After touching on the importance of ongoing reviews—so that every employee knows how well they're doing (which I agree with and have blogged about earlier)—they take this further by suggesting quarterly "differentiation" reviews. The purpose of these are to inform employees where they rank in the department: top superstar 20%, valuable mid 70%, underperforming lower 10%. This allows time and resources to be spent on those performing, with the underperformers given a chance to improve or then be helped out. They stress that an employee on the way out should be treated with as much respect as on their first day, both to protect the company's brand and to assure those left behind (also something I agree with and have blogged about before).
I was actually surprised that Jack promotes this "rank and yank" system since Yahoo's version, when Marissa incorporated it there, caused extreme and unhealthy competition instead of teamwork. Jack's answer to this: make teamwork a required behavior so that no one makes mid or higher levels without demonstrating this. Jack and Suzy discuss how this system and Net Promoter Score ratings have been implemented in their online MBA program. Not only does this encourage professors to improve, but to also reach out to and learn from the "superstars."
The other interesting suggestion they make is to empower Human Resources by having them focus on recruiting, development, and culture with finance handling the administrative parts of HR's job. This way HR can ensure a great team is hired and retained with ongoing employee development and a thriving culture that they carefully cultivate.
I have to give differentiation more thought since I had been against ranking before reading this, but I love the idea of empowering HR. I've long had interest in HR and especially employee development (and am playing this role for 24/7 Teach now), and think HR focusing on the "human" part of the job is a win for everyone.
Does your company have high turnover? If not, what do they do right to keep employees happy and engaged?