Two tech companies are drawing attention lately for how they evaluate their employees, specifically for their use of a controversial system called stack ranking, which compares employees to each other. Microsoft used a system like this for years, but now says it’s making a change. This comes as Yahoo moves in another direction, putting in place a system that looks an awful lot like stack ranking, even if the company doesn’t call it that.
One way to gauge performance is to set goals and evaluate how well the employee matches up to them. But stack ranking compares workers against each other. Longtime GE GEO Jack Welch popularized it. At GE under Welch, employees who ranked at the bottom faced dismissal.
That may sound harsh to some, but it caught on. Welch’s opinion once held enormous sway in the business world, and during his reign, many companies adopted variations on the stack ranking he used at GE.
Management consultant Dick Grote is a former GE employee who wrote the book on what he prefers to call forced ranking. He says it works because it makes managers identify who’s great and who needs help. But even supporters like him admit the system has gotten a bad name over the years.
“Virtually no one uses that term forced ranking anymore,” he says. “That carries so much negative baggage.”
That includes criticism that it drives talent away and creates unhealthy competition, a kind of inter-cubicle Hunger Games.
“There is every incentive to try to backstab other people so that you would come out on top, because anyone’s loss could be your gain,” says David Auerbach, a former software developer at Microsoft who experienced stack ranking as an employee and manager.
Many inside and outside Microsoft say that system was the wrong way to go for a tech company, which requires teamwork to innovate. Those same voices fear a Yahoo move toward a similar performance evaluation regime would be a big mistake.
It’s worth noting that these kinds of evaluation systems aren’t just about keeping an eye on workers. Companies also use them because they worry their managers aren’t always doing their jobs in coaching talent. Systems push them along.
“If every manager was a perfect manager, you wouldn’t need a performance management system,” says Ed Lawler, director of the Center for Effective Organizations at University of Southern California’s Marshall School of Business, and a skeptic of stack ranking.
They aren’t perfect, of course, so performance reviews aren’t going away. And despite some criticism, stack ranking doesn’t appear to be either.