Ways of differentiating

 Treat people as if they were what they ought to be and you help them to become what they are capable of being. 

–Goethe

Many organizations differentiate employees according to performance. Using this model, managers divide their direct reports into three groups:

• Top performers: Employees who define the standard for exceptional performance by consistently delivering results and motivating others to do so as well.
• Solid performers: Employees who consistently meet expectations but may not be on a fast track within the organization.
• Underperformers: Employees who just "get by," delivering barely acceptable results.

Other firms choose to designate their employees' performance in more relative terms. In a given group or unit, top performers would be the best 10%–20%; solid performers, the middle 60%–80%; and underperformers, the bottom 10%–20%. However, using a forced ranking system is often controversial. Since only a few people can be ranked as top performers, forced ranking may foster an intimidating, competitive environment. In addition, many managers find it difficult to assign a certain percentage of their employees—especially if they are performing adequately—to the lowest rank.

An alternative way to assess performance is to factor in an employee's potential in the assessment. By considering potential, you not only take into account an employee's historical contribution, but also the individual's future value.