Tag: Rank and Yank

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.

 

Microsoft Brass Panned for “Stack Ranking”

An article in Vanity Fair attributes Microsoft’s “downfall”  in part to a widely used employee performance rating review system called “Stack Ranking.”

VF Contributing Editor Kurt Eichenwald said the  stack ranking system incentivizes employees to climb the corporate ladder – not to create new and innovative products.  He argues the stack ranking performance rating system has crippled Microsoft’s ability to innovate and contributed to its decline in the past decade.

Stack ranking, also known as forced-choice rating and “rank and yank,” is used by many leading American corporations to evaluate employee performance.

The concept involves ranking employees on a given team from “most valuable” to “least valuable.”  One technique is to ask: “if the team was on a sinking boat and we had to decide who we would put on the life-boats, who would be included?”

Employees essentially rank each other and their bosses on a zero to four scale –  four being the best. The person with the lowest average score may be given an opportunity to improve or escorted out the door. (That’s where “yank” comes in.)

The stack ranking system was touted by former General Electric CEO Jack Welsh who said corporations owe it to the bottom ten percent of their employees to let them know they have no future with the company.  It also is credited with forcing managers to make tough personnel decisions.

The problems seem obvious. What if all the performers in a given team are top performers relative to other employees in the company or field  – under the forced choice system, only one of these meritorious employees would receive an optimal rating. One potentially would be forced out.  Two would be rated as mediocre. Does this make any sense – especially for a company that wants to encourage innovation?

Not only that but stack ranking seems on its face to be unnecessarily brutal and  clumsy – the antithesis of a system that encourages teamwork.

Microsoft has been on notice since 2005 about the perils of the stack ranking system but  ignored the warnings.

According to a 2005 study of the stack ranking system at Microsoft by Stephen Gall of Walden University, stack ranking is the fourth most commonly used appraisal technique among the 75% of U.S. companies with performance appraisal programs. Gall said stack ranking should not be used to evaluate employees.

Gall said his research found that smart employees spend much of their time figuring out how to manipulate the performance review system to their least disadvantage – not working to innovate and improve the company.

Gall maintains that stack ranking provides questionable insight into an individual’s actual job performance. He says the rank number is most often based on an unsubstantiated subjective judgment by an evaluator who may feel pressured to respond according to a narrow set of guidelines.

Furthermore, Gall says stack ranking “highly politicizes an organization” and can lead to lawsuits.

If stack ranking is used, he says, stack ranking should be well documented using the 360 degree feedback method, where a variety of stakeholders provide input into the ranking based on objective (or using the least amount of subjective) criteria.

The Alexander Hamilton Institute Employment Law Center suggests proceeding carefully before rating employees as “poor performers.”

The following guidelines are suggested:

  •  Ensure that there sufficient evidence to support the claim that an employee’s performance is genuinely substandard, and that evidence is properly documented.
  • Ensure that there is no perceived or credible argument that any action or poor review can be viewed as retaliatory or discriminatory
  • Ensure fairness; Have other’s received such a rating (or been discharged) for similar circumstances?
  • Are, or can the ratings be confirmed by an objective third party reviewer?

All of which leads to the question – how can supposedly smart people, such  as those in charge of Microsoft, be so dumb?