Why companies practice 'stack rating'

A job seeker gives her resume to a recruiter in San Francisco, Calif.

Jeff Horwich: Speaking of jobs: The other day on its website Vanity Fair previewed an article about life at Microsoft. And it details a particular human resource practice that drove employees up the wall: something called "stack rating."

So "stack rating" this week has become kind of a trending term -- and here to help us with it I've got Brenda Ellington-Booth -- she's at the Kellogg School of Management at Northwestern University. Thanks for your time.

Brenda Ellington-Booth: My pleasure.

Horwich: So at Microsoft, it sounds like, it operated kind of like a quota system: a small number of employees were to be rated great; a much larger number were rated mediocre; and a certain number had to be rated poor. I can see why employees might not be crazy about that, can you?

Ellington-Booth: Absolutely. A lot of this just has to do with the population of employees that you hire. If you're trying to hire the best people, and there's only a small percentage of people at that very top, then you have people who are working really, really hard that are very talented, and it's almost like slicing an eyelash in terms of who makes it and who doesn't.

Horwich: How widespread is it?

Ellington-Booth: It kind of ebbs and flows. I think when you have a bad economy, it comes back, because it's a way to weed people out. And then people feel kind of the backlash of it, and then it goes away, and then it comes back. And so right now, I think it's a bit on the rise because companies are feeling pressure to have to be very specific about hiring and rewarding only a limited amount of people -- and letting people go, if you will.

Horwich: Now I've also heard stack rating defended on budget grounds, saying that you can't give raises to everybody and we have to preserve our budget.

Ellington-Booth: Yeah, and that is definitely a reality; you have to figure that out. I think where people, employees feel a lot of bad feelings about it is, HR/senior management comes up with, you know: we're going to do the top 10 percent, and only the top 10 percent are going to get the bigger raises and everyone else gets nothing, or very little. People feel that is out of their control, and it feels rather arbitrary.

Horwich: Brenda Ellington-Booth at Northwestern University's Kellogg School of Management. Thank you very much.

Ellington-Booth: Thank you.

About the author

Jeff Horwich is the interim host of Marketplace Morning Report and a sometime-Marketplace reporter.

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