Several very successful large companies do this as a matter of course. Are they successful because of, or in spite of, this practice? Profiling or stack ranking employee performance ratings has long been touted as an industry best practice to cultivate a higher performance-based workforce. GE, Pepsi, Microsoft and other Fortune 500 companies use this practice to identify and weed out low performers.
There are several benefits and consequences to using this approach. This approach works for some, but for others they see it as a constant pressure to perform above the rest. Since this practice works for some and doesn’t work for others, I have come up with benefits/challenges of implementing this type of ranking system. You decide if the benefits outweigh the consequences. Personally, I feel like this could be a good thing – only if implemented properly and without forced pressures.
Benefits
Retaining High Performers. This is the obvious benefit of employee stack ranking. This type of system allows employers to rank each employee based on performance and find out who is working the hardest and ultimately performing above the rest. Once you identify these employees you can take steps to prevent them from leaving your company or being recruited elsewhere. Better assignments, development opportunities, mentorships, and appropriate compensation are all tools you can use to help retain the high performers once you know who they are.
Tracking Employee Ratings. Performance ratings have a long history of being undervalued and not appreciated. Managers have looked at giving performance ratings as a awful task and they try to avoid it at all costs. Profiling or stack ranking prevents managers from assigning averages or above average ratings across the board. It forces them to actually compare employee’s performance and identify the high and lower performers that reflect the ranking.
Challenges
Individual Competitiveness. Although competition is encouraged in most workplaces to get the best out of their employees, implementing employee stack rankings might detour a group of individuals from working as a team. This can be detrimental when big projects require teamwork and good team dynamics. You will have individuals competing and not working as a team, which can kill a project. Employee stack ranking doesn’t leave much room for employees to work in a cohesive team environment.
Retention of Corporate Information. If every year you are firing the bottom 10% of your workforce because of low performance, over time you not only raise the bar for performance standards, you continue to lose corporate knowledge. Training employees over and over costs a company time and money and in the long run it’s worth helping and developing current employees to performance better. Employee stack ranking doesn’t allow for this type of development. You’re either a high performer or you lose your job.
Employee stack ranking doesn’t necessarily have to be the method in which you rate employees. Other methods such as training managers around performance on specific competencies has worked well for several Fortune 500 companies and doesn’t put the pressure on employees to perform individually.
Is Employee Stack Ranking a Good Thing?
How does your company rank employees? Do they practice employee stack rankings or another method?
4 Comments
When you mentioned Microsoft as an example of stack ranking, that rang a bell. And sure enough:
“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. “If you were on a team of 10 people, you walked in the first day knowing that, no matter how good everyone was, 2 people were going to get a great review, 7 were going to get mediocre reviews, and 1 was going to get a terrible review,” says a former software developer. “It leads to employees focusing on competing with each other rather than competing with other companies.”
[…]
Outcomes from the process were never predictable. Employees in certain divisions were given what were known as M.B.O.’s—management business objectives—which were essentially the expectations for what they would accomplish in a particular year. But even achieving every M.B.O. was no guarantee of receiving a high ranking, since some other employee could exceed the assigned performance. As a result, Microsoft employees not only tried to do a good job but also worked hard to make sure their colleagues did not.
“The behavior this engenders, people do everything they can to stay out of the bottom bucket,” one Microsoft engineer said. “People responsible for features will openly sabotage other people’s efforts. One of the most valuable things I learned was to give the appearance of being courteous while withholding just enough information from colleagues to ensure they didn’t get ahead of me on the rankings.”
http://www.vanityfair.com/business/2012/08/microsoft-lost-mojo-steve-ballmer
Doesn’t sound like much of a recommendation to me.
Eric,
I think stack ranking can be extremely valuable. It’s important to evaluate the performance of your employees and where they fall in comparison to one another. Working in retail we did this for our manager candidates before they received an offer to become assistant or store manager. Their potential boss saw the rankings and could bypass if there was a certain employee they wanted to work with more than another. With teams it’s sometimes not just about their performance as part of a ranking system, it’s about how the collaborate together and elevate one another. I think, that where the employee falls is probably best kept confidential among managers as it’s likely that these employees will have to work together and while I think competition is healthy not every employee responds to their ranking with the same type of gusto.
As for Greg, I’ve never worked at Microsoft so I can’t speak to their process, but sometimes succession planning and development because more about the process than the actual employee. Maybe this was one of those times.
Thanks for the post. It’s a topic that doesn’t get discussed enough.
JMM
Stacking often poorly motivates the top-performers (those who are extraordinary individual contributors, spectacular team players, AND inspiring leaders), because these programs generally do not reward them for the magnitude of impact they have on the organization. This is especially true of top-performers at lower levels within an organization, because they are not being comprehensively evaluated.
All skills and qualities which are important, including collaboration skills and quality, should be factors considered in the performance evaluation. When I am performing due diligence on a company or evaluating its operational performance in conjunction with developing as strategic plan or exit plan, I typically find the target or client’s performance management system to be poorly conceived. Goals and metrics are not aligned to the corporate goals and/or do not measure the factors that will drive both company and individual success. In such companies, the managers and employees typically dread the performance review process. Yet, in companies in which factors that truly matter are being measured and review are done at appropriate points in time, most perceive the review process as a helpful coaching and recalibration of alignment to company goals.
For personable low performers with a good work ethic, it may be more more cost-efficient to understand why that person is a low performer, then re-train in field for which the person has high aptitude and redeploy the employee should there be a open role within the organization which would be a good fit.
Eric,
Great article. You’ve presented a refreshing viewpoint on a topic that can evoke such visceral reactions. Stack ranking is not evil – it’s the companies that label their slash and burn employee population and cost control measures by the same monicker.
For your readers interested in how to begin to conduct a stack ranking exercise that focuses on the positive, such as employee satisfaction and productivity, I’ve created a blog post that includes a freely downloadable excel-based stack ranking tool. More information at http://www.mlynn.org/2012/06/zen-and-the-art-of-stack-ranking-with-excel/.
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