Paul L. Caron

Thursday, November 14, 2013

Microsoft, GE Abandon 'Stack Ranking' of Employees -- No More 'Rank and Yank'

GEWall Street Journal, Microsoft Abandons 'Stack Ranking' of Employees:

Microsoft is abandoning major elements of its controversial "stack ranking" employee-review and compensation system, the latest blow against a once-popular management technique. 

The Redmond, Wash., software company said it would no longer require managers to grade employees against one another and rank them on a scale of one to five. The system—often called "stack" or "forced" ranking—meant a small percentage of Microsoft's 100,000 employees had to be designated as underperformers.

The rankings were a key factor in promotions and in allocating bonuses and equity awards under Chief Executive Steve Ballmer, who in August said he plans to retire within a year. But many current and former Microsoft employees complained the system resulted in capricious rankings, power struggles among managers, and unhealthy competition among colleagues.

Microsoft said Tuesday it is dumping the numerical rankings in favor of more frequent and qualitative employee evaluations. The change took effect immediately.

That makes Microsoft the latest in a series of companies to eliminate forced ranking, which was widely copied in the 1980s after rising to popularity at General Electric under Chief Executive Jack Welch. The system was often referred to as "rank and yank," because poor performers were encouraged to leave the company.

"Some think it's cruel or brutal to remove the bottom 10% of our people. It isn't," Mr. Welch wrote in his book, Jack: Straight from the Gut. "There is no cruelty like waiting and telling people late in their careers that they don't belong."

But GE has moved away from its numerical review system under Mr. Welch's successor, Jeffrey Immelt. Mr. Immelt prefers reviews that candidly tell an employee where they are not measuring up and what they need to do to improve, without rigidly adhering to certain percentages. ...

30% of Fortune 500 companies continue to rank employees along a curve, doing so under softer-sounding terms such as "talent management." For example, he says, a firm might mandate that only 10% of a supervisor's employees can rank in a top category and 2% must be in the bottom group. ...

Samuel Culbert, a professor at UCLA's Anderson School of Management, said annual reviews are a misuse of management's time, and are long overdue for a yanking at companies like Microsoft. "The boss's job is not to evaluate," he says. "The boss's job is to make everyone a five."

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So "stack and rack" is on the way out? The gubmint's Senior Executive Service will have to make changes--in ten years or so.

Posted by: Publius Novus | Nov 14, 2013 7:29:16 AM