Skip to main content

Stack-ranking out now: How Microsoft lost a decade

Stack-ranking or forced rating or bell-curving are some of the pet words of HR leaders and Business leaders especially closer to appraisal time. Jack Welch used it to make GE competitive and fit to outperform their own benchmarks! GE had become fat and lazy and had businesses diversified from washing machines to Jet engines. Forced ranking or his 20/70/10 "differentiation" became mantra for weeding out bottom 10 percent of the stack.
The bell-curve ranking system was popularized by GE Chief Executive Jack Welch back in the 1980s being used by many companies, but some of them have dropped it in the last years, including Adobe and Expedia. The main idea of the system is that a company’s employees performance follows a bell-curve, having a small percentage of high performers, a large number of average performers and, at the lower end, another small percentage of underperformers. The system would be used to find and get rid of underperformers in order to improve the overall performance of the workforce and resulting in a smaller standard deviation which corresponds to a more homogeneous company.

Pressure to perform, if maintained below a certain level, can lead to higher performance. However, as the lay-offs take place, constant pressure demoralizes employees, leading to drop in performance. As the bottom performers depart, the rigid distribution of the bell-curve forces managers to categorize a high performer (when compared to the rest of the labor market) as a mediocre. A high performer, unmotivated by such artificial demotion, behaves like a mediocre. Further, in a shrinking company, managers find it difficult to differentiate employees. As a result, they begin to reward visible performance over the actual. Beyond a certain point, the erosion of social capital has the potential to cripple the company.

As the Seattle Times reported, Lisa Brummel, Microsoft’s head of human resources, wrote in a Nov. 12 e-mail to employees:
"No more curve. We will continue to invest in a generous rewards budget, but there will no longer be a pre-determined targeted distribution. Managers and leaders will have flexibility to allocate rewards in the manner that best reflects the performance of their teams and individuals, as long as they stay within their compensation budget."
The stack ranking system was put in place for Microsoft's 2011 performance reviews. Employees received one rating based on their manager's assessment and a calibration process (typically with managers one or two levels above the employee). The rating ranged from 1 (highest) to 5 (lowest). A 3 rating equaled target compensation that was competitive with what was offered in the local job market. Targeted distribution limits the percentage of workers in each rating category.
Stack ranking is still championed at many companies, and in particular at technology firms. Nevertheless, critics refer to it derisively as "rank and yank," meaning that employees who end up in the bottom ranks are often fired or encouraged to leave.
"If you are hiring competent people, what does it say about an organization when 10 percent of those people fail each year?" management consultant Aubrey Daniels commented to SHRM Online. "Rank stacking is punishing to the rater and the ratee. It produces an environment where employees compete with each other more than with competitors in the marketplace."

However, in a Wall Street Journal op-ed published in the wake of Microsoft's announcement, former General Electric CEO Jack Welch, credited with popularizing stack ranking while running GE, defended the process—when it’s done right. "Most experienced business people know that 'rank and yank' is a media-invented, politicized, sledgehammer of a pejorative that perpetuates a myth about a powerfully effective real practice called (more appropriately) differentiation," Welch wrote.
One criticism of stack ranking specifically, and pay differentiation generally, is that it devalues teamwork. Welch responded: "Nonsense. If you want teamwork, you identify it as a value. Then you evaluate and reward people accordingly. You'll get teamwork; I guarantee it."

According to Cliff Stevenson, senior human capital researcher at the Institute for Corporate Productivity (i4cp), Microsoft is right to axe the policy. When i4cp asked companies in 2009 how many of them used stack ranking systems, 49% said yes. By 2011, only 14% used them.

The companies the researchers identified as high-performing had already moved away from the system. Only 7% of high-performing companies used stack ranking in 2009, and only 6% used it in 2011.

Every single one of the big Human Capital Management (HCM) software companies, from Oracle to CornerstoneOnDemand to SuccessFactors, uses ratings as the lynch pin of its platform. These ratings—of overall performance, and of the many competencies that apparently combine to create overall performance—are the raw material for everything else that the company does to and for its people. These ratings feed compensation. They guide succession planning. They pinpoint performance gaps and then trigger the necessary training and learning interventions. 

Stack-ranking as tool to keep people constantly compete against others colleagues is a reflection of competitive environment but that process of competition leaves back many looser, many demotivated, many conspiring and self-promoting, leading to 'save job' culture which is highly safety focused than innovation and performance focused. It is actually cannibalistic. 

Need is to treat performance and reward separately and not mistake sense of fear for drive to perform!

