.
Julie Zide-Mandel, Goldman's ex-head of people science, said the behaviors the firm looks for nowadays include coaching employees, empowering employees, respecting employees and championing the firm's value. "We found that managers who exhibit these behaviors are statistically more likely to be high performers," she added.
Goldman declined to comment on its new appraisal system, which was used for the first time this year to identify staff to be cut. However, a spokeswoman said the complaints in the diversity case are unjustified: “The Plaintiffs’ presentation of the complaints does not reflect reality at Goldman Sachs. Many are two decades old and have been presented selectively, inaccurately and are incomplete. Discrimination, harassment and mistreatment in any form are unacceptable at Goldman Sachs, and when identified, swift action, including termination, is taken. Out of respect for the persons involved, we are not going to comment on the individual complaints.”
The implication of the 2020 shift in favor of behaviors is that women should fare better than before. It's not clear what proportion of male and female staff were let go in the latest layoffs, but female staff presumably weren't represented disproportionately.
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