Time to Yank ‘Stack Ranking’?

The so-called “rank and yank” or “stack ranking” system of employee review may be going the way of the gold watch and Roman Gladiator.

Microsoft Corp. recently announced it was abandoning the controversial employee review and compensation system that pits employees against each other.

The  system required managers to grade employees against one another and rank them on a numerical scale.  Those on the bottom of the ranking were considered under-performers and vulnerable to dismissal.  The rankings also were used to mete out promotions and bonuses.

Microsoft dumped the numerical rankings earlier this month in favor of more frequent and qualitative employee evaluations.

The complete absurdity of the system was pointed out by some of Microsoft’s 100,000 employees  in a Vanity Fair article in August 2012 (that apparently no one at Microsoft read?)  Employees complained the system was cruel and resulted in capricious rankings, power struggles among managers, and unhealthy competition among colleagues.

According to the Vanity Fair article:  “Every current and former Microsoft employee I interviewed—every one—cited stack ranking as the most destructive process inside of Microsoft, something that drove out untold numbers of employees.”  A former software developer was quoted as stating, “ “It leads to employees focusing on competing with each other rather than competing with other companies.”

The problem with the system was that the so-called under-performers were not necessarily under performing.  Microsoft superstars did everything they could to avoid working alongside other top-notch developers, out of fear that they would be hurt in the rankings. Meanwhile, top talent fled to Google, Facebook and various start-ups and Microsoft lost competitive advantage.

The stacked ranking system became popular in the 1980s when General Electric Co. Chief Executive “Neutron” Jack Welsh enforced the system.  He claimed it was not cruel to remove the bottom 10 percent of employees in a stack ranking review because they could move on to be successful elsewhere.

By 2012, 60% of Fortune 500 firms used the stack ranking system of review.  However, a 2011 study by the Institute for Corporate Productivity found that the number of companies using forced ranking fell from 49% in 2009 to 14% in 2011.