Those adjudged nonpromotable can remain, provided they are willing to stop moving ahead

From Moral Mazes by Robert Jackall

Those publicly labeled as failures normally have no choice but to leave the organization; those adjudged nonpromotable can remain, provided they are willing to stop moving ahead, or, as their influence inevitably wanes with their decreased mobility, accept being shelved, sidelined, sidetracked, or, more colorfully, “mushroomed”—that is, kept in a dark place, fed manure, and left with nothing to do but grow fat. This too, of course, is a kind of failure, indeed a serious one, and I shall discuss its consequences shortly.

Normally, despite official policies and good intentions to the contrary, those considered to be nonpromotable are not told of negative judgments about them. An Alchemy executive explains:

Well, usually you don’t tell people the truth. I once knew a guy whom I knew was about to be fired and I asked if he had been told and he had never been told. I think you should tell people explicitly. Things like that shouldn’t have to be decoded. But you can understand how it happens. Suppose you have a guy and the consensus is that he isn’t promotable. You wouldn’t ever—or very seldom—tell him.

He goes on to justify his silence:

There are people who go through life thinking they can do a lot more than they really can do. And the reason is that losing or changing jobs is a very high stress situation and most people prefer to hang on to what they’ve got—to their routine. They’re not happy but they go through life like prisoners of war not recognizing their true situation.

This is especially true in hierarchical up-or-out professional services firms; law firms, accounting firms, management consulting firms, etc.  Firms with a constant need to evolve and innovate.  There are valuable employees who are good at what they do but will not advance owing to some deficit such as sales or people management, or delivery, or asset creation, or leadership.  

At the opening of my career in management consulting in the 1980s, we very much existed in version Jackall describes.  We lost people we should have kept because they did not know they had been tagged as rising stars.  We lost people we could have kept because they felt they were stagnating when in fact they were optimally placed and productive, just unable to address some critical skill or behavioral deficit.  We sometimes kept people when they should have been counseled out.  People who might blossom with instruction or mentorship but who turned inward and became time servers.  

In management consulting it was more up-and-out than up-or-out.  Yearly, you have to prove your worth and your likely advancement.  If you can't do that, then you are out.  Except, there is a business cycle dynamic as well.  You might be top notch and with a bright future but if the business cycle turns, you might still be very successful and producing value but the excel spreadsheet says X number of people have to go and if you are junior but spectacular, out you go.

By the end of my career with the big firms we had evolved the process significantly.  We graded everyone by level on empirical performance data, then ranked them within levels, recommended how behavioral, skill or performance issues might be addressed.  We had clear performance metrics by level so that top to bottom, everyone got assessed regardless of vintage.  Every level was assessed by the group above them in an open forum to ensure fairness across the organization.  And offline, there would be conversations about edge cases and possible interventions.  

The result was a greater sense of clarity of mission, an appreciation of fairness even if the empirical outcomes were disappointing, higher personnel retention, better relationships around separations, etc.  It was time consuming for leadership but, I think, fairer and more effective and worthwhile.