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re: Microsoft Abandons ‘Stack Ranking’ of Employees

by Mike Beek on November 13, 2013

I just read an article in today’s Wall Street Journal that reflects what I think about employee reviews that use the ‘stack ranking’ or ‘forced ranking’ system.

In case you don’t know what that is, let me quickly describe it to you.

It’s a model that instructs managers to rate their employees’ performance so that they fall along a bell curve. That means that there will be a small percentage of employees, say 10% that are ranked at the high end of the curve and 10% who fall at the low end of the curve. All of the other employees fall somewhere in between those bookends.

In my mind, I don’t think this is really fair to the employee nor an accurate representation of their individual performance.

I can remember an incident when I was a director at Oracle Corporation starting up a new business group that had been formed to sell their brand new accounting application suite…

At the first 6-month point they told me to fire my ‘lowest performing’ employee. The team was just getting started and the product suite wasn’t really mature enough to easily convince Oracle’s customers to buy at that time. Nevertheless, I had to make a difficult and very uncomfortable decision—essentially, flip a coin and let someone go.

Oracle was following the ‘fire your lowest 10% performers’ model that had been popularized by Jack Welch when he was the head of GE. This meant that you had to use a forced ranking, or ‘stack ranking’ model when doing reviews.

During my time over the last 8 years helping employers implement our employee performance management system, Appraisal Smart, I have run into a handful of companies that still follow this model. Fortunately, the vast majority believe you should rate each employee on their own merits—not force them into the bell curve.

Maybe that’s because we target the small-to-medium size organizations where they value the contribution of each employee. And, when an employee is underperforming, they put them on a special track to help them focus on the areas that need improvement. They don’t just arbitrarily fire a certain percentage of employees each year–that becomes very expensive and, in my mind, very unfair to the affected employees.

Another point brought up in the article is that Microsoft was “dumping the numerical rankings in favor of more frequent and qualitative employee evaluations.”

I do believe in frequent communication rather than waiting for the annual review meeting. That’s why I encourage my clients to encourage their managers to hold frequent meetings with their employees, especially when the manager believes the employee is underperforming in a given area.

They should also enter notes about each incident into the Performance Record Notes journal in the system, along with all the positive things the employee has done during the year. This journal is important memory-jogger when meeting with the employee at the end of their appraisal year.

But…

I don’t agree doing away with the numerical rankings.

Why?

Because they are very useful and important for several reasons. Among them are these:

  • If used correctly, they can help management easily spot where training and development for specific performance measures for specific employees needs to be targeted. This not only helps the organization, but it also helps the employees get to their next level.

    For instance, if Accuracy is an area that management believes needs improvement, they can see which employees have Accuracy as one of the performance measures they are rated on and which of those are underperforming in that specific area.

  • If used correctly, they can help management see which employees are potentially good candidates for promotion.
  • When looking across the organization, the metrics are invaluable in helping senior management view the overall performance of their human capital.

Without the metrics, these types of decisions take us back to the days of subjective rather than objective feedback about employee performance. This affects not only compensation, which is how most organizations use appraisals, but also the other important decisions involving employees.

Using Appraisal Smart as an example, since it’s the employee performance management system I’m most familiar with, we enable and encourage managers to:

  • not only rate the employee on a rating scale based on the performance standards for each performance measure,
  • but to also provide narrative feedback on why they rated the employee the way they did, and what would help the employee do better going forward.

I believe many decisions are actually a mix of the two. But, if you take the objective metrics off the table, you risk making good decisions.

Here’s the link to the original article: http://bit.ly/stack_ranking

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