Companies & Industries

Microsoft Kills Its Hated Stack Rankings. Does Anyone Do Employee Reviews Right?


Microsoft CEO Steve Ballmer at the opening of new Microsoft headquarters in Berlin, Germany on Nov. 7

Photograph by Britta Pedersen/dpa via AP Photo

Microsoft CEO Steve Ballmer at the opening of new Microsoft headquarters in Berlin, Germany on Nov. 7

At the same time that Yahoo (YHOO) was taking heat for adopting a new system that forces managers to rank workers on a curve, Microsoft reportedly decided to back away from its own practice of so-called stack rankings.

Microsoft (MSFT) has been known as the ur-example of pitting employees against one another in an attempt to reward the excellent and weed out the weak, which gained widespread popularity in the 1980s after then-Chief Executive Jack Welch brought the ranking system to General Electric (GE). The problem is workers generally aren’t thrilled about having to play Game of Thrones at the office. David Auerbach, a former Microsoft employee, recently told Bloomberg Businessweek that the practice had employees feeling helpless and “encouraged people to backstab their co-workers.”

Microsoft’s move is a sign of the times. As I wrote earlier this week, corporate America has largely lost confidence in management programs that jam employees onto bell curves:

“Basically, many people have lost faith that ranking employees works, and some research suggests that employee performance doesn’t follow a bell curve at all. Instead, most people are slightly worse than average (pdf), with a few superstars. And while a bit of pressure can motivate people, constantly pitting employees against one another is terrible for morale. In a company that is going through layoffs, this gets worse over time (pdf), wrote several MIT professors in a study of forced rankings in 2006. ‘As the company shrinks, the rigid distribution of the bell curve forces managers to label a high performer as a mediocre. A high performer, unmotivated by such artificial demotion, behaves like a mediocre.’”

Expedia (EXPE) got rid of its long-standing rankings system last year in what it described as an effort to rehumanize the relationship between employees and their bosses. “We wanted performance management to be less ‘event-oriented’ and to be something that manager and employees engage in as a regular part of how they do business together—not a look back at last year and assigning a grade to it,” wrote Connie Symes, the company’s executive vice president for human relations, in an e-mail. She says that a majority of employees like the new system better.

Adobe Systems (ADBE) dropped performance reviews altogether last year, after noticing an uptick in employees leaving right after the annual round of meetings. It was certainly a bonus that doing so immediately cut out 80,000 hours of work each year, but the company said that the whole idea of performance review seemed antiquated. ”The business all around was changing, but the mechanisms to manage and support our employees were stuck in a time warp,” Donna Morris, head of the Adobe’s HR department, told Human Resources Executive.

But Dick Grote, who literally wrote the book on forced rankings, notes that abandoning something that has proven unpopular is easier than replacing it. Employers still need to figure out who is doing well. “What we’re left with is a problem. It’s important that people’s performance be evaluated so they know where they stand,” he says.

The desire for a change is good news for Grote, who runs a performance-management consultancy: He just signed a contract with McGraw-Hill (MHP) to write a book about the way forward.

Brustein is a writer for Businessweek.com in New York.

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