Comments

  1. Best form of education system is the gurukul system where knowledge is paramount then anything else. The British type of education has divided people and all those who are talented have to play a role of a mediocore as the show of strength is deemed as competition to the Leader so however merit the guy is he has to function as asshole to hold on to the job.

    In government service in the 1980's all Asst Engineer' s promotion and transfer were done on the recommandation of AEE's now for any transfer or promotion meet the MLA of the area and the concerned Minister in some cases CM, people have to grease that many people and the magnitude of corruption has increased beyond anyone's imagination.
    IAS was a prestiageous post to hold in the British India and for the most part of Independent India, only in the last decade the image has been tarnished to a great deal by corruption problems and also the new breed of IT Czars who call the shots.

    The truth and honesty at work place was the moral of the day, but in the 21st century we have lost this in pace of growth and more money that is available to young Engineer's. Not that there were no dishonest people in the 1940's or early independent India but the numbers were far less, expectations were minimum now that has skyrocketed, and we have become westerners then moderners, modernation is more of growth but western ideas are change in culture.

    Coming to the bell curve and the 70:20:10 profile of medium, high and low performing people. Suppose you take a great company like GE, if they hire someoen to work in there company the guy has to be great and he has to be from a competitor and has all the qualification for getting shortlisted for an interview and finally for an offer, if there proccess is right uptil the guy gets hired, then how does this "A" player who gets shortlisted for an offer becomes a "C" player during the course of his stay in the company??

    In my opinion the guy who is "A" Player turns into "C" Player during the course of his stay in GE that means he becomes useless after he joins GE. Therefore the problem is not with the guy that he becomes "C" Player in GE and not otherwise, who should be blamed for this state of affairs. If the employee is punished for this state then the company should also be punished for turning a "A" player to a junk player.

    What is there that makes a player A into a player C??
    How do we make people perform to the expected lines, can we put him into training - both on the job and off the job, do also measure his motivation level at work, we also need to know if he is due for a promotion, Do we have a higher position for him if he qualifies for the job, the supervisor that he is reporting is he/she qualified for the job. Do we think the supervisor the cause and the reason for this level of motivation??? If that is the cause what can we do about it..sounds more standard test conditions, can it be replicated in the real circumstances.

    ReplyDelete

Post a Comment

Popular posts from this blog

What is The Hay Group Total Reward Framework

The Hay Group Total Reward Framework A new way of understanding reward Reward strategies must be anchored in business reality to be effective. Which means linking it to your business strategy – and the needs of your employees as well as your organisation. Our Total Reward Framework helps you optimise reward, no matter how challenging the conditions. The issue Remuneration tends to be one of the worst-managed parts of an organisation’s cost structure. But with 10-70 per cent of total costs wrapped up in it, reward cannot be ignored, particularly in a downturn. To be effective, reward programmes must reflect the needs of the business, now and in the future. Only if they are tied closely to company strategy, business performance and the needs of employees can reward programmes deliver the ROI that is needed in tough times[MK1] . The Hay Group Total Reward Framework takes strategy as a starting point – and it focuses on total reward: every financial measure together with no

Aon Hewitt Total Rewards Framework

Aon Hewitt Total Rewards Framework The Aon Hewitt model and approach believes in considering Total Rewards as a business tool and very much linked to overall business objectives! Reward as understood is a very complex mechanism and some efforts of correcting the base pay and titling in a hurry by many MNCs in India have done a bigger crime by trying to correct it by market adjustments without looking at the talent map, complexity and expectations out of role and mapping it against the benchmark. Titles in India are a big misnomer and hardly any survey on compensation ever probes and captures and calibrates the tangible outcome based bench marking! If we dive deep, we will find that the key factors of Education, Experience and Quality of Education, Quality and relevance of experience and education are not calculated granular! A diploma holder technical manager gets the salary benchmarked for the top T-school manager with top quality experience in a challenging and break-through

Well-known interviewing technique “laddering,” the Means-End Chain!

Courtesy HBR article...  The 30 Elements of Consumer Value: A Hierarchy (hbr.org) Understanding Consumer Decision-Making with Means-End Research - Rockbridge (rockresearch.com) Many of the studies involved the well-known interviewing technique “laddering,” which probes consumers’ initial stated preferences to identify what’s driving them In our research we don’t accept on its face a consumer’s statement that a certain product attribute is important; instead we explore what underlies that statement. For example, when someone says her bank is “convenient,” its value derives from some combination of the functional elements  saves time,   avoids hassle,   simplifies,  and  reduces effort.   We have identified 30 “elements of value”—fundamental attributes in their most essential and discrete forms.  These elements fall into four categories: functional, emotional, life changing, and social impact. Our model traces its conceptual roots to the psychologist Abraham Maslow’s “hierarchy of needs,