‘Stack ranking’ employee eval practice falls out of favor

Microsoft’s abandonment of its so-called “stack ranking” method of evaluating employees should not come as a surprise, a human resources expert said today.

“Forced ranking does appear to be out of favor,” Kerry Chou, a senior practice leader at WorldatWork, an association of human resources professionals, said in an interview. “More organizations are ending the practice where you have to have, for example, 10% or 5% of all employees in the lowest-ranked category.”

On Tuesday, Microsoft’s head of human resources, Lisa Brummel, told employees that the company was ditching its former method of ranking workers. Long called “stacked ranking” — but which Chou termed “forced ranking” — the management practice required team leaders to assign a set percentage of their team members to each of five categories, including top and bottom rankings.

As at most companies, people who received the highest rankings were usually given promotions and awarded bonuses. On the other hand, people who got the lowest rankings usually were pushed out of the company or chose to leave of their own accord.

By all accounts, the stacked ranking system was widely disparaged by employees, and was blamed for Microsoft’s cutthroat culture, which pitted workers and teams against one another. According to outside analysts, the competitive climate often limited or slowed Microsoft’s inability to innovate, or even to keep pace with rivals like Google and Apple in areas such as search and tablets, because more energy was spent on in-fighting with other teams — or even actively sabotaging their efforts — than in moving Microsoft forward.

One oft-cited example was Microsoft’s decision to not sell an iPad-specific version of Office, a move many believed resulted from the Windows group overruling the Office team in the debate in order to boost its chances of meeting goals, and thus receiving bonuses and promotions.

This summer, CEO Steve Ballmer began to reorganize Microsoft, and one of the goals was to improve collaboration among teams. At the time, Ballmer said that stacked ranking would remain.

But in an email to employees this week, Brummel said, “We are changing our performance review program to better align with the goals of our One Microsoft strategy,” using Ballmer’s label for the strategic pivot to device and services, and the ensuing reorganization. “This is a fundamentally new approach to performance and development designed to promote new levels of teamwork and agility for breakthrough business impact.”

Forced ranking was never as common as many thought, said Chou. A recent survey conducted by WorldatWork, for example, found that the practice was used at just 12% of U.S. companies.

A much larger percentage of businesses — approximately 30% — used “forced distribution,” in which companies either strongly urged — and in some cases required — managers to put workers into category “buckets.”

The terms “stacked ranking,” “forced ranking” and “forced distribution” are often used interchangeably, said Chou, but the first two actually more properly refer to the practice of comparing all employees to all other employees, not just to those within each team.

“When I think of forced ranking, I think of a specific process where it’s really across the entire organization, where everybody is against everybody else,” said Chou.

Critics of Microsoft’s performance management system, including past employees and managers, often cited the unfairness of the practice, saying that they were forced to put some team members into the lowest-ranking bucket, even though they considered them superior to even the best in other teams.

“Think of the situation applied to Harvard’s students,” said Chou, coming up with an example. “Someone at Harvard has to be the worst Harvard student, but that person is probably still better than those at most public institutions. But [in forced ranking] someone has to be at the bottom.”

But the tendency for managers to believe that their employees are better than those on other teams is not only widespread, but natural and understandable, said Chou.

“Managers know their own employees better than those [outside their teams],” said Chou. “In many cases, they’ve hired them personally. So it’s natural for them to think their own [workers’] functions are the most important, and thus their own [personal] functions are the most important.

“In forced ranking, there’s always a tendency to rate more of their employees above average,” Chou added, referring to managers’ evaluations. “If it goes unchecked, more and more will be above average.”

And then what’s the point of an evaluation when, as in Garrison Keillor’s Lake Wobegon, “all the children are above average?”

In fact, Chou said, forced ranking and/or forced distribution practices are sometimes implemented by companies to dampen that tendency — to instill what he called more management “discipline” in evaluating employees. Some companies implement it thinking that it will be only for a while, and that they will ease up on the dog-eat-dog practice once they feel like the performance evaluations are where they should be.

Chou called forced ranking “on an extreme” end of management philosophies, and said that was one reason why it was losing favor. “Some of those people [who once used it] are now saying that the benefits they got from it were outweighed by the cultural cost,” said Chou.

Stack or forced ranking is not inherently bad, or as some have claimed, evil, Chou countered. Its success, like any practice, requires managers to buy into the practice. “Every [evaluation] method has advantages and disadvantages,” he said. “But it’s important in most organizations to identify those who are really moving the needle” and then reward them.

“We do see evidence that its popularity is waning, and see more companies moving away from it or thinking about moving away from it,” said Chou. “In Microsoft’s case, apparently the cost of doing this outweighed the benefits they thought they were getting.”

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter, at  @gkeizer, and on Google+, or subscribe to Gregg’s RSS feed . His email address is gkeizer@computerworld.com.

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