Up or Out in the Workplace: Worth it?

Up or out is a common practice in some high-performing industries, like consulting and competitive law firms, where employees are required to grow, evolve, and rise in the ranks or they face being asked to leave. Although meritocratic, it does have a reputation for being a high-pressure, cutthroat approach to personal development.

The up or out strategy can be an effective way to nurture excellence in your organization, but it isn’t a strategy you should adopt lightly. It’s important to understand the ins and outs of up or out so you can make an informed decision about whether it’s the right strategy for your business.

That’s what this article is all about.

Let’s dive into who uses it, its benefits, drawbacks, and everything in between, starting with exactly what it is.

What Is Up or Out?

The up or out meaning is relatively simple. Sometimes referred to as tenure or a partnership system, it is most often used in hierarchical organizations to encourage high performers to rise to certain ranks within a certain period of time. For example, a junior-level analyst or an associate may have two or three years to get promoted to a consultant or to a managerial position. If that employee doesn't demonstrate the excellence needed to achieve the next position, they are let go from the company.

Employees are kept in the loop about the process and even supported to reach their goals. Micro-goals are set and achieved on the way to achieving larger goals. There are also plenty of professional development opportunities. This level of transparency and support makes up or out a little less intimidating than it sounds on the surface.

What Industries Practice Up or Out?

Any hierarchical organization can implement an up or out policy, but some industries seem more likely to do it than others. They include:

• Consulting
• Accounting
• US military
• US State Dept.
• Law firms
• Academia

Consulting

Leading consulting firms are perhaps the most well-known for using up or out. McKinsey is well-known for using an up or out approach. Other consulting companies that use up or out include BCG and Bain.

Consulting is a constantly evolving industry with high demands, and in order to keep up with those demands, consulting companies strive to employ the best of the best.

For example, at McKinsey, consultants might have a performance review every six months where they provide information on five stakeholders, like other consultants or clients, who provide specific feedback about their performance.

Accounting

In an industry where keeping track of the numbers is of primary importance, it should come as no surprise that accounting firms that want to stay on top of the game use an up or out approach. Some of the biggest accounting firms, including the Big Four accounting firms in North America, use this approach as a way to stay competitive.

However, changes are being made, as some employees prefer alternative career tracks. For example, making partner used to be the ultimate goal at big accounting firms. That's not necessarily the ultimate goal of many CPAs today, some of whom prefer to tinker with numbers over taking on leadership roles.

US military

A system of up or out is still alive and well in the US military. The Defense Officer Personnel Management Act requires that officers who are passed over for a promotion twice be discharged from the military. High Year of Tenure is also used in the United States Armed Forces which requires members to serve only a certain number of years at a given rank before achieving a promotion or retiring.

Although it does ensure the best of the best are promoted, it also causes some problems. Some believe it should be scrapped because it forces out many fit officers who are unable to get promoted within a short time frame to a limited number of available positions.

US State Dept.

A similar system is seen in the US State Department, as the Foreign Service Act of 1980 was enacted the same year as The Defense Officer Personnel Management Act. The intention is to give more junior-level employees opportunities to rise in the ranks, but it also has plenty of critics.

Diplomacy relies on experience, which comes with age. Many employees age out before they are able to develop the kind of experience needed for the positions. Many believe it's a waste to cast aside officials in predetermined numbers just as they're reaching their stride.

Law firms

Some big law firms take an up or out approach. For example, Cravath, Swaine & Moore's system expects practicing lawyers to make partner within a certain period of time. If they do not make partner within that time period, they are asked to leave the firm.

Known as the Cravath System, which we’ll talk about a little bit more later on in this article, its principles of recruiting, training, compensating, and promoting are also followed by other industries, like investment banks.

Academia 

Academia also uses a form of up or out, although it is usually called tenure instead. In this case, newly hired assistant or adjunct professors have a certain period of time to gain accomplishments and impress the department in order to gain tenure. Otherwise, they may be terminated.

Why Do Certain Organizations Use Up or Out?

