Retention matters. Especially in the restaurant industry, where turnover runs as high as 200 percent and the average hourly worker stays only six months. At Applebee's, management professes a "people philosophy" for promoting retention. Or as it says in the company's 2004 annual report, "we treat our associates as people first and as employees second." That's a great philosophy. If only it were true.

Yesterday's Wall Street Journal reported that Applebee's is using forced ranking to reduce employee turnover. Managers rank their hourly workers and divide them by grades. Workers ranked in the top 20 percent are A players; the middle 60 percent are B players; and the bottom 20 percent are C players. How does this reduce turnover? It doesn't, unless you ignore the number of departing C players.

Here's how Applebee's is deceiving itself. Managers earn rewards for retaining A and B players, and there's no penalty for losing a C player. The managers do the grading, and they do it twice a year. So who are they most likely to grade as C players? If you guessed the workers they suspect will quit in the next six months, you're probably correct. Planning to graduate from college next spring? Since you didn't major in waiting tables, I'd better make you a C player. Closing in on retirement age? Well, you get the point.

Applebee's is not alone. As businesses struggle to prop up their stock prices, they look for new ways to spin their operating results. Sure, we have turnover, but we lose more bad employees than good ones. Hey, it worked for Jack Welch and GE, did it not?

The idea of using forced ranking as a retention strategy highlights deeper leadership issues--if, as the name implies, companies must force managers to work at retaining employees, they are ill-equipped for their leadership roles to begin with. Bookmark this post on del.icio.us