Microsoft Gives Stack Ranking the Boot

Microsoft is ending its controversial practice of using stack ranking to evaluate its employees.

Instead, the company is changing its performance review program “to better align with the goals of our One Microsoft strategy,” wrote Lisa Brummel, the company’s executive vice president of human resources, in an internal memo reportedly sent to Microsoft employees on Tuesday and now reproduced on The Verge.

In a nutshell, the stack ranking technique requires managers to rate their employees on a curve — that is, from best to worst. According to the lore surrounding Microsoft, the bottom percentile of performers were either encouraged to improve their game, immediately, or shown the door in one fashion or another.

Microsoft is hardly the only company that uses some variation of this technique. It was used most famously during Jack Welch’s tenure at General Electric; most recently, Yahoo is said to have adopted it.

Nevertheless, the practice was singled out not long ago in a Vanity Fair article as a contributing factor to what the magazine called Microsoft’s “lost decade.”

A Hated System

Stack ranking is disliked by employees for obvious reasons: It establishes a competitive dynamic with co-workers that can be cutthroat as workers maneuver to be ranked in the top percentile or — conversely — to avoid the bottom of the heap.

Rumor has it that the system was highly political, according to Julia Fullick, assistant professor of management at Quinnipiac University, and didn’t rely on reliable and valid measures of employee performance.

“Without having empirical backing and sufficient support for a performance measurement system, you are likely to have highly dissatisfied employees and create a dysfunctional culture,” Fullick told the E-Commerce Times. “These types of systems ignore evidence-based management suggestions and run the risk of alienating not just top talent, but the respect of customer bases as well.”

Why Microsoft is doing away with the system only now is open for debate. With CEO Steve Ballmer on his way out, a popular theory is that he wants to hand over a more cohesive and collegial company.

Microsoft did not respond to our request to comment for this story.

It Just May Work

The system was so despised, however, that doing away with it actually gives Microsoft a good shot at executing its “One Strategy, One Microsoft” vision, Val Wright, principal at Val Wright Consulting, told the E-Commerce Times.

“Executives’ and employees’ pay will now be linked to team and company goals rather than personal goals,” Wright noted. “You can’t have a rewards program that incentivizes individual performance in an organization that requires gargantuan cross-group collaboration.”

As an added bonus, Wright added, “managers get 20 percent of their time back in May, June and July, as there are no more wasted calibration meetings.”

Microsoft will also get a positive PR boost from the move, David Johnson, CEO of Strategic Vision, told the E-Commerce Times.

“Stack ranking had received bad reviews from former employees and in the media,” he said. “It created a storyline that Microsoft does not need as it faces many questions and concerns regarding its future.”

Yahoo is now suffering a public relations nightmare for putting in place a similar system, he added.

Executing an Exit

Microsoft is not completely home-free with this move, though, according to Wright; rather, the company needs to execute its exit from the system carefully if it wants something new to succeed.

“The top performers may leave,” she predicted. “Exceptional performers are high-maintenance. They need constant positive reinforcement and feedback, and now that they are losing their gold medal they may look elsewhere for recognition and personal affirmation of their success.”

Wright’s advice to managers at Microsoft: Give employees clear goals that drive team and company results and make customers, profits and products the focus of discussion with employees — “not jostling and jockeying for your own benefit.”