Certain organizations, like consulting and the others listed above, often use an up or out approach because it’s an effective way to push talent to grow and develop rapidly. It is a system that requires higher-ups to focus on their most skilled and adaptable employees to maintain their reputation and competitive edge.

It's also motivating for employees. It creates a sense of urgency that encourages employees to consistently deliver their best work, motivating employees to achieve at the highest levels possible. Because timelines usually run between two and three years, employees can actually visualize where they’re going and what titles and compensation they can expect when they get there.

What Is the History of Up or Out?

Although up or out has been used to refer to a system of promoting or letting employees go more recently in history, this type of system has been around for a long time under different names.

For example, tenure has been the standard for professors for a long time. Initially used as early as the 1600s, it became more common practice in the early 1900s as a way to protect researchers from being fired due to political or social reasons, or simply because their work didn't seem as important as other topics.

The Cravath System used in law firms also got its name before the more general term of up or out. It was initially created in the early 1900s, so the concept as it is implemented today has been around for over 100 years.

What Are the Benefits of Up or Out?

Up or out is a high-stakes system that can come across as ruthless, but it continues in some industries today because it comes with some serious benefits:

• Brings in a large talent pool
• Constantly brings in new talent and ideas
• Encourages strong performance management
• Leaders are the best, not just the most experienced
• Reduces terminations

Brings in a large talent pool 

In order to find the best of the best, you have to expose yourself to a large talent pool and give everyone a chance. Not all will swim, but you increase your chances of finding those who will swim and swim well in a relatively short period of time with a system that focuses so intensely on promotion. Those who don’t make the cut are let go so that even more talent can be scouted and given an opportunity to rise in the ranks.

Constantly brings in new talent and ideas 

With new incoming talent comes new ideas, as new employees automatically have a fresh perspective that can give your organization a competitive edge in an ever-changing landscape. This is especially true if you implement diversity and inclusion policies that ensure the talent you’re attracting is from many different walks of life with different cultural backgrounds.

Encourages strong performance management

In order to reach the level of achievement you desire with an up or out system, you have to have a strong performance management system in place. Everyone has to be nurtured with professional growth opportunities and given the ability to demonstrate their performance frequently in order to determine who should be promoted after a short time period of two or three years. The only way to do that effectively is to have a robust performance management system in place.

Leaders are the best, not just the most experienced

In many organizations, leaders are the ones with the most experience, with many being promoted simply because they have been there the longest. In an up or out system, it’s not enough to have the most experience. Employees are required to prove their skills and effectiveness in order to be promoted. Only those who truly earn the opportunity to be promoted are promoted.

Reduces terminations

Although you might expect that this system would result in more terminations, the truth is that it usually results in less terminations. That’s because most organizations that practice up or out have a very strict hiring process where only one percent of all applicants make the cut. That means those who are being hired are already high-achieving and are likely to get promoted.

In addition, most who are let go aren’t actually terminated. Those being hired understand the process, and if it’s determined that an employee will not be promoted, they are given extensive support to transition to another company. Most consulting firms and other industries that use up or out maintain extensive alumni networks as a means to bring in new clients, so it’s important to be respectful and supportive of employees who leave the company.

What Are the Drawbacks of Up or Out?

If up or out didn’t come with plenty of benefits, it wouldn’t be practiced by some of the top-performing companies in their respective industries, but that doesn’t mean it doesn’t come with drawbacks.

A few problems with an up or out system include:

• High turnover
• Drain on company resources
• Company may inadvertently let go of great talent
• It is unclear whether this system is beneficial for these firms or not

High turnover

It’s true that an up or out system actually reduces terminations, but that doesn’t mean it reduces turnover. The pressure to perform at your peak day-in and day-out can be extremely draining for employees. It promotes poor work-life balance, which means long working hours, with many employees unable to keep personal commitments. Many employees end up leaving the company, not because they aren’t able to successfully get promoted, but because it is wreaking havoc on their physical and/or mental health.

Drain on company resources

A robust human resources department with employees dedicated to the hiring, termination, and transition of employees is required in order to operate an up or out system effectively. Not to mention the costs associated with turnover as employees leave the company to get away from its high-pressure environment. Those that operate under this principle tend to spend a lot more money and resources on hiring and firing than other companies.

Company may inadvertently let go of great talent

The point of up or out is to keep the best of the best talent, but it doesn’t always work out that way. Often, when a promotion comes up, there are only a certain number of spots. Inevitably, someone is going to end up getting left out, even though their performance should have earned them a promotion. Just because someone is better doesn’t mean the other candidates aren’t also outstanding, but they end up getting let go anyway.

It is unclear whether this system is beneficial for these firms or not

Many companies still utilize a process of up or out, but they don’t necessarily call it that. Instead, they call the process a wide range of things, like proactive talent management and tenure. That makes studying whether it’s actually effective or not nearly impossible.

Although you won’t find specific statistics on whether up or out is actually effective, it is important to know that it definitely has the potential to be ineffective. For example, it can stifle creativity and risk-taking as workers prioritize short-term achievements, which can cause a company to stagnate and go under. Not to mention the fact that it can be a drain on company resources, which can ultimately impact your bottom line.

What Are Alternatives to Up or Out?

Instead of utilizing a traditional performance management system that focuses on past performance, as most up or out programs do, consider implementing a more modern performance management system that focuses on the future. This type of system provides employees with the ability to reflect on their experience as a way to problem-solve according to their strengths instead of proving their worth through past performance.

You can also emphasize personal development without requiring promotions, especially considering some people are best suited to their current role and have no interest in transitioning to another position. It allows employees to evolve in their roles and become the best at what they do without being expected to eventually do something completely different.

Emphasizing personal development can also help employees who are struggling. It can give them the skills they need to achieve more success in their current role, even if it takes more than two or three years. It can also uncover strengths that could make them better suited to a different role, even if it means moving laterally within the company instead of moving up.

Is Up or Out the Same as the Cravath System?

The Cravath System could be considered the forefather of the up or out system. Created in the early 20th century, the Cravath System was developed by Cravath, Swaine & Moore. It includes recruiting the best of the best and only keeping those who are considered worthy of promotion. Those who aren’t are dismissed.

This system also includes other details that aren't necessarily related to the modern up or out system, like specifics related to compensation and interests outside the firm.

Is Up or Out the Same as Publish or Perish

The publish or perish principle is similar to the up or out system, but it’s only seen in academic settings. This system encourages academics to publish research as a way to succeed in their career. It happens most often at research universities where publicly published findings from research is said to motivate scholars to focus on research advancement and prove their talent to peers. It can help them secure a tenured position, and it can lead to collaborations with other experts.

Like up or out, academics who aren’t able to make themselves relevant and get a tenured position may be released from their role. It also faces harsh criticism, as claims have been made that it creates a breeding ground for scientific misconduct and perpetual bias, among complaints that it focuses on over-publishing at the cost of teaching and mentoring graduate students.

What Is the Difference Between Up or Out and Rank and Yank?

Both up or out and rank and yank are similar because the ultimate result of not exceeding expectations is to be let go from the company, but there are some differences in how they’re implemented.

Rank and yank specifically pits employees against each other by ranking them against their peers. Those at the top get to stay while the ones at the bottom are fired.

Up or out creates a naturally competitive atmosphere, but employees aren’t explicitly competing with each other. Instead, they are competing for promotional positions. It’s more about demonstrating your performance and less about comparing your performance to others.

Up or out is also a bit kinder when it comes to being let go. Employees are usually transitioned out of the company into new roles where they remain part of an alumni network. In contrast, rank and yank systems tend to fire employees without any attention to where they’re going to go and what they’re going to do next.

How Is Performance Management Used in Up or Out?

It doesn’t matter whether you use a traditional performance management system or your process is more modern and nimble, all accounting, consulting, and other industries that use an up or out approach focus heavily on developing people with a performance management process that is utilized to its full potential.

PerformYard enables you to build a performance management system that works for you. Whether you want to do up or out the old-fashioned way or you want to create a more modern system of promoting your employees, our platform has the tools and capabilities to support and promote your workforce.